UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2015

OR

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 000-27023

ACCEL BRANDS, INC.
(Formerly - ACCELPATH, INC.)
(Exact name of registrant as specified in its charter)

Delaware |  | 45-5151193
(State or other jurisdiction of incorporation or organization ) |  | (IRS Employer Identification No.)

137 National Plaza, Suite 300 National Harbor, MD 20745
(Address of principal executive offices and zip code)
240-273-3295
(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 filed 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 (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes X No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X .

As of May 20, 2015, there were 794,186,045 shares of common stock, $0.001 par value, of the registrant issued and outstanding.

FORM 10-Q

TABLE OF CONTENTS

March 31, 2015

|  |  | Page
PART I. – FINANCIAL INFORMATION: |  | 3
Item 1. | Financial Statements |  | 3
| Consolidated Balance Sheets at March 31, 2015 and June 30, 2014 |  | 3
| Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014 |  | 5
| Consolidated Statements of Operations for the Nine Months Ended March 31, 2015 and 2014 |  | 6
| Consolidated Statement of Changes in Stockholders’ Deficit for the Period of June 30, 2014 through March 31, 2015 |  | 7
| Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014 |  | 8
| Notes to Interim Financial Statements |  | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 22
Item 3. | Quantitative and Qualitative Disclosure about Mark Risk |  | 27
Item 4. | Controls and Procedures |  | 28
PART II – OTHER INFORMATION |  | 29
Item 1. | Legal Proceedings |  | 29
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 29
Item 3. | Defaults upon Senior Securities |  | 29
Item 4. | Mine Safety Disclosures |  | 29
Item 5. | Other Information |  | 29
Item 6. | Exhibits |  | 30
SIGNATURES |  |  | 31

STATEMENTS CONTAINED IN THIS FORM 10-Q, WHICH ARE NOT HISTORICAL FACTS CONSTITUTE FORWARD-LOOKING STATEMENTS AND ARE MADE UNDER THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY THESE STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY", "WILL", "EXPECT", "ANTICIPATE", "BELIEVE", "ESTIMATE", "CONTINUE", AND SIMILAR WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q ARE BASED ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF, AND WE ASSUME NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. EACH FORWARD-LOOKING STATEMENT SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN PART I, ITEM 1, OF THIS QUARTERLY REPORT AND WITH THE INFORMATION CONTAINED IN ITEM 2, TOGETHER WITH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2014, INCLUDING, BUT NOT LIMITED TO, THE SECTION THEREIN ENTITLED "RISK FACTORS."

2

Accel Brands, Inc. (Formerly AccelPath, Inc.)

Balance Sheets

|  |  |  | March 31 |  | June 30
|  |  |  | 2015 |  | 2014
|  |  |  | (Unaudited) |  |
Assets |  |  |  |
| Current assets |  |  |  |
|  | Cash and cash equivalents | $ | 4,109 | $ | 26,640
|  | Accounts Receivable |  | 29,617 |  | -
|  | Inventory |  | 190,325 |  | -
|  | Note Receivable |  | 35,000 |  | -
|  | Deferred Financing costs |  | 206 |  | 1,470
|  | Other Current Assets |  | 34,352 |  | -
|  | Total current assets |  | 293,610 |  | 28,110
| Non-Current assets |  |  |  |
|  | Property and equipment - net |  | 45,258 |  | 59,598
|  | Other Capitalized costs |  | 49,130 |  | -
|  | Investment in Unconsolidated Subsidiary |  | - |  | 1,039,074
|  | Goodwill |  | 4,279,861 |  | -
|  | Total non-current assets |  | 4,384,429 |  | 1,098,672
|  | Total assets | $ | 4,667,859 | $ | 1,126,782
Liabilities and Stockholders' (Deficit) |  |  |  |
| Current Liabilities |  | - |  | -
|  | Accounts payable | $ | 1,261,579 | $ | 1,261,579
|  | Accrued expenses |  | 1,635,491 |  | 406,593
|  | Accrued compensation |  | 351,555 |  | 371,555
|  | Accrued Dividends |  | 77,110 |  | -
|  | Liability for restricted common shares to be issued |  | 55,000 |  | -
|  | Derivative Liability |  | 901,387 |  | 66,962
|  | Amounts due to Management of Consolidated Subsidiary |  | 334,898 |  | -
|  | Current portion of notes payable- net of discounts of $178,460 and $126,722 at March 31 , 2015 and June 30, 2014 , respectively |  | 868,831 |  | 647,448
|  | Non-convertible debt- current |  | 481,684 |  | -
|  | Total current liabilities |  | 5,967,534 |  | 2,754,138
|  | Long-term portion of non-convertible debt |  | - |  | -
|  | Other Long Term Obligations |  | 8,500 |  | -
|  | Total Non-current Liabilities |  | 8,500 |  | -
|  | Total Liabilities |  | 5,976,034 |  | 2,754,138
| Stockholders' (Deficit) |  |  |  |
|  | Preferred stock- Series E 5% Convertible; stated value $1,000 per share; -0- issued and outstanding at March 31 2015 and June 30, 2014, respectively |  | - |  | -
|  | Preferred stock- Series F Convertible; stated value $1,000 per share; 90 shares issued and outstanding at March 31, 2015 and June 30, 2014, Liquidation preference, $90,000 |  | - |  | -
|  | Preferred stock- Series G Convertible; stated value $1,000 per share; No shares issued and outstanding at March 31, 2015 and June 30, 2014 |  | - |  | -
|  | Preferred stock- Series H Convertible; stated value $1,000 per share; 51 shares issued and outstanding at March 31, 2015 and June 30, 2014 |  | - |  | -
|  | Preferred stock- Series I Convertible; stated value $1,000 per share; -0- and 3,500 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively. Par value $.001, 3,500 shares authorized |  | - |  | 4

3

|  | Preferred stock- Series J 10% Convertible; stated value $1,000 per share; 1,525 and -0- shares issued and outstanding at March 31, 2015 and June 30, 2014. Par value $.001, 3,500 shares authorized. Liquidation preference of $1,525,000 at March 31, 2015 |  | 2 |  | -
|  | Preferred stock- Series K 10% Convertible; stated value $1,000 per share; 750 and -0- issued and outstanding at March 31, 2015 and June 30, 2014, respectively. Par value $.001, 3,500 shares authorized. Liquidation preference of $750,000 at March 31, 2015 |  | 1 |  | -
|  | Common stock, $0.001 par value, 9,950,000,000 shares authorized; 685,019,378 and 16,485,064 issued and outstanding at March 31, 2015 and June 30, 2014, respectively |  | 685,019 |  | 16,485
|  | Additional paid-in capital |  | 11,580,282 |  | 8,537,314
|  | Accumulated Deficit |  | (13,270,130) |  | (9,979,082)
|  | Total stockholders' (deficit) of AccelPath, Inc. |  | (1,004,826) |  | (1,425,279)
|  | Non-Controlling interest |  | (303,348) |  | (202,077)
|  | Total stockholders' (deficit) | $ | (1,308,174) | $ | (1,627,356)
|  | Total liabilities and stockholders' (deficit) |  | 4,667,859 |  | 1,126,782

4

Accel Brands, Inc. (Formerly AccelPath, Inc.)

Consolidated Statements of Operations

For the Three Months Ended March 31, 2015

(Unaudited)

|  |  | Three Months Ended March 31,
|  |  | 2015 |  | 2014
Revenues | $ | - | $ | 54,000
| Cost of Revenues |  | - |  | -
| Gross Profits |  | - |  | 54,000
Operating Expenses |  |  |  |
| Selling General and Administrative Expenses |  | 267,254 |  | (155,498)
Total Operating Expenses |  | 267,254 |  | (155,498)
Operating Income (Loss) |  | (267,254) |  | 209,498
Other Income (Expense) |  |  |  |
| Interest expense |  | (152,473) |  | (137,181)
| Loss on Conversion of Debt |  | - |  | -
| Derivative Liability Expense |  | (145,018) |  | -
| Adjustment to Fair Value of Derivative Liability |  | (155,395) |  | -
| Technology licensing Income |  | - |  | 3,024
| Total Other Income (Expense) - net |  | (452,885) |  | (134,157)
Net Income (Loss) |  | (720,140) |  | 75,341
Net income (Loss) attributable to non-controlling interest |  | 101,271 |  | -
Net Income (Loss) Accelpath, Inc. |  | (618,868) |  | 75,341
Deemed and cash dividends to Preferred Stockholders |  | (77,110) |  | (1,139)
Net loss applicable to Common shareholders | $ | (695,978) | $ | 74,202
Net loss per common share - basic and diluted | $ | (0.00) | $ | 0.02
Weighted average number of common shares outstanding |  |  |  |
| during the period/year - basic and diluted |  | 685,019,378 |  | 3,970,198

5

Accel Brands, Inc. (Formerly AccelPath, Inc.)

Consolidated Statements of Operations

For the Nine Months Ended march 31, 2015

(Unaudited)

|  |  | Nine Months Ended March 31,
|  |  | 2015 |  | 2014
Revenues | $ | 58,581 | $ | 162,000
| Cost of Revenues |  | 5,779 |  | -
| Gross Profits |  | 52,802 |  | 162,000
Operating Expenses |  |  |  |
| Selling General and Administrative Expenses |  | 710,617 |  | 557,025
Total Operating Expenses |  | 710,617 |  | 557,025
Operating Income (Loss) |  | (657,815) |  | (395,025)
Other Income (Expense) |  |  |  |
| Interest expense |  | (444,937) |  | (305,113)
| Loss on Conversion of Debt |  | (367,575) |  | (310,836)
| Derivative Liability Expense |  | (369,539) |  | -
| Adjustment to Fair Value of Derivative Liability |  | (21,123) |  | -
| Technology licensing Income |  | - |  | 9,525
| Total Other (Expense) - net |  | (1,203,174) |  | (606,424)
Net Income (Loss) |  | (1,860,990) |  | (1,001,449)
Net income (Loss) attributable to non-controlling interest |  | 101,271 |  | -
Net Income (Loss) Accelpath, Inc. |  | (1,759,718) |  | (1,001,449)
Deemed and cash dividends to Preferred Stockholders |  | (77,110) |  | (1,139)
Net loss applicable to Common shareholders | $ | (1,836,828) | $ | (1,002,588)
Net loss per common share - basic and diluted | $ | (0.01) | $ | (0.37)
Weighted average number of common shares outstanding |  |  |  |
| during the period/year - basic and diluted |  | 330,095,798 |  | 2,694,285

6

Accel Brands, Inc. (Formerly AccelPath, Inc.)

Consolidated Statements of Stockholders Deficit

For the Period of June 30, 2014 through March 31, 2015

(Unaudited)

| Preferred stock | Common Stock
| Series E | Series F | Series G | Series H | Series I | Series J | Series K | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Non- Controlling Interest in Subsidiary | Total Stockholders’ Equity (Deficit)
Balance, June 30, 2014 | $ - | $ 0 | $ - | $ - | $ 4 | $ - | $ - | 16,485,064 | $ 16,485 | $ 8,537,314 | $ (9,979,082) | $ (202,077) | $ (1,627,356)
Shares issued for conversion of debt | - | - | - | - | - | - | - | 608,833,551 | 608,834 | (50,547) | - | - | 558,287
Shares issued for 3a10 program | - | - | - | - | - | - | - | 59,697,000 | 59,697 | (25,345) | - | - | 34,352
Fractional shares issued for reverse split | - | - | - | - | - | - | - | 3,763 | 4 | - | - | - | 4
Write-down of Investment in Unconsolidated subsidiary | - | - | - | - | (4) | - | - | - | - | (1,039,071) | - | - | (1,039,074)
Issuance of Series J Preferred Stock | - | - | - | - | - | 2 | - | - | - | 2,145,488 | - | - | 2,145,489
Accumulated net loss in Village Tea upon acquisition | - | - | - | - | - | - | - | - | - | - | (608,837) | - | (608,837)
Issuance of Series K Preferred Stock | - | - | - | - | - | - | 1 | - | - | 2,089,551 | - | - | 2,089,552
Accumulated net loss in STI upon acquisition | - | - | - | - | - | - | - | - | - | - | (922,493) | - | (922,493)
Minority Gain (loss) in results of operations from consolidated subsidiaries | - | - | - | - | - | - | - | - | - | - | - | (101,271) | (101,271)
Dividends Accrued on Series J and Series K Preferred stock | - | - | - | - | - | - | - | - | - | (77,110) | - | - | (77,110)
| - | - | - | - | - | - | - | - | - | - | - | - |
Net loss | - | - | - | - | - | - | - | - | - | - | (1,759,718) | - | (1,759,718)
Balance, March 31, 2015 | $ - | $ 0 | $ - | $ - | $ - | $ 2 | $ 1 | 685,019,378 | $ 685,019 | $ 11,580,282 | $13,270,130) | $ (303,348) | $ (1,308,175)

7

Accel Brands, Inc. (Formerly AccelPath, Inc.)

Consolidated Statements of Cash Flows

(Audited)

|  |  | Nine Months Ended March 31,
|  |  | 2015 |  | 2014
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
| Net Income (Loss) Accel Brands, Inc. | $ | (1,759,718) | $ | (1,001,449)
| Adjustments to reconcile net loss |  |  |  |
| to net cash provided by (used in) operating activities: |  |  |  |
| Loss from Conversion of debt |  | 367,575 |  | 310,836
| Stock based compensation |  | - |  | 401,102
| Depreciation and amortization of property and equipment |  | 14,340 |  | 14,340
| Amortization of Deferred Financing Costs |  | 3,764 |  | -
| Amortization of note payable discount |  | 393,262 |  | 259,343
| Derivative Liability Expense |  | 369,539 |  | -
| Adjustment to Fair Value of Derivative Liability |  | 21,123 |  | -
| Amortization of Original Issue Discount |  | 247 |  | 6,444
| Accrued interest and legal fees issued for notes |  | 18,587 |  | 3,426
| Previously Accrued dividends converted to notes payable |  | - |  | 13,143
| Reduction in liabilities for issuance of common stock |  | - |  | 12,091
| Changes in operating assets and liabilities: |  |  |  |
| Decrease (increase) in accounts receivable |  | (29,617) |  | -
| Decrease (increase) in Inventory |  | (190,325) |  | -
| Decrease (increase) in Notes Receivable |  | (35,000) |  | -
| Increase (decrease) in Accrued Expenses and other liabilities |  | 1,228,898 |  | (387,692)
| Increase (decrease) in Accrued Compensation |  | (20,000) |  | -
| Cash expenditures for working capital items at consolidated subsidiaries |  | 18,133 |  | -
| Net cash provided by (used in) operating activities |  | 400,807 |  | (368,416)
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |
| Net working capital acquired in STI Signature Spirits Acquisition |  | (911,769) |  | -
| Net working capital acquired in Village tea Acquisition |  | 45,931 |  | -
| Net cash used in investing activities |  | (865,838) |  | -
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |
| Proceeds from issuance of notes payable, net of deferred financing costs |  | 442,500 |  | 369,000
| Net cash provided by financing activities |  | 442,500 |  | 369,000
Net (Decrease) in Cash |  | (22,531) |  | 584
| Cash - Beginning of Period/Year |  | 26,640 |  | 1,201
| Cash - End of Period/Year | $ | 4,109 | $ | 1,785
SUPPLEMENTARY CASH FLOW INFORMATION: |  |  |  |
Cash paid during the period/year for: |  |  |  |
| Interest | $ | - | $ | -
| Income Taxes | $ | - | $ | -
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
| Fair value of common stock warrants issued with convertible notes payable | $ | - | $ | -
| Fair value of beneficial conversion feature on notes payable | $ | - | $ | 369,000
| Debt discount recorded on convertible debt accounted for as a derivative liability | $ | 445,000 | $ | -
| Notes payable, accrued interest and other fees converted to common stock | $ | 221,786 | $ | -
| Preferred Stock- Series E converted to Notes payable, including accrued dividends of $-0- and $14,282, respectively for September 30, 2014 and September 30, 2013 | $ | - | $ | 114,282
| Cash dividend accrued on Preferred Stock-Series E | $ | - | $ | 1,138
| Change in Fair Value of Investment in Unconsolidated subsidiary | $ | ($1,039,074) | $ | -
| Common stock issued for 3a10 program | $ | 34,352 | $ | -
| Liquidation preference upon Issuance of Series J Convertible Preferred stock | $ | 1,525,000 | $ | -
| Liquidation preference upon Issuance of Series K Convertible Preferred stock | $ | 750,000 | $ | -
| Liability for restricted common shares to be issued | $ | 55,000 | $ | -
| Accrued Dividends issued on Series J Preferred stock | $ | 66,014 | $ | -
| Accrued Dividends issued on Series K Preferred stock | $ | 11,096 | $ | -

8

ACCEL BRANDS, INC. (Formerly - ACCELPATH, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED MARCH 31, 2015 AND 2013

(Unaudited)

1. OVERVIEW, CHANGE IN BUSINESS MODEL, NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Overview

Accel Brands, Inc. (formerly - AccelPath, Inc.) (the “Company”) includes the following entities:

Wholly-owned subsidiaries:

Accelpath LLC (“Accelpath”)

Genex (See Item 5- Other Information for more detail)

Majority Owned Subsidiaries:

Village Tea Distributors Company, Inc. (“Village Tea”) – 70% owned

STI Signature Spirits Group, LLC (“STI”) . -52% owned

Material Definitive Agreements

Village Tea

On October 16, 2014, Accel Brands entered into an Securities Purchase Agreement with the common stock and preferred stock shareholders (the “Sellers”) of Village Tea holding seventy percent (70%) of common stock and all the Series A Preferred Stock of Village Tea. Village Tea, is a provider of environmentally-friendly exotic teas sourced directly from growers throughout Asia and Africa. Combining exquisite taste with extraordinary health benefits, the Company plans to create a niche presence in the tea market and provide its products through leading health food retail chains, major retailers, specialty shops and its own outlets. Upon the closing of the transaction on October 24, 2014, Village Tea became a majority-owned subsidiary of Accel Brands. Accel Brands issued 1,525 shares of a newly designated series of convertible preferred stock to the Sellers, Series J. The Series J Preferred Stock has a stated value per share equal to $1,000, shall pay an annual dividend of 10% in cash or common stock, and shall be convertible at the holder’s option, subject to beneficial ownership limitations, into shares of the common stock of Accel Brands at a conversion price equal to eighty percent (80%) of the lowest closing bid price for the Common Stock during the thirty (30) trading days immediately preceding a Conversion Date. Accel Brands agreed to assume $538,500.00 worth of the debt obligations of Village Tea in connection with the Agreement.

The foregoing information is a summary of the Agreement involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of the Agreement, which is attached an exhibit. Please see our Form 8-K filed October 16. 2014 and related exhibits incorporated by reference in this report for more detail.

9

STI

On February 5, 2015, The Company entered into a Securities Purchase Agreement (the “Agreement”) with STI, and the members of STI (collectively referred to as the Sellers). Under the terms of the Agreement, the Sellers will sell 52.78 membership interests in STI, representing 52% of the outstanding membership units of STI (the “Majority Interest”), to the Company. In exchange for the Majority Interest, the Company shall issue shares of a newly created Series K preferred stock (the “Preferred Stock”) with a stated value of $750,000 and $55,000 of restricted common stock of the Company and will assume $485,516.53 worth of STI’s debt. Further, the Sellers shall be entitled to additional shares of Preferred Stock with a stated value of $2,250,000 pursuant to a three year earn out based on the number of units sold and booked by STI for each calendar year beginning the 2015.

The foregoing information is a summary of the Agreement involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of the Agreement, which is attached an exhibit. Please see our Form 8-K filed February 10. 2015 and related exhibits incorporated by reference in this report for more detail.

Change in Business Model and Nature of Operations

Through the material definitive agreements cited above, the Company has changed its focus from a provider of pathological diagnostic services to a provider of high quality teas and spirits. For segment reporting purposes, these are considered to be one segment, Beverages. Our Beverage segment consists of Village Tea and STI.

Village Tea, headquartered in National Harbor, MD is the owner of the Village Tea Company brand of premium loose leaf teas and tea accessories. We were incorporated in the State of Texas on January 11, 2011.

Village Tea, sources high-quality, unique teas that are blended to create distinct flavor combinations which are packaged in a variety of creative and earth-friendly ways for wholesale and retail sales. The brand is currently available in several major retailers in North America including Vitamin Shoppe®, Whole Foods® Markets, Winners®, HomeSense® Akins/Chamberlin® Natural Foods Markets and many other independent specialty and grocery store retailers. Village Tea products are also available through ecommerce retailers such as Amazon, the company's own website, www.villageteaco.com and others.

STI headquartered in New York City is the owner of two brands of Tequila , Copa Imperial and Tiny’s Tequila. Both brands are very high quality and appeal to targeted niche segments. We are a State of New York limited liability company and began operations in January 2013.

Copa Imperial

Copa Imperial (“Copa”) is a premium tequila brand made in Mexico. There are four products (the “Copa Tequilas”) : a) Tequila Blanco (“White Tequila”) , b) Tequila Reposado (“Tranquil Tequila), c) Tequila Anejo (“Old Tequila”) and d) Tequila Extra Anejo (“Very Old Tequila.”) Each product has its specific visual appearance, aromatic scent and taste that distinguishes itself from the others as well as competitive tequilas. The Copa Tequilas get their high quality through the use of 100% organic blue agave. In fact, the Copa Tequilas are the world’s first certified organic and kosher Tequila and get their distinctive taste through their mixture of ingredients and the aging process.

The target market for the Copa Tequilas is professional men between 25 and 40 who drink occasionally but who enjoy a high quality experience when they drink. They will be sold through high-end hotels and quality drinking establishments.

Tiny’s Tequila

Tiny’s Tequila is hosted by Grammy Award winning singer/songwriter Tameka “Tiny” Harris. Tiny was looking to develop a line of premium infused sipping tequila that has great taste and minimal burn. Currently, there are two products, Orange Blossom and Lime Light that are great tasting but also give a subtle finish. All natural ingredients combined with a new age refinement give a wonderful taste. This product line is geared mostly towards the young professional female. The Company provides the bottles for this work and receives a share of the proceeds when it is sold to the distributor.

See our website at www.tinystequila.com for more information.

Accelpath LLC, our pathology diagnostic service ceased to be active during the quarter ended December 31, 2014.

10

Basis of Presentation

The accompanying consolidated financial statements include the operations of the Company, its wholly-owned subsidiary Accelpath, LLC its 70% owned consolidated subsidiary, Village Tea and its 52% owned subsidiary, STI.

The Company consolidates all entities in which the Company holds a “controlling financial interest.” For voting interest entities, the Company is considered to hold a controlling financial interest when the Company is able to exercise control over the investees’ operating and financial decisions. For variable interest entities (“VIEs”), the Company is considered to hold a controlling financial interest when it is determined to be the primary beneficiary. For VIEs, a primary beneficiary is a party that has both: (1) the power to direct the activities of a VIE that most significantly impact that entity's economic performance, and (2) the obligation to absorb losses, or the right to receive benefits, from the VIE that could potentially be significant to the VIE. The determination of whether an entity is a VIE is based on the amount and characteristics of the entity's equity.

All significant inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, without being audited, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary to make the financial statements not misleading have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending June 30, 2015. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2014 filed with the Securities and Exchange Commission.

Recent Accounting Pronouncements

There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company’s consolidated financial statements.

2. GOING CONCERN UNCERTAINTY AND MANAGEMENT’S PLAN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate the continuation of the Company as a going concern. The Company had a net loss applicable to common shareholders of $1,836,828 for the nine months ended March 31, 2015 and a net loss applicable to common shareholders of $2,510,089 for the year ended June 30, 2014. Further, the Company had a working capital deficit of $5,673,925 and a stockholders’ deficit of $1,308,175 at March 31, 2015. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management is anticipating revenue growth through expansion of its customer base, and is also actively seeking financing through new and existing investors to fund operations. There is no assurance that the Company can reverse its net losses, or that the Company will be able to raise capital. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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3. OTHER CURRENT ASSETS AND ACCOUNTS PAYABLE

On October 7, 2013, the Circuit Court in the Second Judicial District for Leon County, Florida entered an order approving the stipulation of the parties (the "Stipulation") in the matter of ASC Recap LLC ("ASC") v. Accel Brands, Inc. (the "Company"). Under the terms of the Stipulation, the Company agreed to issue to ASC, as settlement of certain liabilities owed by the Company in the aggregate amount of $1,537,455 (the "Claim Amount"), shares of common stock (the "Settlement Shares") as well as a promissory note in the principal amount of the $75,000.00 maturing six months from the date of issuance, as a fee to ASC ('Fee Note"). ASC had purchased the liabilities from the Company's creditors (both affiliated and non-affiliated) with a face amount of $1,537,455. The total amount of liabilities, as reported by the Company in this Form 10-Q for the quarter ended March 31, 2015, was $3,961,093, inclusive of the $1,612,455 representing the Claim Amount and the Fee Note.

Pursuant to the Stipulation entered into by the parties, the Company agreed to issue to ASC, in one or more tranches as necessary, that number of shares of common stock sufficient to generate net proceeds (less a discount of twenty five percent (25%)) equal to the Claim Amount, as defined in the Stipulation. The parties reasonably estimated that, should the Company issue Settlement Shares sufficient to satisfy the entire Claim Amount, the fair market value of such Settlement Shares and all other amounts to be received by ASC would equal approximately $2,145,000. Notwithstanding anything to the contrary in the Stipulation, the number of shares beneficially owned by ASC shall not exceed 9.99% of the Company's outstanding common stock at any one time.

In connection with the issuance of the Settlement Shares, the Company may rely on the exemption from registration provided by Section 3(a)(10) under the Securities Act. To date, the Company has issued 59,697,000 Settlement Shares to ASC. All of these shares were issued after the balance sheet date. As such, the full Claim Amount remains outstanding and payable to ASC at March 31, 2015. Based upon the reported closing trading price of the Company's common stock on May 19, 2015 of $.0001 per share, if all $2,145,000 worth of liabilities were satisfied pursuant to the Stipulation through the issuance of common stock, the Company would issue an aggregate of 2,145,000,000 shares, excluding the 59,697,000 shares already issued.

As of the date of this filing, no proceeds from the sale of these shares have been used to repay creditors. At March 31, 2015, the value of the shares upon issuance is recorded as an Other Current Asset of $34,352.

4. CONVERTIBLE NOTES PAYABLE

Notes payable – related parties and a third parties consist of the following:

|  | March 31, |  | June 30,
|  | 2015 |  | 2014
Note payable – former Managing Member |  | $ | 27,750 |  | $ | 27,750
Note payable – related corporation |  |  | 4,300 |  |  | 4,300
Notes payable – stockholders |  |  | 13,000 |  |  | 13,000
Convertible notes payable |  |  | 977,241 |  |  | 729,120
Total |  |  | 1,022,291 |  |  | 774,170
Convertible notes payable, discount |  |  | (178,460) |  |  | (126,722)
Total, net of discount |  |  | 868,831 |  |  | 647,448
Less current portion |  |  | 868,831 |  |  | 647,448
Long-term debt |  | $ | − |  | $ | −

All notes will mature prior to March 31, 2016

During the current fiscal year, the Company has issued $270,000 of notes for consulting purposes and $172,500 in notes for cash.

The consulting notes are comprised of nine $30,000 notes which mature between January 1, 2015 and January 1, 2016. They carry no interest and convert into common stock at a 50% discount to the low closing bid price over the prior thirty days

The notes for cash are comprised of six notes which convert into common stock at anywhere between a 42% and 50% discount to the prevailing market price. All notes mature before December 31, 2015.

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Derivative Liability Feature on Notes Payable

Prior to the fourth quarter of the prior fiscal year, for conventional convertible debt where the rate of conversion is based on a discount to the prevailing market value, the Company recorded a “beneficial conversion feature” (“BCF”) and related debt discount.

The BCF was recorded as a debt discount against the face amount of the respective debt instrument. There would be an offsetting increase to Additional paid in capital as the BCF is deemed to be an increase to equity. The discount would be amortized to interest expense over the life of the debt.

Commencing with the fourth quarter of the prior fiscal year, the Company reconsidered the requirements of the Financial Accounting Standards Board Accounting Standards Classification 820 (‘FASB ASC 820” or “ASC 820”) and determined that newly issued debt were derivative financial instruments. As such, a derivative expense was recorded on the issuance of the debt as well as a quarterly mark to market

Interest Expense

Interest expense on notes payable, including amortization of the discount on the convertible notes and the accrual of the Original Issue Discount, was $444,937 and $305,113 for the nine months ended March 31, 2015 and 2014, respectively.

Interest expense on notes payable, including amortization of the discount on the convertible notes and the accrual of the Original Issue Discount, was $152,473 and $137,181 for the three months ended March 31, 2015 and 2014, respectively.

5. NON-CONVERTIBLE DEBT

The Company issued the following Note Payables. All Notes of these Notes were issued at their majority-owned and consolidated Village Tea and STI subsidiaries

2013

Ten separate notes form an investor were received in 2013 as follows:

Date Issued |  | Maturity Date |  | Interest rate |  | Amount
February 23, 2013 |  | June 30, 2014 |  | 10% |  | $ | 100,000
February 27,2013 |  | June 30, 2014 |  | 8% |  | $ | 1,500
March 14, 2013 |  | June 30, 2014 |  | 8% |  | $ | 6,500
April 23,2013 |  | June 30, 2014 |  | 8% |  | $ | 5,000
May 9, 2013 |  | June 30, 2014 |  | 8% |  | $ | 10,000
June 30, 2013 |  | June 30, 2014 |  | 8% |  | $ | 7,500
July 11, 2013 |  | June 30, 2014 |  | 8% |  | $ | 10,000
July 29, 2013 |  | June 30, 2014 |  | 8% |  | $ | 10,000
August 23, 2013 |  | June 30,2014 |  | 8% |  | $ | 13,000
August 29, 2013 |  | June 30, 2014 |  | 10% |  | $ | 9,000
Various* |  | On demand |  | -0-% |  |  | 12,184
Total for 2013 |  |  |  |  |  | $ | 184,684

*- These notes are from employees and are non- interest bearing and unsecured.

2012

An investor lent the Company $80,000 for operating expenses throughout the year. These expenses were put forth in a note that matures on January 1, 2015 and carries no interest.

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2011

Beverley Reif lent the Company $100,000 on March 15, 2011. The note bore an interest rate of 5% and matured on September 15, 2011. If the note were not paid by maturity, the interest rate would increase to 18%.

Dana Pope lent the Company $57,000 on March 15, 2011. The note bore an interest rate of 5% and matured on September 15, 2011. If the note were not paid by maturity, the interest rate would increase to 18%.

Both of these notes are currently subject to a litigation. See footnote 9 below.

An investor lent the Company $60,000 for operating expenses throughout the year. These expenses were put forth in a note that matures on January 1, 2015 and carries no interest.

Non-Convertible Debt Summary

2011 notes |  | $ | 217,000
2012 notes |  |  | 80,000
2013 notes |  |  | 184,684
Total Non-Convertible Debt |  | $ | 481,684

6. PREFERRED STOCK

Series E

As of March 31, 2015, the Company has -0- outstanding shares of its Series E 5% Convertible Preferred Stock outstanding. During the quarter ended March 31, 2014, the Company exchanged its remaining 100 shares of Series E Preferred Stock plus $14,282 of accrued dividends into a new Secured Note of $114,282 (See Footnote Three above) The Company accrued cash dividends payable of $-0- and $1,139 for the three months ended March 31, 2015 and 2013, respectively. At March 31, 2015, there are no accrued dividends payable included in accrued expenses and other current liabilities.

Series F

On September 7, 2012, the Company authorized 100 shares of Series F Convertible Preferred Stock, with a stated value of $1,000. The Series F Preferred is convertible into common stock at any time at the option of the holder. The number of shares of common stock into which one share of Series F Preferred is convertible is determined by (i) dividing $1,000 (the stated value) outstanding by the closing bid price on the trading day immediately prior to the date of the conversion notice (the “Conversion Price”), and (ii) multiplying by ten; provided that if the closing bid price on such trading day is less than $0.02 per share ($5.00 post-split), then the Conversion Price shall be $0.02 ($5.00 post-split). Accordingly, the authorized 100 shares of Series F Preferred are currently convertible into 180,000 shares of common stock using a Conversion Price of $5.00.

On September 10, 2012, the Company issued 90 shares of its Series F Preferred Stock for the purchase price of $90,000 to certain existing investors of the Company. The 90 shares of Series F Preferred are currently convertible into 180,000 shares of common stock. The Company determined that there was a beneficial conversion feature of $360,000 for the issuance of the 90 shares of Series F Preferred Stock. The beneficial conversion feature was calculated based on the effective conversion price per share compared to the fair value per share of common stock on the commitment date.

Series G

On September 18, 2012, the Company authorized 1,250 shares of Series G Convertible Preferred Stock, with a stated value of $1,000. The Series G Preferred is convertible into common stock at any time at the option of the holder three months after the date of issuance. After five years from the date of issuance or upon a change of control, the Series G Preferred is automatically converted into shares of common stock. The number of shares of common stock into which one share of Series G Preferred is convertible is determined by dividing $1,000 (the stated value) outstanding by the closing bid price on the trading day immediately prior to the date of the conversion notice (the “Conversion Price”); provided that if the closing bid price on such trading day is less than $0.02 per share, then the Conversion Price shall be $0.02. Accordingly, the authorized 1,250 shares of Series G Preferred are convertible into 62,500,000 shares of common stock at an assumed Conversion Price of $0.02. As of March 31, 2015 and 2013, there was no Series G Convertible Preferred Stock issued and outstanding.

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Series H

The number, designation, rights, preferences and privileges of the Series H Preferred were established by the Board at a meeting on April 2, 2013. The designation, rights, preferences and privileges that the Board established for the Series H Preferred is set forth in a Certificate of Designation that was filed with the Secretary of State of the State of Delaware on April 3, 2013. Among other things, the Certificate of Designation provides that each one share of Series H Preferred has voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding Common Stock eligible to vote at the time of the respective vote (the "Numerator"), divided by (y) 0.49, minus (z) the Numerator.

At a meeting of the Board, the Board issued an aggregate of fifty one (51) shares of Series H Preferred to one individual, Shekhar Wadekar, Chief Executive Officer of the Company. As a result of the voting rights granted to the Series H Preferred, the Series H Stockholder holds in the aggregate approximately 50.9989% of the total voting power of all issued and outstanding voting capital of the Company

On March 21, 2014, ownership of the Series H Preferred was transferred to Mr. Steedley, our Chief Executive Officer.

Series I

As previously disclosed, on October 24, 2013, The Company and EIP entered into an Agreement and Plan of Reorganization in which EIP was to become a wholly-owned subsidiary of The Company. On October 9, 2014 EIP gave notice to Accel Brands of its intention to terminate the Agreement. As a result, the parties shall take all action required to unwind the transaction, including the return and surrender by The Company of the common stock its holds in EIP, and the return and surrender by EIP of its 3,500 shares of Series I Preferred Stock of The Company. The Company retired all shares of Series I Preferred Stock to treasury. As of the filing date of this report, there are -0- shares issued and outstanding of the Series I Preferred.

See our 8-K filing of October 16, 2014 for more detail

Series J

On October 16, 2014, Accel Brands entered into a Securities Purchase Agreement with the common stock and preferred stock shareholders (the “Sellers”) of Village Tea Distributors, Inc. (“Village Tea”) holding seventy percent (70%) of common stock and all the Series A Preferred Stock of Village Tea. Upon the closing of the transaction on October 24, 2014, Village Tea became a majority-owned subsidiary of Accel Brands. Accel Brands issued 1,525 shares of a newly designated series of convertible preferred stock to the Sellers, which is designated as Series J Preferred Stock. The Series J Preferred Stock has a stated value per share equal to $1,000, shall pay an annual dividend of 10% in cash or common stock, and shall be convertible at the holder’s option, subject to beneficial ownership limitations, into shares of the common stock of Accel Brands at a conversion price equal to eighty percent (80%) of the lowest closing bid price for the Common Stock during the thirty (30) trading days immediately preceding a Conversion Date. Accel Brands agrees to assume the debt obligations of Village Tea in connection with the Agreement.

The dividend has been fully accrued since issuance.

Series K

On February 5, 2015, The Company entered into a Securities Purchase Agreement (the “Agreement”) with STI Signature Spirits Group, LLC, a New York limited liability company (“STI”), and the members of STI (collectively referred to as the Sellers). Under the terms of the Agreement, the Sellers will sell 52.78 membership interests in STI, representing 52% of the outstanding membership units of STI (the “Majority Interest”), to the Company. In exchange for the Majority Interest, the Company shall issue shares of a newly created Series K preferred stock (the “Preferred Stock”) with a stated value of $750,000 and $55,000 of restricted common stock of the Company and will assume $485,516.53 worth of STI’s debt. Further, the Sellers shall be entitled to additional shares of Preferred Stock with a stated value of $2,250,000 pursuant to a three year earn out based on the number of units sold and booked by STI for each calendar year beginning the 2015.

The foregoing information is a summary of the Agreement involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of the Agreement, which is attached an exhibit. Please see our Form 8-K filed February 10. 2015 and related exhibits incorporated by reference in this report for more detail.

The dividend has been fully accrued since issuance.

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7. COMMON STOCK

Our common stock is listed on the OTCBB and trades under the symbol ACLP. On September 4, 2014, there was a 1:250 reverse split.

During the nine months ended March 31, 2015, the Company issued the following shares:

·

608,833,551 shares pursuant to the conversion of debt, accrued interest and related expenses;

·

59,697,000 shares pursuant to the 3a10 program;

·

3,763 fractional shares associated with the reverse split of September 4, 2014.

On March 7, 2011, the Company entered into an Equity Purchase Agreement. Pursuant to the Equity Purchase Agreement, a third party committed to purchase up to $5,000,000 of common stock over the course of 24 months commencing on the effective date of the registration statement pursuant to the registration rights agreement. The registration statement was declared effective on February 9, 2012. The purchase price of the common stock to be sold pursuant to the Equity Purchase Agreement will be 95% of the average of the lowest three closing bid prices, consecutive or inconsecutive, during the five trading day period commencing on the date a put notice requesting that a third party purchase. On July 19, 2012, the Company received proceeds of $6,000 for the sale of 2,807 (701,754 pre-split) shares of common stock pursuant to the Equity Purchase Agreement with a third party. The registration statement is no longer effective.

8. OPTIONS, WARRANTS AND STOCK-BASED COMPENSATION

2011 Equity Incentive Plan

On March 4, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan and reserved up to 50,000,000 shares of common stock for issuance to employees, directors and consultants, subject to stockholder approval. On February 17, 2012, the stockholders approved the plan. The plan also provides for automatic annual increases on January 1st of each year (commencing on January 1, 2012 and ending on January 1, 2021), in the aggregate number of shares reserved equal to the lesser of (a) five percent of the total number of shares outstanding on December 31st of the preceding year or (b) 3,000,000 shares. As of January 1, 2013, the number of shares reserved under the plan automatically increased to 56,000,000. Under the plan, the Board may grant stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards.

Valuation and amortization method. The fair value of each stock award is estimated on the grant date using the Black-Scholes option-pricing model. The estimated fair value of employee stock options is amortized to expense using the straight-line method over the vesting period.

Volatility. The Company estimates volatility based on the Company’s historical volatility.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised in the future. The Company applied the simplified method of estimating the expected term of the options, as described in the SEC’s Staff Accounting Bulletins 107 and 110, as the Company has had a significant change in its business operations and the historical experience is not indicative of the expected behavior in the future. The expected term, calculated under the simplified method, is applied to groups of stock options that have similar contractual terms. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

Forfeitures. Stock-based compensation expense is recorded only for those awards that are expected to vest. FASB ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. An annual forfeiture rate of 0% was applied to all unvested options as of March 31, 2015 which was management’s best estimate. This analysis will be re-evaluated semi-annually and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest.

The following weighted average assumptions were used to estimate the fair value of stock options using the Black-Scholes option pricing model:

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|  | Three Months Ended March 31, 2015 |  | Three Months Ended March 31, 2014
Risk-free interest rate |  | 0.62% - 0.72% |  | 0.90% - 0.96%
Expected dividend yield |  | − |  | −
Expected term |  | 3.25 - 5.5 years |  | 5.5 years
Forfeiture rate |  | 0% |  | 0%
Expected volatility |  | 244.90% - 262.52% |  | 122.33% - 124.91%

A summary of option activity as of March 31, 2015 and for the three months then ended is presented below. All information is presented pre-split:

Options |  | Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value
Outstanding at June 30, 2012 |  | 186,760 |  | $ | 15.00 |  | 8.84 years |  | $ | −
Granted |  | − |  |  | − |  | − |  |  | −
Exercised |  | − |  |  | − |  | − |  |  | −
Forfeited or expired |  | − |  |  | − |  | − |  |  | −
Outstanding at June 30, 2013 |  | 186,760 |  | $ | 15.00 |  | 7.84 years |  | $ | −
Granted |  | − |  |  | − |  | − |  |  | −
Exercised |  | − |  |  | − |  | − |  |  | −
Forfeited |  | − |  |  | − |  | − |  |  | −
Exercisable at June 30, 2014 and March 31, 2015 |  | 186,760 |  | $ | 15.00 |  | 6.84 years |  | $ | −

On April 6, 2011, the Board of Directors granted stock options to purchase 169,450 shares of common stock at an exercise price of $16.25 per share. On May 13, 2011, the Board of Directors granted stock options to purchase 3,000 shares of common stock at an exercise price of $15.00 per share. The weighted average fair value of the options granted was estimated at $14.60 per share. These options vest over three years and have a term of 10 years.

On August 12, 2011, the Board of Directors granted stock options to purchase 480 shares of common stock at an exercise price of $12.50 per share. The weighted average fair value of the options on the date of the grant was estimated at $10.75 per share. These options vest over one year and have a term of 10 years.

On December 14, 2011, the Board of Directors granted stock options to purchase 10,000 shares of common stock at an exercise price of $3.75 per share. The weighted average fair value of the options on the date of the grant was estimated at $2.00 per share. These options vest monthly over 10 months and have a term of 10 years.

On January 12, 2012, the Board of Directors granted stock options to purchase 480 shares of common stock at an exercise price of $1.25 per share. The weighted average fair value of the options on the date of the grant was estimated at $1.00 per share. These options vest over one year and have a term of 10 years.

On June 3, 2012, the Board of Directors granted stock options to purchase 3,400 shares of common stock at an exercise price of $13.60 per share. The weighted average fair value of the options on the date of the grant was estimated at $3.88 per share. These options vest over three year and have a term of 10 years.

On March 15, 2012, the Company agreed to issue a restricted stock award of 10,000 shares of common stock to a consultant for services to be rendered with 5,000 shares vesting on June 15, 2012 and 5,000 shares vesting on September 15, 2012. As of March 31, 2015, the shares had not been issued. Consulting expense recorded for the restricted stock award was $29,167 for the year ended June 30, 2012.

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Warrants

The Company’s outstanding warrants remained in place subsequent to the reverse acquisition. No warrants were exercised during the year ended June 30, 2014 or the quarter ended March 31, 2015. On July 17, 2011, warrants to purchase 200,000 shares at $1.89 per share expired. During the year ended June 30, 2012, the Company issued 2,000,000 warrants in connection with convertible notes payable (see Note 8). The warrants have an exercise price of $2.50 per share, are immediately exercisable and expire in five years from issuance. No warrants were issued, exercised or expired in the year ended June 30, 2014. The Company has reserved 2,075,000 shares of common stock for the exercise of outstanding warrants. The following table summarizes the warrants outstanding at June 30, 2014 adjusted for the 1:250 stock split which took effect on September 4, 2014:

Exercise price |  | Number |  | Expiration Date
$ | 2.50 |  | 2,000 |  | 02/10/2017
$ | 2.50 |  | 4,000 |  | 02/17/2017
$ | 2.50 |  | 1,250 |  | 04/18/2017
$ | 2.50 |  | 800 |  | 08/15/2017
$ | 2.50 |  | 200 |  | 08/20/2017
$ | 2.50 |  | 1,000 |  | 09/14/2017
$ | 2.50 |  | 1,000 |  | 10/02/2017
|  |  | 10,250 |  |

The weighted average grant date fair value of the warrants granted during the three months ended March 31, 2014 was $0.0095 per share. The warrants were valued using the Black-Scholes option pricing model. The following assumptions were used for warrants issued during the three months ended March 31, 2014; risk free interest rates of 0.60% - 0.72%; expected dividend yield of 0%; expected term of 5 years and expected volatility of 244.07% - 248.52%. The weighted average remaining life of the warrants at March 31, 2015 was 3.86 years. At March 31, 2015, all warrants are exercisable and there is no aggregate intrinsic value for the warrants outstanding.

Stock Award Plan

Under the 2006 Stock Award Plan the Company may award shares of common stock to employees, officers, directors, consultants and advisors and may make grants subject to such terms and conditions as determined by the Board of Directors. As of March 31, 2014, the Company has 111,845 shares available for future grant under the Plan.

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9. NET LOSS PER SHARE

Securities that could potentially dilute basic earnings (loss) per share ("EPS") as of March 31, 2015 and 2014, and that were not included in the computation of diluted EPS because to do so would have been anti-dilutive consist of the following:

| Potentially Outstanding
| Dilutive Common Shares
| For the Interim Period |  | For the Interim Period
| Ended | Ended
| March 31, 2015 | March 31, 2014
Preferred stock- Series E 5% Convertible; stated value $1,000 per share; -0- issued and outstanding at March 31 2015 and June 30, 2014, respectively | - |  | -
Preferred stock- Series F Convertible; stated value $1,000 per share; 90 shares issued and outstanding at March 31, 2015 and June 30, 2014 | 180,000 |  | 180,000
Preferred stock- Series G Convertible; stated value $1,000 per share; No shares issued and outstanding at March 31, 2015 and June 30, 2014 | - |  | -
Preferred stock- Series H Convertible; stated value $1,000 per share; 51 shares issued and outstanding at March 31, 2015 and June 30, 2014 | 1 |  | 1
Preferred stock- Series I Convertible; stated value $1,000 per share; -0- and 3,500 shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively. Par value $.001, 3,500 shares authorized | - |  | 1,194,412
Preferred stock- Series J 10% Convertible; stated value $1,000 per share; 1,525 and -0- shares issued and outstanding at March 31, 2015 and June 30, 2014, respectively. Par value $.001, 3,500 shares authorized. Liquidation preference of $1,525,000 at March 31, 2015 | 68,501,938 |  | -
Preferred stock- Series K 10% Convertible; stated value $1,000 per share; 750 and -0- issued and outstanding at March 31, 2015 and June 30, 2014, respectively. Par value $.001, 3,500 shares authorized. Liquidation preference of $750,000 at March 31, 2015 | 68,501,938 |  | -
Convertible Notes Payable* | 342,646,780 |  | 1,985,099
Stock options | 186,760 |  | 186,760
Restricted stock award | 10,000 |  | 10,000
Warrants | 10,250 |  | 10,250
| 480,037,667 |  | 3,566,522

*- Maximum ownership is predicated upon 9.99% of outstanding shares at March 31, 2015 per contractual limitation of five holders. and March 31, 2014. There were five such holders at each balance sheet date.

10. COMMITMENTS AND CONTINGENCIES

Operating Lease

Currently, the Company rents space at 137 National Plaza, Suite 300, National Harbor, MD 20745on a month-to-month basis. Monthly rent approximates $275. There are no future minimum lease rental payments.

Consulting Agreements

The Company signed a consulting agreement which calls for a $30,000 monthly payment in the form of a convertible promissory note. For the three months and nine months ended March 31, 2015, the Company has incurred $90,000 and $270,000 respectively in such notes. See Note 4 for details on the Notes issued for these services.

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11. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) plan for the benefit of certain employees. The Company had contributed to the plan under a safe harbor plan requiring a 3% contribution for all eligible participants. In addition, the Company may contribute a 3% elective match. Effective January 1, 2013, the Company amended the plan to remove the 3% safe harbor contribution. No contributions have been made in the current fiscal year. Contributions and other costs of the plan for the nine months ended March 31, 2015 were $-0-. Contributions and other costs of the plan for the nine months ended March 31, 2014 were $-0-.

12. OPERATING SEGMENTS

The Company had operated in three segments which are consistent with its internal organization. The major segments were Medical Diagnostic Services, Government Contracting and Beverages. Government contracting has been inactive since 2012 and is now excluded as a segment.

Revenues, expenses and assets not explicitly attributed to a segment are deemed to be unallocated.

Data for the three and nine months ended March 31, 2015 and March 31, 2014 follow below:

|  | Three Months Ended March 31, 2015
|  | Medical Diagnostics |  | Beverages |  | Unallocated |  | Total
Revenues | $ | - | $ | - | $ | - | $ | -
Cost of Goods Sold |  | - |  | - |  | - |  | -
Total Operating Expenses |  | 4,780 |  | 150,271 |  | 112,203 |  | 267,254
Operating Income (Loss) |  | (4,780) |  | (150,271) |  | (112,203) |  | (155,052)
Other Income (Expense) |  | - |  | (10,853) |  | (442,032) |  | (452,885)
Net Income |  | (4,780) |  | (161,125) |  | (554,235) |  | (607,937)
Total Assets | $ | 45,258 | $ | 290,001 | $ | 4,332,600 | $ | 4,667,859
|  | Three Months Ended March 31, 2014
|  | Medical Diagnostics |  | Beverages |  | Unallocated |  | Total
Revenues | $ | 54,000 | $ | - | $ | - | $ | 54,000
Cost of Goods Sold |  | - |  | - |  | - |  | -
Total Operating Expenses |  | 66,360 |  | - |  | (221,858) |  | (155,498)
Operating Income (Loss) |  | (12,360) |  | - |  | 221,858 |  | 209,498
Other Income (Expense) |  | (3,024) |  | - |  | (131,133) |  | (134,157)
Net Income |  | (15,384) |  | - |  | 90,726 |  | 75,341
Total Assets | $ | 64,378 | $ | - | $ | 1,039,074 | $ | 1,103,452

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|  | Nine Months Ended March 31, 2015
|  | Medical Diagnostics |  | Beverages |  | Unallocated |  | Total
Revenues | $ | 54,000 | $ | 4,581 | $ | - | $ | 58,581
Cost of Goods Sold |  | - |  | 5,779 |  | - |  | 5,779
Total Operating Expenses |  | 68,633 |  | 252,379 |  | 389,604 |  | 710,617
Operating Income (Loss) |  | (14,633) |  | (253,578) |  | (389,604) |  | (657,815)
Other Income (Expense) |  | - |  | (10,853) |  | (1,192,321) |  | (1,203,174)
Net Income |  | (14,633) |  | (264,431) |  | (1,581,926) |  | (1,860,990)
Total Assets | $ | 45,258 | $ | 290,001 | $ | 4,332,600 | $ | 4,667,859
|  | Nine Months Ended March 31, 2014
|  | Medical Diagnostics |  | Beverages |  | Unallocated |  | Total
Revenues | $ | 162,000 | $ | - | $ | - | $ | 162,000
Cost of Goods Sold |  | - |  | - |  | - |  | -
Total Operating Expenses |  | 150,277 |  | - |  | 406,748 |  | 557,025
Operating Income (Loss) |  | 11,723 |  | - |  | (406,748) |  | (395,025)
Other Income (Expense) |  | 3,024 |  | - |  | (609,448) |  | (606,424)
Net Income |  | 14,747 |  | - |  | (1,016,196) |  | (1,001,449)
Total Assets | $ | 64,378 | $ | - | $ | 1,039,074 | $ | 1,103,452

13. SUBSEQUENT EVENTS

The Company has evaluated all events that occurred after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported. The Management of the Company determined that the following was a significant event.

Issuance of Debt

On April 1, 2015, the Company issued a note for $30,000 for consulting services. The convertible promissory note bears no interest and matures on October 31, 2015. The third party has the option to convert all or a portion of the note plus accrued interest into common stock at a conversion price equal to 50% of the lowest closing bid price for the twenty days prior to the conversion. As of the date of this filing, there have been no conversions of this Note and the entire amount is outstanding.

On May 1, 2015, the Company issued a note for $30,000 for consulting services. The convertible promissory note bears no interest and matures on November 30, 2015. The third party has the option to convert all or a portion of the note plus accrued interest into common stock at a conversion price equal to 50% of the lowest closing bid price for the twenty days prior to the conversion. As of the date of this filing, there have been no conversions of this Note and the entire amount is outstanding.

Issuance of Common stock

Subsequent to the Balance Sheet date, the Company has issued 109,166,667 shares of common stock for the retirement of $5,500 of convertible debt and $300 of associated expenses.

21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2015 should be read together with our condensed consolidated financial statements and related notes included elsewhere in this report.

FORWARD LOOKING STATEMENTS

IMPORTANT INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of Accel Brands, Inc. (the "Company") contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "expects," "anticipates," "intends," "projects," "predicts," "plans," "believes," "seeks," "estimates," "scheduled" and variations of these words and similar expressions. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Forward-looking statements appear in a number of places in this Form 10-Q and include statements regarding, among other matters:

·

expectations regarding the Company's growth;

·

the Company's beliefs regarding its acquisition, redevelopment, development, leasing and operational activities and opportunities, including the performance of its retailers;

·

the Company's acquisition, disposition and other strategies;

·

regulatory matters pertaining to compliance with governmental regulations;

·

the Company's capital expenditure plans and expectations for obtaining capital for expenditures;

·

the Company's expectations regarding income tax benefits;

·

the Company's expectations regarding its financial condition or results of operations; and

·

the Company's expectations for refinancing its indebtedness, entering into and servicing debt obligations and entering into joint venture arrangements.

Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or the industry to differ materially from the Company's future results, performance or achievements, or those of the industry, expressed or implied in such forward-looking statements. Such factors include, among others, general industry, as well as national, regional and local economic and business conditions, which will, among other things, affect demand for retail space or retail goods, availability and creditworthiness of current and prospective tenants, anchor or tenant bankruptcies, closures, mergers or consolidations, lease rates, terms and payments, interest rate fluctuations, availability, terms and cost of financing and operating expenses; adverse changes in the real estate markets including, among other things, competition from other companies, retail formats and technology, risks of real estate development and redevelopment, acquisitions and dispositions; the liquidity of real estate investments, governmental actions and initiatives (including legislative and regulatory changes); environmental and safety requirements; and terrorist activities or other acts of violence which could adversely affect all of the above factors. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results, under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended June 30, 2014, as well as our other reports filed with the Securities and Exchange Commission (the "SEC"), which disclosures are incorporated herein by reference. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.

22

The information in this discussion contains forward-looking statements. These forward-looking statements involve risks and uncertainties, including but not limited, to statements regarding the Company’s capital needs, business strategy, and all other statements regarding future performance. All such information and statements are subject to certain risks and uncertainties, the effects of which are difficult to predict and generally beyond the control of the Company, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements contained herein. These risks and uncertainties include, but are not limited to, whether the Company will realize the improvements in its operations that it expects; general economic conditions; and those risks identified and discussed by the Company in its filings with the U.S. Securities and Exchange Commission. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined in the Risk Factors section below, and, from time to time, in other reports we file with the Securities and Exchange Commission (the “SEC”). These factors may cause our actual results to differ materially from any forward-looking statement. Readers are cautioned not to place undue reliance on any forward looking statements contained in this report. We will not update these forward looking statements unless the securities laws and regulations require us to do so.

OVERVIEW

Overview

Accel Brands, Inc. (formerly - AccelPath, Inc.) (the “Company”) includes the following entities:

Wholly-owned subsidiaries:

Accelpath LLC (“Accelpath”)

Majority Owned Subsidiaries:

Village Tea Distributors Company, Inc. (“Village Tea”) – 70% owned

STI Signature Spirits Group, LLC (“STI”) -52% owned

Material Definitive Agreements

Village Tea

On October 16, 2014, Accel Brands entered into a Securities Purchase Agreement with the common stock and preferred stock shareholders (the “Sellers”) of Village Tea holding seventy percent (70%) of common stock and all the Series A Preferred Stock of Village Tea. Village Tea, is a provider of environmentally-friendly exotic teas sourced directly from growers throughout Asia and Africa. Combining exquisite taste with extraordinary health benefits, the Company plans to create a niche presence in the tea market and provide its products through leading health food retail chains, major retailers, specialty shops and its own outlets. Upon the closing of the transaction on October 24, 2014, Village Tea became a majority-owned subsidiary of Accel Brands. Accel Brands issued 1,525 shares of a newly designated series of convertible preferred stock to the Sellers, Series J. The Series J Preferred Stock has a stated value per share equal to $1,000, shall pay an annual dividend of 10% in cash or common stock, and shall be convertible at the holder’s option, subject to beneficial ownership limitations, into shares of the common stock of Accel Brands at a conversion price equal to eighty percent (80%) of the lowest closing bid price for the Common Stock during the thirty (30) trading days immediately preceding a Conversion Date. Accel Brands agreed to assume $538,500.00 worth of the debt obligations of Village Tea in connection with the Agreement.

The foregoing information is a summary of the Agreement involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of the Agreement, which is attached an exhibit. Please see our Form 8-K filed October 16. 2014 and related exhibits incorporated by reference in this report for more detail.

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STI

On February 5, 2015, The Company entered into a Securities Purchase Agreement (the “Agreement”) with STI and the members of STI (collectively referred to as the Sellers). Under the terms of the Agreement, the Sellers will sell 52.78 membership interests in STI, representing 52% of the outstanding membership units of STI (the “Majority Interest”), to the Company. In exchange for the Majority Interest, the Company shall issue shares of a newly created Series K preferred stock (the “Preferred Stock”) with a stated value of $750,000 and $55,000 of restricted common stock of the Company and will assume $485,516.53 worth of STI’s debt. Further, the Sellers shall be entitled to additional shares of Preferred Stock with a stated value of $2,250,000 pursuant to a three year earn out based on the number of units sold and booked by STI for each calendar year beginning the 2015.

The foregoing information is a summary of the Agreement involved in the transaction described above, is not complete, and is qualified in its entirety by reference to the full text of the Agreement, which is attached an exhibit. Please see our Form 8-K filed February 10. 2015 and related exhibits incorporated by reference in this report for more detail.

Change in Business Model and Nature of Operations

Through the material definitive agreements cited above, the Company has changed its focus from a provider of pathological diagnostic services to a provider of high quality teas and spirits. For segment reporting purposes, these are considered to be one segment, Beverages. Our Beverage segment consists of Village Tea and STI.

Village Tea, headquartered in National Harbor, MD is the owner of the Village Tea Company brand of premium loose leaf teas and tea accessories. We were incorporated in the State of Texas on January 11, 2011.

Village Tea, sources high-quality, unique teas that are blended to create distinct flavor combinations which are packaged in a variety of creative and earth-friendly ways for wholesale and retail sales. The brand is currently available in several major retailers in North America including Vitamin Shoppe®, Whole Foods® Markets, Winners®, HomeSense® Akins/Chamberlin® Natural Foods Markets and many other independent specialty and grocery store retailers. Village Tea products are also available through ecommerce retailers such as Amazon, the company's own website, www.villageteaco.com and others.

STI headquartered in New York City is the owner of two brands of Tequila , Copa Imperial and Tiny’s Tequila. Both brands are very high quality and appeal to targeted niche segments. We are a State of New York limited liability company and began operations in January 2013.

Copa Imperial

Copa Imperial (“Copa”) is a premium tequila brand made in Mexico. There are four products (the “Copa Tequilas”) : a) Tequila Blanco (“White Tequila”) , b) Tequila Reposado (“Tranquil Tequila), c) Tequila Anejo (“Old Tequila”) and d) Tequila Extra Anejo (“Very Old Tequila.”) Each product has its specific visual appearance, aromatic scent and taste that distinguishes itself from the others as well as competitive tequilas. The Copa Tequilas get their high quality through the use of 100% organic blue agave. In fact, the Copa Tequilas are the world’s first certified organic and kosher Tequila and get their distinctive taste through their mixture of ingredients and the aging process.

The target market for the Copa Tequilas is professional men between 25 and 40 who drink occasionally but who enjoy a high quality experience when they drink. They will be sold through high-end hotels and quality drinking establishments.

Tiny’s Tequila

Tiny’s Tequila is hosted by Grammy Award winning singer/songwriter Tameka “Tiny” Harris. Tiny was looking to develop a line of premium infused sipping tequila that has great taste and minimal burn. Currently, there are two products, Orange Blossom and Lime Light that are great tasting but also give a subtle finish. All natural ingredients combined with a new age refinement give a wonderful taste. This product line is geared mostly towards the young professional female. The Company provides the bottles for this work and receives a share of the proceeds when it is sold to the distributor.

See our website at www.tinystequila.com for more information.

Accelpath LLC, our pathology diagnostic service ceased to be active during the quarter ended December 31, 2014.

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RESULTS OF OPERATIONS

Three months ended March 31, 2015 compared with the three months ended March 31, 2014

Revenues

The Company had $-0- in revenues during the three months ended March 31, 2015 compared with $54,000 in revenues during the three months ended March 31, 2014. Revenues for the period ended March 31, 2014 were solely from medical diagnostic services. The decrease in medical diagnostic revenue resulted from the loss of the one remaining service contract in October 2014.

Gross profit

There was no gross profit for the three months ended March 31, 2015 compared to a gross profit of $54,000 or 100% of revenues for the three months ended March 31, 2014. The $54,000 decrease in gross profit was due to the decrease in the medical diagnostic services revenue in the current period. Under Accelpath LLC’s business model there are minimal, if any, costs of revenues.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2015 were $267,254 compared to $(155,098) for the three months ended march 31, 2014, an increase of $422,752. The increase was predominately due to the reversal of overaccrued legal bills in the prior period.

During the three months ended March 31, 2015 and 2013, these expenses consisted primarily of compensation expenses, professional fees, consulting fees, occupancy expenses and travel expenses. During the three months ended March 31, 2014, the Company recognized stock-based compensation expense of $133,703.

Operating gain (loss)

The operating loss for the three months ended March 31, 2015 was ($267,254) compared to a gain of with $209,498 for the three months ended March 31, 2014. The $476,752 increase in operating loss was primarily due to the lack of revenues and higher selling, general and administrative expenses stock-based compensation in the current period partially offset by reduced medical diagnostic contract revenues. See above for details.

Other income (expense)

Other income (expense) was $(452,885) for the three months ended March 31, 2015 compared to $(134,157) for the three months ended March 31, 2014. During the three months ended March 31, 2015, the Company had $152,473 in interest expense on notes payable, including amortization of the discount on debt. Additionally, there was $145,018 on loss associated with the derivative liability and a $155,395 loss on the fair value mark to market of the derivative liability. For the three months ended March 31, 2014, the Company had $137,181 in interest expense on notes payable, including amortization of the discount on debt and accrual of the Original Issue Discount, which was partially offset by technology licensing income from the old Accelpath LLC business model of $3,024.

Net Income (loss) applicable to common shareholders

The net loss applicable to common shareholders for the three months ended March 31, 2015 was ($695,978) in comparison with a net income of $74,202 applicable to common shareholders for the three months ended March 31, 2014. The net income (loss) per share was $0.00 per share for the three months ended March 31, 2015 and $0.02 per share for the three months ended March 31, 2014.

Included in the net loss applicable to common shareholders for the three months ended March 31, 2015 are accrued dividends of $66,014 and $11,096 on the Series J 10% convertible preferred stock and Series K 10% convertible preferred stock, respectively. Included in the net loss applicable to common shareholders for the three months ended March 31, 2014 are accrued cash dividends of $1,139 on the Series E 5% convertible preferred stock.

25

Nine months ended March 31, 2015 compared with the six months ended March 31, 2014

Revenues

The Company had $58,581 in revenues during the nine months ended March 31, 2015 compared with $162,000 in revenues during the three months ended March 31, 2014. Revenues for the nine months ended March 31, 2015 were comprised of medical diagnostic revenue of $54,000 and sales of beverage products of $4,581. Revenues for March 31, 2014 were solely from medical diagnostic services. The $108,000 decrease in medical diagnostic revenue resulted from the reduction in and ultimate loss of the one remaining service contract in October 2014. The increase in beverage sales of $4,581 were due solely to the purchase of our Village Tea subsidiary.

Gross profit

The gross profit for the three months ended March 31, 2015 was $52,802 or 90% of revenues compared to a gross profit of $162,000 or 100% of revenues for the three months ended March 31, 2014. $108,000 decrease in gross profit was due to the decrease in the medical diagnostic services revenue in the current period. Under Accel Brands’s business model there are minimal, if any, costs of revenues. The remaining decrease of $1,198 in gross profit was due to insufficient revenues at our Village Tea subsidiary to cover marginal cost.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended March 31, 2015 were $710,617 compared to $557,025 for the nine months ended March 31, 2014, an increase of $153,592. The increase was predominately due to the reversal of overaccrued expenses in the prior period partially offset by reduced stock-based compensation

During the three months ended March 31, 2015 and 2013, these expenses consisted primarily of compensation expenses, professional fees, consulting fees, occupancy expenses and travel expenses. During the nine months ended March 31, 2014, the Company recognized stock-based compensation expense of $401,102 and none in the nine months ended March 31, 2015.

Operating loss

The operating loss for the nine months ended March 31, 2015 was ($657,815) compared to a net loss of gain of $(395,025) for the nine months ended March 31, 2014. The $262,790 increase in operating loss was primarily due to the lack of revenues and higher selling, general and administrative expenses stock-based compensation in the current period partially offset by reduced medical diagnostic contract revenues. See above for details.

Other income (expense)

Other income (expense) was $(1,203,174) for the nine months ended March 31, 2015 compared to $(606,424) for the nine months ended March 31, 2014. During the three months ended March 31, 2015, the Company had $444,937 in interest expense on notes payable, including amortization of the discount on debt. Additionally, there was $367,575 on loss due to the conversion of debt and a net $369,539 loss associated with the derivative liability. For the nine months ended March 31, 2014, the Company had $305,113 in interest expense on notes payable, including amortization of the discount on debt and accrual of the Original Issue Discount and there was $310,836 on loss due to the conversion of debt. This was partially offset by technology licensing income under the old business model of $9,525

Net loss applicable to common shareholders

The net income applicable to common shareholders for the nine months ended March 31, 2015 was $1,836,828 in comparison with a net loss of $1,002,588 applicable to common shareholders for the six months ended March 31, 2014. The net loss per share was $0.01 per share for the nine months ended March 31, 2015 and $0.37 per share for the nine months ended March 31, 2014.

Included in the net loss applicable to common shareholders for the three months ended March 31, 2015 are accrued dividends of $66,014 and $11,096 on the Series J 10% convertible preferred stock and Series K 10% convertible preferred stock, respectively. Included in the net loss applicable to common shareholders for the three months ended March 31, 2014 are accrued cash dividends of $1,139 on the Series E 5% convertible preferred stock.

26

LIQUIDITY AND CAPITAL RESOURCES

Cash and Working Capital

On March 31, 2015, the Company had a working capital deficit of $5,673,925 compared to a working capital deficit of $2,726,028 at June 30, 2014. The $2,947,897 decrease in working capital is due primarily to the operating loss incurred by the Company during the nine months ended March 31, 2015. During the nine months ended March 31, 2015, we received $442,500 from the issuance of notes payable.

Sources of Liquidity

During the nine months ended March 31, 2015 and the year ended June 30, 2014, we satisfied our operating cash requirements primarily from the issuance of notes payable and the collection of revenues from our medical diagnostics subsidiary.

COMMITMENTS AND CONTINGENCIES

Facilities

The Company currently leases office space at 137 National Plaza, Suite #300, National Harbor, MD 20745. Rent is $275 per month. Our telephone number is 240-273-3295.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. As of March 31, 2015, the Company had warrants outstanding for the purchase of 10,500 shares of common stock. The Company does not expect any material cash proceeds from exercise of these warrants. As of March 31, 2014, the Company had stock options outstanding for the purchase of 186,720 shares of common stock. In addition, on March 7, 2011, the Company entered into an Equity Purchase Agreement with a third party. Pursuant to the Equity Purchase Agreement, a third party shall commit to purchase up to $5,000,000 of our common stock over the course of 24 months commencing on the effective date of the registration statement pursuant to the registration rights agreement. The registration statement was declared effective on February 9, 2012; a post-effective amendment was filed on June 1, 2012 and was declared effective on June 13, 2012. No post-effective amendments have been filed since June 2012 and the registration statement is no longer effective. Our ability to draw down funds under the Equity Purchase Agreement is subject to a number of conditions set forth in the Equity Purchase Agreement, as are more fully discussed in the Risk Factors Section entitled “Risks Related to Market Conditions.”

Effect of inflation and changes in prices

Management does not believe that inflation and changes in prices has had or will have a material effect on operations.

Critical Accounting Policies and Estimates

The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements and the amounts of revenues and expenses recorded during the reporting periods. We base our estimates on historical experience, where applicable and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

Our critical accounting policies and use of estimates are discussed in, and should be read in conjunction with, the annual consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014 as filed with the SEC.

Item 3. Quantitative And Qualitative Disclosures About Market Risk.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

Our management, with the participation of our Chief Executive Officer (“CEO”) and our Principal Financial Officer (“PFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2015. In designing and evaluating disclosure controls and procedures, we and our management recognize that any disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective. As of December 30, 2013, based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls, the CEO and PFO concluded that our disclosure controls and procedures were not effective.

In light of the conclusion that our internal controls over financial reporting were ineffective as of March 31, 2015, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting in regards to this quarterly report on Form 10-Q. Accordingly, management believes, based on its knowledge, that: (i) this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the periods covered by this report; and (ii) the financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations and cash flows as at, and for, the periods presented in this quarterly report.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Under the supervision of our CEO and PFO, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2014 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting as of June 30, 2014, we determined that control deficiencies existed that constituted material weaknesses, as described below:

1.

lack of documented policies and procedures;

2.

inadequate resources dedicated to the financial reporting function; and

3.

ineffective separation of duties due to limited staff.

Subject to the Company’s ability to obtain financing and hire additional employees, the Company expects to be able to design and implement effective internal controls in the future that address these material weaknesses.

Accordingly, we concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company's internal controls.

As a result of the material weaknesses described above, our CEO and PFO have concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2015 and June 30, 2014 based on criteria established in Internal Control—Integrated Framework issued by COSO.

Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds

None except those previously mentioned in this report under Footnotes 4, 6 and 7 of the Financial Statements

Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

License Agreement

In December 2014, current management of the Company was made aware of a license agreement (the “Agreement”) entered into as of August 19, 2011 among the Company (through previous management), (then known as AccelPath, Inc.), Genex Technologies, Inc., a wholly owned subsidiary of the Company (“Genex”) and 3D-ID, LLC, a Florida limited liability company (“3D-ID”). Under the terms of the Agreement, the Company and Genex provided 3D-ID a perpetual sub-licensable, exclusive, worldwide license to make, have made, use, sell, offer for sale and import products and to practice any method under all trademarks, trade secrets, know-how, proprietary information and other intellectual property of the Company and Genex currently developed by the Company and/or Genex, including, without limitation, in each instance, all specifications, engineering drawings, schematics, bills of materials, software source and object code and algorithms, wiring diagrams, test procedures, assembly drawings, artwork, and other documents or files related to the Technology (the “Intellectual Property”) and other technology owned by the Company and/or Genex (the “Technology”). In consideration of the license, 3D-ID is to pay the Company a royalty equal to five percent (5%) of any revenues received by 3D-ID from any products sold or licensed to third parties that used the Intellectual Property in the manufacture, use, offer for sale, sale or importation of which requires and/or involves the Intellectual Property or the Technology and the provision of services by 3D-ID involving the Intellectual Property and/or the Technology. The Company has received no royalties from 3D-ID under the Agreement.

Under the terms of the Agreement, 3D-ID is to make quarterly written reports to the Company within thirty (30) days after the end of each calendar quarter, detailing the basis for the royalty payments as a result of the sales during the previous quarter. The Company has received no reports from 3D-ID as required under the Agreement. Further, 3D-ID was to make royalty payments of at least $15,000 during the first two years of the Agreement and at least $20,000. Under the terms of the Agreement, if 3D-ID does not make these minimum royalty payments, the license shall become non-exclusive. The Company has received no minimum royalty payments from 3D-ID as required under the Agreement.

The Company is continuing to investigate this matter to determine whether any additional obligations are owed to it by 3D-ID. The Company believes 3D-ID is in default under the Agreement.

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Item 6. Exhibits

|  |  |  |  |  | Incorporated by reference
Exhibit No. |  | Description |  | Filed with this Quarterly Report |  | Form |  | Filing Date |  | Exhibit No.
2.01 |  | Securities Purchase Agreement |  |  |  | 8-K |  | October 24, 2014 |  | 2.01
2.02 |  | Certificate of Designation for Series J Preferred Stock |  |  |  | 8-K |  | October 24, 2014 |  | 2.02
2.03 |  | Securities Purchase Agreement |  |  |  | 8-K |  | February 10, 2015 |  | 2.01
2.04 |  | Certificate of Designation for Series K Preferred Stock |  |  |  | 8-K |  | February 10, 2015 |  | 2.02
4.1 |  | AccelPath, Inc. Common stock warrant issued to Mr. Albert Friesen dated October 2, 2012 |  |  |  | 8-K |  | October 4, 2012 |  | 4.1
10.1 |  | Loan Agreement dated as of October 1, 2012, by and among Accel Brands, Inc. and Mr. Khal Aljerian |  |  |  | 8-K |  | October 4, 2012 |  | 10.1
10.2 |  | Promissory Note dated as of October 1, 2012 payable to Mr. Khal Aljerian |  |  |  | 8-K |  | October 4, 2012 |  | 10.2
10.3 |  | Amendment dated October 2, 2012 to Loan Agreement dated February 10, 2012 between AccelPath, Inc. and Albert Friesen |  |  |  | 8-K |  | October 4, 2012 |  | 10.3
10.4 |  | First Allonge to Promissory Note dated February 10, 2012 payable to Mr. Friesen |  |  |  | 8-K |  | October 4, 2012 |  | 10.4
10.5 |  | First Amendment to Lease Agreement dated November 16, 2012 between PS Business Parks, LP, Technest, Inc. and Accel Brands, Inc. |  | X |  |  |  |  |  |
31.1 |  | Certification by CEO of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). |  | X |  |  |  |  |  |
31.2 |  | Certification by PFO of Periodic Report Pursuant to Rule 13a-14(a) or Rule 15d-14(a). |  | X |  |  |  |  |  |
32.1 |  | Certification by CEO and PFO of Periodic Report Pursuant to 18 U.S.C. Section 1350. |  | X |  |  |  |  |  |

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ACCEL BRANDS, INC.

Date: May 20, 2015

By:/s/ Gilbert Steedley

Gilbert Steedley

Chief Executive Officer (Principal Executive Officer)

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