UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-27565
Abazias, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | 0-23532 | 65-0636277 |
(State or other jurisdiction | (Commission | (IRS Employer |
of incorporation) | File No.) | Identification No.) |
| | |
| | |
5214 SW 91st Terrace Suite A
Gainesville, FL 32608
(Address of principal executive offices) (Zip Code)
352-264-9940
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, $.001 par value
77,781,109 shares outstanding as of July 12, 2005.
Transitional Small Business Disclosure Format: Yes __ No X
PART I.
Item 1. FINANCIAL INFORMATION
ABAZIAS, INC.
BALANCE SHEET
June 30, 2005
(unaudited)
| | | | | |
ASSETS | | | | | |
Current assets | | | | | |
Cash | | $ | 104,203 | | | | |
Accounts receivable | | | 152,853 | | | | |
Inventory | | | 89,441 | | | | |
|
Total current assets | | | 346,497 | | | | |
Property & equipment, net of accumulated | | | | | | | |
depreciation of $2,886 | | | 3,840 | | | | |
|
TOTAL ASSETS | | $ | 350,337 | | | | |
|
LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | |
Current Liabilities | | | | | | | |
Accounts payable | | $ | 336,915 | | | | |
Note payable | | | 8,000 | | | | |
Loans from stockholders | | | 78,235 | | | | |
|
Total Current Liabilities | | | 423,150 | | | | |
|
Commitments and Contingencies | | | -- | | | | |
Stockholders' Deficit | | | | | | | |
Common stock, $.001 par value, 150,000,000 shares | | | | | | | |
authorized, 76,287,109 issued and outstanding | | | 76,287 | | | | |
Additional paid-in capital | | | 3,151,657 | | | | |
Accumulated deficit | | | (3,300,757 | ) | | | |
|
Total Stockholders' Deficit | | | (72,813 | ) | | | |
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 350,337 | | | | |
|
ABAZIAS, INC.
STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2005 and 2004
(unaudited)
| | Three Months | | | Six Months | |
| | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | |
Sales | | $ | 735,683 | | $ | 389,991 | | $ | 1,149,271 | | $ | 918,918 | |
Cost of sales | | | 618,258 | | | 351,494 | | | 965,702 | | | 839,922 | |
|
Gross profit | | | 117,425 | | | 38,497 | | | 183,569 | | | 78,996 | |
General and administrative | | | 141,633 | | | 247,410 | | | 233,423 | | | 1,081,679 | |
|
Net operating loss | | | (24,208 | ) | | (208,913 | ) | | (49,854 | ) | | (1,002,683 | ) |
Interest expense | | | (1,725 | ) | | (1,504 | ) | | (3,449 | ) | | (2,595 | ) |
|
Net loss | | $ | (25,933 | ) | $ | (210,417 | ) | $ | (53,303 | ) | $ | (1,005,278 | ) |
|
Basic and diluted net | | | | | | | | | | | | | |
loss per share | | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) |
Weighted average | | | | | | | | | | | | | |
shares outstanding | | | 76,187,109 | | | 74,154,472 | | | 75,847,098 | | | 72,421,505 | |
ABAZIAS, INC
STATEMENTS OF CASH FLOW
Six Months Ended June 30, 2005 and 2004
(unaudited)
Cash Flows From Operating Activities | | 2005 | | 2004 | |
Net loss | | $ | (53,303 | ) | $ | (1,005,278 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | |
used in operating activities: | | | | | | | |
Shares issued for services | | | 65,450 | | | 970,000 | |
Imputed interest on stockholder loan | | | 3,449 | | | 2,596 | |
Depreciation | | | 480 | | | 480 | |
Changes in: | | | | | | | |
Accounts receivable | | | (78,352 | ) | | (72,932 | ) |
Accounts payable | | | 180,953 | | | 73,234 | |
Inventory | | | (75,206 | ) | | -- | |
|
Net Cash Provided By (Used In) | | | | | | | |
Operating Activities | | | 43,471 | | | (31,900 | ) |
|
Cash Flows From Financing Activities | | | | | | | |
Proceeds from stockholder loan | | | -- | | | 31,900 | |
|
Net Cash Provided By Financing Activities | | | -- | | | 31,900 | |
|
Net change in cash | | | 43,471 | | | -- | |
Cash at beginning of period | | | 60,732 | | | -- | |
|
Cash at end of period | | $ | 104,203 | | $ | -- | |
|
Supplemental disclosure: | | | | | | | |
Income taxes paid | | $ | -- | | $ | -- | |
Interest paid | | | -- | | | -- | |
ABAZIAS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of Abazias, Inc., a Delaware corporation (“Abazias”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Abazias’ latest Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent year, 2004, as reported in Form 10-KSB, have been omitted.
NOTE 2 - COMMON STOCK
During the six months ended June 30, 2005, Abazias issued 817,000 shares of common stock for services. The shares were valued at $65,450.
NOTE 3 - SUBSEQUENT EVENT
On July 12, 2005, Abazias sold 1,500,000 restricted shares for cash at $.10 per share for a total of $150,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Some of the statements contained in this Form 10-KSB that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-QSB, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
· | Our ability to maintain, attract and integrate internal management, technical information and management information systems; |
· | Our ability to generate customer demand for our services; |
· | The intensity of competition; and |
· | General economic conditions. |
All written and oral forward-looking statements made in connection with this Form 10-QSB that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Overview
We are an online retailer of high quality loose diamonds and fine jewelry settings for our diamonds. Our web site at www.abazias.com showcases over 60,000 diamonds almost all of which are independently certified and around 100 styles of fine jewelry, including rings, wedding bands, earrings, necklaces, and bracelets.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2005 and 2004
| | Six Months Ended June30 [unaudited] | |
| | 2005 | | 2004 | |
Sales | | $ | 1,149,271 | | $ | 918,918 | |
Cost of sales | | | 965,702 | | | 839,922 | |
|
Gross profit | | | 183,569 | | | 78,996 | |
General and administrative | | | 233,423 | | | 1,081,679 | |
|
Net operating loss | | | (49,854 | ) | | (1,002,683 | ) |
Interest expense | | | (3,449 | ) | | (2,595 | ) |
|
Net loss | | $ | (53,303 | ) | $ | (1,005,278 | ) |
|
Our sales for the six months ended June 30, 2005 vs. six months ended June 30, 2004 increased 25% to $1,149,271 from $918,919 primarily due to an increase in online marketing campaigns, especially with respect to increasing our visibility on search engine rankings. This is a result of our extensive internal search engine optimization campaign. In addition, an increased exposure in certain jewelry type portals, like pricegrabber.com and pricescope.com., assisted in this increase in revenue.
Our cost of sales for the six months ended June 30, 2005 vs. six months ended June 30, 2004 increased 15% to $965,702 from $839,922 due to the corresponding increase in the amount of diamonds sold for the period. This corresponding increase in costs is consistent with the proportional increase in additional sales for the period.
Our general and administrative expenses for the six months ended June 30, 2005, 2005 vs. six months ended June 30, 2004 decreased 78% to $233,423 from $1,081,879 due to a significant reduction expenses associated with stock issued to management or consultants.
Our interest expense for the six months ended June 30, 2005 vs. six months ended June 30, 2004 increased 33% to $3,449 from $2,595 due to an increase in principal liability owed to our major stockholder Oscar Rodriguez.
Accordingly, our net loss for the six months ended June 30, 2005 vs. six months ended June 30, 2004 decreased 95% to $53,303 from $1,005,278.
Liquidity and Capital Resources
At June 30, 2005, we had current assets of:
Cash | | $ | 104,203 | |
Accounts receivable | | | 152,853 | |
Inventory | | | 89,441 | |
| | | | |
Total current assets | | $ | 346,497 | |
| | | | |
At June 30, 2005, we had current liabilities as follows:
Current Liabilities | | | |
Accounts payable | | $ | 336,915 | |
Note payable | | | 8,000 | |
Loans from stockholders | | | 78,235 | |
Total current liabilities | | $ | 423,150 | |
| | | | |
With the exception of loans from stockholders, as described below, for which our shareholders have not requested and we do not anticipate a request for repayment in the next 12 months, our current assets and liabilities are approximately equal, and thus we do not believe present a liquidity issue.
We expect that our average cash revenues and expenses will continue at approximately the same levels during the next 12 months. Therefore, we expect we will continue to have positive cash flow during this period.
Although this positive cash flow position can change in the future, management feels reasonably confidant that it is in a position to maintain the required level of sales, and/or reduce corresponding expenses as needed to fulfill its financial obligations from a cash flow perspective on an ongoing basis into the future, although there is no assurance we can do so.
The majority stockholder advances money to Abazias on an as-needed basis. Notwithstanding his willingness to make advances in the past, he is under no legal obligation to make further advances in the future. The advances are due on demand, bear no interest and have no collateral. At June 30, 2005, the amount of the advance was $78,235 and the majority stockholder has not needed to make an advance on behalf of the company for the last four quarters.
As of June 30, 2005, we had $336,915 of trade accounts payable and receivables of $152,853. Subsequent to June 30, 2005, we received net proceeds of $150,000 from the sale of our stock to one investor, as described below.
We have no long term commitments.
However, we had non-cash expenses of $65,450 during the six months ended June 30, 2005 which resulted in a loss for financial statement purposes. We also had similar non cash expenses for the fiscal year ended December 31, 2004. As such, our accountants indicated that there is an uncertainty as to our ability to continue as a going concern.
Certain Accounting Policies
Revenue recognition
a) Return Policy- For most of our products, we offer an unconditional 10-day return policy, under which customers desiring to return a product receive a return authorization by calling our customer service center. We have, based on historical return figures, been able to determine that returns have never had any material impact on our financial statements, and historically been less then than 5% of total sales, based on analyzing historical return rates. We therefore expect no more than 5% of sales to be returned witch can only occur within 10 days after the sale is made. Returned products are treated as merchandise credits and are subject to the same inventory accountability. Revenue is recognized when the diamonds are shipped, and returns immediately debited against current sales upon any return.
b) Since we do not hold significant inventory, we have reviewed EITF 99-19, to clarify if we might be deemed a diamond agent and have to report sales on a net basis. We clearly do not fit under the appropriate definition as an agent for several reasons. Although we hold very little inventory, we purchase all of our diamonds under our credit facilities with our various wholesalers. This varies between many dealers and in same cases, requires us to wire funds before a diamond is shipped, to many dealers offering us credit terms of net 30 for payment. The customer that purchases a diamond or other product, does so with us solely, and is never even aware of our wholesaler relationships, and even at any time we’re aware, could not purchase from them. Consequently, regardless of whether we are paid or not for the diamond or other products we sell, we are obligated to pay our wholesaler for said product once shipped. We have purchased the diamond or product, and the responsibility of said product solely rests with us, including accepting a return from a customer, even when we in turn might not be able to return the same diamond to our wholesaler. Regardless of whether or not the company is deemed an agent, which we clearly are not, we would still fulfill all the indicators under EITF 99-19 for gross revenue reporting. We are the primary obligator in the arrangement, we maintain inventory risk in the event the product is returned, price establishment rests solely with us, we can and do modify the product frequently by mounting diamonds, as well as finishing them and other products, we can and do choose among many suppliers, all products sold are determined by us, we have physical loss risk, and additionally shoulder credit risk. Based on these reasons, we clearly are not an agent, and should report revenues on a gross basis.
Trade up policy
We have a lifetime trade up policy which provides a guaranteed trade up of 80% of the price of the original diamond purchase. This provides our customers with the ability and incentive to become and remain our customers for many years to come. This affords our customers an option that many of our competitors will not extend to them. If the buyer exercised his/her trade-in right (functionally an option written by us), we would exchange a new diamond in for the original. Under normal circumstances, any trade up policy exercised would be even more profitable than a sale not including an exercised policy. This is because, on average we would make our normal markup, in addition to getting a discount that is greater than our cost on the diamond traded. It is conceivably possible, in a catastrophic event to the diamond markets which caused the value of diamonds to drop, customers would want to take advantage of this policy. Our policy is limited to the value of the diamond traded in, being close to the value when purchased. As such, we are protected from the functional price guarantee as mentioned in EITF 00-24 and FIN 45. Specifically our policy is only valid when, the diamond is at least 80% of the wholesale per carat price at time of purchase, based on published wholesale prices in the Rappaport industry publication, which is the de-facto standard for diamond pricing. To date, no customers have exercised this policy with us. After reviewing EITF 00-24 and FIN 45, we would not have any potential financial exposure to account for as a result of this policy, since our trade in value requirements based on current market conditions at the time of trade in, require the diamond to be worth 80% of the wholesale carat price, and if it does not, no trade up policy is valid.
Item 3. Controls and Procedures
The Corporation maintains disclosure controls and procedures designed to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, the Corporation's Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the Corporation's disclosure controls and
procedures. Based on the evaluation, which disclosed no significant deficiencies
or material weaknesses, the Corporation's Chief Executive Officer and Chief
Financial Officer concluded that the Corporation's disclosure controls and
procedures are effective as of the end of the period covered by this report.
There were no changes in the Corporation's internal control over financial
reporting that occurred during the Corporation's most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.
5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended June 30, 2005, Abazias issued 817,000 shares of common stock for services. The shares were valued at $65,450 based upon trading prices of our securities.
These shares were issued in reliance upon Section 4(2) of the 1933 Act in view of the following:
· | None of these issuances involved underwriters, underwriting discounts or commissions. |
· | Restrictive legends were and will be placed on all certificates issued as described above. |
· | The distribution did not involve general solicitation or advertising. |
· | The distributions were made only to investors who were sophisticated enough to evaluate the risks of the investment. |
Although some of the investors may have also been accredited, we provided the following to all investors:
· Access to all our books and records.
· Access to all material contracts and documents relating to our operations.
· The opportunity to obtain any additional information, to the extent we possessed such information, necessary to verify the accuracy of the information to which the investors were given access.
Item 3. Default Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On July 12, 2005 Abazias sold 1,500,000 restricted shares at 10 cents per share for a total sum of $150,000 to a single accredited investor. Shortly after execution of the agreement with said investor, the total dollar amount was received in its entirety, and shares issued accordingly. These shares were issued in reliance upon Section 4(2) of the 1933 Act in view of the following:
· | None of these issuances involved underwriters, underwriting discounts or commissions. |
· | Restrictive legends were and will be placed on all certificates issued as described above. |
· | The distribution did not involve general solicitation or advertising. |
· | The distributions were made only to investors who were sophisticated enough to evaluate the risks of the investment. |
Item 6. Exhibits
(a) Exhibits:
Exhibit No. Document Description
31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002.
31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002.
32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(b) Form 8-K.
SIGNATURES
In accordance with Section 12 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Abazias, Inc.
By: /s/ Oscar Rodriguez
Oscar Rodriguez, President and Director
By: /s/ Jesus Diaz
Jesus Diaz, Principal Financial Officer
and Principal Accounting Officer
Dated: August 15, 2005