SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 2002.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the
transition period from to .
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Commission file number: I-9418
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AXIA GROUP INC.
(Exact name of small business issuer as specified in its charter)
Nevada 87-0509512
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268 West 400 South, Salt Lake City, Utah 84101
---------------------------------------------------------
(Address of principal executive office) (Zip Code)
(801) 575-8073
(Issuer'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 reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes XX No
-- ----
The number of outstanding shares of the issuer's common stock, $0.001 par value
(the only class of voting stock), as of December 19, 2002 was 10,771,488.
1
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS................................4
PART II
ITEM 1. LEGAL PROCEEDINGS...................................................9
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES............................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................10
ITEM 5. OTHER INFORMATION..................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................10
SIGNATURES..................................................................11
INDEX TO EXHIBITS...........................................................13
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2
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Axia" or the "Company" refers to Axia Group, Inc., a
Nevada corporation, and its subsidiaries and predecessors unless otherwise
indicated. Consolidated, unaudited, condensed interim financial statements
including a balance sheet for Axia as of September 30, 2002, and statements of
operations, and statements of cash flows for the interim periods of three and
nine months up to the date of such balance sheet and the comparable periods of
the preceding year are attached hereto as Pages F-1 through F-7 and are
incorporated herein by this reference.
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3
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
Unaudited Consolidated Condensed Balance Sheet as of September 30, 2002 ....F-2
Unaudited Consolidated Condensed Statement of Operations for the Three and
Nine Months Ended September 30, 2002 and 2001...............................F-4
Unaudited Consolidated Condensed Statement of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001....................................F-5
Notes to Unaudited Consolidated Condensed Financial Statements..............F-6
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F-1
AXIA GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 2002
September 30,
2002
-------------------------
ASSETS
Current Assets
Cash $ 98,529
Restricted cash 227,242
Accounts receivable - trade, net of allowance 162,652
Accounts receivable - related parties 64,003
Notes receivable - current 67,500
Prepaid expenses 54,385
Securities available for sale 89,628
Total Current Assets 763,939
Fixed Assets
Property and equipment 5,022,121
Less: Accumulated depreciation (722,153)
Land 1,090,535
-------------------------
Total Fixed Assets 5,390,503
Other Assets
Real property held for sale 195,511
Investment securities 221,801
Notes receivable 299,082
Total Other Assets 716,394
TOTAL ASSETS $ 6,870,836
=========================
See accompanying notes to unaudited consolidated condensed financial statements
F-2
AXIA GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET (Continued)
September 30, 2002
September 30,2002
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 160,777
Accrued liabilities 62,255
Unearned rent 68,183
WVDEP liability 20,000
Current portion long-term debt 1,721,116
-------------------------
Total Current Liabilities 2,032,331
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Long-Term Liabilities
Notes and mortgages payable 4,213,379
IEPA liability 207,629
Less current portion (1,721,116)
-------------------------
Total Long-Term Liabilities 2,699,892
TOTAL LIABILITIES 4,732,223
MINORITY INTEREST 682,091
STOCKHOLDERS' EQUITY
Preferred stock - 20,000,000 shares authorized at $5.00 par, 1,000 shares issued 5,000
Common stock - 200,000,000 shares authorized at $0.001 par; 10,772
10,971,488 shares issued
Additional paid in capital 17,036,719
Treasury stock - 2,766,336 shares (1,255,216)
Accumulated deficit (14,010,781)
Subscription receivable (45,000)
Unrealized loss on securities available for sale (284,972)
-------------------------
TOTAL STOCKHOLDERS' EQUITY 1,456,522
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,870,836
=========================
See accompanying notes to unaudited consolidated condensed financial statements
F-3
AXIA GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30, 2002 and 2001
Three Months Ended Nine Months Ended
September 30 September 30
2002 2001 2002 2001
------------- -------------- --------------- ---------------
Revenue
Sale of property $ - $ - $ 2,332,000 $ -
Consulting revenue 65,446 396,916 176,711 898,950
Rental revenue 243,202 236,656 758,505 653,985
------------- -------------- --------------- ---------------
Total Revenue 308,648 633,572 3,267,216 1,552,935
Costs of Revenue
Costs associated with sale of property - - 2,330,500 -
Costs associated with consulting
revenue 363,205 126,030 589,635 501,916
Costs associated with rental revenue 168,485 181,882 604,284 666,960
Interest associated with rental revenue 109,355 66,900 307,794 326,677
------------- -------------- --------------- ---------------
Total Costs of Revenue 641,045 307,912 3,832,213 1,175,649
Gross Profit (332,397) 325,660 (564,997) 377,286
Selling, General & Administrative Expense 113,980 148,208 652,974 429,988
------------- -------------- --------------- ---------------
Operating Profit (Loss) (446,377) 177,452 (1,217,971) (52,702)
Other Income (Expense)
Interest Income 5,541 773 5,667 50,594
Gain (loss) on disposal of subs - (38,718) - (38,718)
Gain (loss) from sale of securities 4,886 (375,218) (167,601) (681,948)
Impairment loss on long lived assets - (117,946) - (117,946)
Other income (expense) 52,602 (254,591) 84,537 (262,339)
------------- -------------- --------------- ---------------
Total Other Income (Expense) 63,029 (852,600) (77,397) (1,377,034)
Income (Loss) Before Minority Interest (383,348) (675,108) (1,295,368) (1,429,736)
Minority Interest in Loss 24,623 - 132,501 -
------------- -------------- --------------- ---------------
Net Profit (Loss) before income taxes (358,725) (675,108) (1,162,867) (1,429,736)
Income tax benefit - - - -
Net Profit (Loss) (358,725) (675,108) (1,162,867) (1,429,736)
Income (Loss) Per Common Share
Loss before minority interest $ (0.04) $ (0.13) $ (0.16) $ (0.30)
Minority interest in loss 0.00 - 0.02 -
------------- -------------- --------------- ---------------
Net loss per weighted average common
share outstanding (0.04) (0.13) (0.14) (0.30)
$ $ $ $
Weighted Average common shares
outstanding 9,893,000 5,392,000 8,233,000 4,939,000
============= ============== =============== ===============
See accompanying notes to unaudited consolidated condensed financial statements
F-4
AXIA GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
Nine Months Ended
September 30
2002 2001
------------------- ----------------
Cash Flows From Operating Activities
Net Income (Loss) $ (1,162,866) $ (1,429,736)
Adjustments to reconcile net income (loss) to net cash provided
(used):
(Gain) Loss from sale of investments 167,601 681,948
Minority interest in gain (loss) (132,501) -
Closing costs on sale of property 100,701 -
Closing costs added to loan 3,981 -
Marketable securities as payment for receivables (123,079) -
Depreciation & amortization 137,210 161,004
Loss on sale of property and equipment 3,330 -
Loss on sale of subsidiary - 38,718
Impairment loss on long lived assets - 117,946
Issued stock and stock options for services 365,669 221,400
Decrease (increase) in assets:
Restricted cash (227,242) -
Accounts & notes receivable (79,514) (111,530)
Prepaid expenses 6,585 (1,450)
Increase (decrease) in liabilities
Accounts payable 124,562 37,285
Accrued liabilities (166,548) (98,375)
Unearned rent 68,183 -
------------------- ----------------
Net Cash Provided (Used) by Operating Activities (913,928) (382,790)
Activites
Cash Flows From Investing Activities
Purchase of fixed assets (263,514) (65,779)
Cash received in acquisition 18,545 -
Purchase of investments (8,804) (293,297)
Proceeds from sale of subsidiaries - 200
Proceeds from sale of property 415,228 -
Proceeds from sale of investments 196,846 326,886
------------------- ----------------
Net Cash Provided (Used) by Investing Activities 358,301 (31,990)
Cash Flows from Financing Activities
Sale of common stock for cash 32,350 301,614
Purchase of treasury stock (34,991) -
Proceeds from long-term debt 467,574 -
Payments on long-term debt (105,911) -
Increase in long-term debt - 84,288
------------------- ----------------
Net Cash Provided (Used) by Financing Activities 359,022 385,902
Increase (Decrease) in Cash (196,605) (28,878)
Cash at Beginning of Period 295,134 178,420
------------------- ----------------
Cash at End of Period $ 98,489 $ 149,542
=================== ================
See accompanying notes to unaudited consolidated condensed financial statements
F-5
AXIA GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2002
1. BASIS OF PRESENTATION
The accompanying consolidated unaudited condensed financial statements have been
prepared by management in accordance with the instructions in Form 10-QSB and,
therefore, do not include all information and footnotes required by accounting
principles generally accepted in the US and should, therefore, be read in
conjunction with Axia's Annual Report to Shareholders on Form 10-KSB for the
fiscal year ended December 31, 2001. These statements do include all normal
recurring adjustments which Axia believes necessary for a fair presentation of
the statements. The interim operations results are not necessarily indicative of
the results for the full year ended December 31, 2002.
2. TREASURY STOCK
During the nine months ended September, 2002, the Company purchased 140,500
shares of its own stock in the open market for a cost of $34,991. Of the total
2,766,736 shares in treasury stock, all are held in the accounts of subsidiary
corporations. Since Axia's stock buyback program began in October of 2001, Axia
has purchased a total of 249,885 shares in the open market.
3. REFINANCING OF DEBT
During the quarter ended June 30, 2002, West Jordan Real Estate Holdings
(WJREH), an 88.3% owned subsidiary, refinanced its Glendale shopping plaza with
Imperial Capital Bank. The new loan, in the amount of $1,072,500, paid off an
existing mortgage with US Bank in the approximate amount of $631,000, set aside
$110,000 for capital improvements, repaid the Company $213,000 spent on capital
projects, losses, and other expenditures, and reserved $62,000+ in an earn out
provision. The new note is based on a 20 year amortization, with a 10 year
balloon payment, and carries a LIBOR + 4.5% (currently at 6.4%) APR.
In addition to the above refinancing, Kearns Development Corporation (Kearns),
an 86.9% owned subsidiary, was able to extend its primary mortgage with Brighton
Bank on July 11, 2002 for a period of 2 years. The terms of the extended note
are essentially the same as the primary mortgage with the addition of a $50,000
collateral agreement of which the Company can use $30,000 to fund any potential
cash shortages. The note is now due on July 12, 2004, has a 9.0% interest rate
with monthly principal and interest payments of $5,632. Although the note is not
due until July 12, 2004, it may be called at any time by the lender and for this
reason has been classified as a current liability. The company has received
preliminary approval from a different lender to refinance the note at a 7.16%
interest rate amortized over 20 years with a 10-year call provision.
4. ACQUISITION
Pursuant to a stock purchase and asset/subsidiary purchase agreement dated
February 15, 2002, the Company received 255,100,000 newly issued restricted
common shares of Nexia Holdings, Inc.(Nexia) in exchange for certain assets and
liabilities of Axia. The net effect of this transaction is that Nexia became an
82.2% owned subsidiary of Axia, in exchange, Nexia received a majority of the
assets, liabilities and interest in Axia's subsidiaries, which included
shareholder interest in several "shell" companies in which Axia had a
controlling stake.
F-6
AXIA GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2002
The operations from Nexia and its subsidiaries for the period from February 15,
2002, to September 30, 2002, are included in the statement of operations of the
combined entities. For more information regarding this transaction as well as
pro-forma financial statements for the year ended December 31, 2001, please see
the Company"s form 8-K/A filed with the SEC on February 27, 2002, and amended
with the above- mentioned financial statements on May 1, 2002.
5. NON-CASH TRANSACTIONS
During the nine months ended September 30, 2002, the Company recorded the
following non-cash investing and financing activities:
In connection with the above-referenced Nexia transaction, the Company recorded
marketable securities of $215,336, accounts payable of $7,129, an increase in
minority interest due to the change in ownership of subsidiaries of $529,082,
net cash received of $18,545, and a deemed distribution of $302,330. As a result
of the transaction, Nexia became an approximate 82.2% owned subsidiary and all
previously owned subsidiaries became subsidiaries of Nexia.
The Company acquired $15,000 of property and equipment through the issuance of
30,000 shares of common stock.
6. LIQUIDITY
Due to Axia's debt service on real estate holdings, willingness to acquire
properties with negative cash flow shortages and acceptance of non-cash assets
for consulting services, Axia may experience occasional cash flow shortages. To
cover these shortages we may need to sell securities from time to time at a
loss. In addition, the Company is currently experiencing significant challenges
with regard to cash flow. We are looking at several options to improve this
situation, but there can be no assurance that the Company will be successful in
meeting its cash needs.
The financial statements do not reflect any adjustment should the Company not
maintain sufficient cash to fund its currently anticipated working capital,
capital spending, and debt service requirements during the next twelve months.
7. ADDITIONAL FOOTNOTES INCLUDED BY REFERENCE
Except as indicated in the Notes above, there have been no other material
changes in the information disclosed in the notes to the financial statements
included in Axia's Annual Report on Form 10-KSB for the year ended December 31,
2001. Therefore, those footnotes are included herein by reference.
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F-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Axia is a holding company that operates in two primary areas of business:
acquiring, leasing and selling real estate; and, providing financial consulting
services. This business is transacted through a number of subsidiaries which are
owned by the Axia's majority owned subsidiary and holding company Nexia
Holdings, Inc.
The following discussion examines Axia's financial condition as a result of
operations for the third quarter and year-to-date, ending September 30, 2002,
and compares those results with comparable periods from last year.
Real Estate Operations
Axia's objective, with respect to real estate operations, is to acquire, through
subsidiaries, properties which management believes to be undervalued and which
Axia is able to acquire with limited cash outlays. Axia will consider properties
within the continental United States. Axia attempts to acquire such properties
by assuming existing favorable financing and paying the balance of the purchase
price with nominal cash payments or through the issuance of shares of common
stock. Once such properties are acquired, Axia leases them to primarily
commercial tenants. Axia also makes limited investments to improve the
properties with the objective of increasing occupancy and cash flows. Management
believes that, with limited improvements and effective management, properties
can be sold at a profit within a relatively short period of time.
On January 4, 2002, Golden Opportunity Development Corporation, ("GODC") a
former subsidiary of Axia (transferred to Nexia in the February 15, 2002
transaction) that has historically been engaged in the business of operating and
acquiring hospitality property, sold its only asset, the General LaFayette Inn.
Prior to January 4, 2002, GODC owned the General Lafayette Inn, a 134 unit motel
and restaurant, and four adjacent office/retail buildings, located at 427
Lafayette Street, Baton Rouge, Louisiana (the "Motel").
The Motel was sold for cash, in the amount of $2,332,000, to Lafayette
Development Holdings, LLC. ("Lafayette"), a Louisiana Limited Liability Company.
After payment of taxes, real estate commissions, and the mortgage on the
property, GODC realized net cash of approximately $337,000. There is no material
relationship between Lafayette and Axia. GODC, or any of their affiliates, or
any of their officers or directors, or any associate of such officers or
directors.
It should be noted that with the divestiture of the General LaFayette Inn, Axia
believes that a major source of negative cash flow and losses for Axia has been
eliminated. Over the four years Axia owned the property, it accounted for
$1,258,803 in losses and approximately $800,000 in negative cash flows.
During the quarter ended June 30, 2002, West Jordan Real Estate Holdings
(WJREH), an 88.3% owned subsidiary, refinanced its Glendale shopping plaza with
Imperial Capital Bank. The new loan, in the amount of $1,072,500, paid off an
existing mortgage with US Bank in the approximate amount of $631,000, set aside
$110,000 for capital improvements, repaid the Company $213,000 spent on capital
projects, losses, and other expenditures, and reserved $62,000+ in an earn out
provision. The new note is based on a 20 year amortization, with a 10 year
balloon payment, and carries a LIBOR + 4.5% (currently at 6.4%) APR.
In addition to the above refinancing, Kearns Development Corporation (Kearns),
an 86.9% owned
4
subsidiary, was able to extend its primary mortgage with Brighton Bank on July
11, 2002 for a period of 2 years. The terms of the extended note are essentially
the same as the primary mortgage with the addition of a $50,000 collateral
agreement of which the Company can use $30,000 to fund any potential cash
shortages. The note has a 9.0% interest rate with monthly principal and interest
payments of $5,631.80. Although the note is due on July 12, 2004, it may be
called at any time by the lender and for this reason has been classified as a
current liability.
Currently, Axia has negative cash flows from real estate operations of $34,637
for the 3 months ended September 30, 2002, compared to a negative cash flow from
real estate operations of $12,126 for the same period in 2001.
Axia recorded rental revenues of $243,202 for the quarter ended September 30,
2002, as compared to $236,656 for the same quarter, 2001. This increase in
rental revenues was due to a slight increase in occupancy rates.
Axia will continue efforts to improve profitability and cash flow by working to
increase occupancy and rental income from those properties which have a high
vacancy rate as well as focusing on properties with the highest per square foot
rental rates. Axia also intends to continue to purchase real estate primarily
for appreciation purposes. Accordingly, Axia hopes to not only minimize any real
estate cash flow deficit, but also generate sufficient cash to record a
substantial profit upon property disposition.
During the current fiscal year, the majority of Axia's rental properties have
operated at a loss. In addition, we have not been able to sell any properties
during the current year for a gain. There can be no assurance that we will be
successful in reducing vacancy or selling properties for a gain.
Consulting Operations
Axia, through its subsidiary Hudson Consulting Group, Inc. (Hudson), provides a
variety of financial consulting services to a wide range of clients. The primary
service performed by Axia involves assisting clients in structuring mergers and
acquisitions. This includes locating entities suitable to be merged with or
acquired by Axia's clients, as well as providing general advice related to the
structuring of mergers or acquisitions. Axia also assists clients in
restructuring their capital formation, advises with respect to general corporate
problem solving and provides shareholder relations services designed to expose
its clients to the investment community.
Axia's consulting subsidiary generates revenues through consulting fees payable
in the client's equity securities, cash, other assets or some combination of the
three. The primary form of compensation received is the equity securities of
clients. When payment is made in the form of equity, the number of shares to be
paid is usually dependent upon the price of the client's common stock (if such
price is available) and the extent of consulting services to be provided. The
typical value used to determine the number of shares to be paid is one-half or
less of the stock's bid price, which accounts for the fact that most of the
equity received as payment by Axia is restricted as to resale. Axia accepts
equity with the expectation that its services will assist in the stock's
appreciation, thus allowing Axia to be compensated and to make a return on the
payments for its services.
Axia generates cash flow, in part, by liquidating non-cash assets (equity
securities) received as fees for consulting services. As most fees are paid in
the form of equity, the revenues and cash flows realized by Axia are somewhat
tied to the price of its clients' securities and Axia's ability to sell such
securities. A decline in the market price of a client's stock can affect the
total asset value of Axia's balance sheet and
5
can result in Axia incurring substantial losses on its income statement. Axia
generally books securities that it accepts as payment at a 50% to 95% discount
of the current market value at the time Axia accepts the securities due to
illiquidity of the securities and because of restrictions on resale.
Axia's portfolio consists primarily of restricted and unrestricted shares of
common stock in micro to small cap publicly traded companies. This portfolio
currently consists of shares of common stock in numerous different companies
whose operations range from that of high-tech Internet operations to oil and gas
companies. Axia believes that the diversity of its current holdings, all
investments in companies are less than 10% of their issued and outstanding
shares, is such that the overall volatility of its portfolio is significantly
less than in prior years of operation. Nonetheless, Axia's portfolio is
considered extremely volatile.
Revenues from Axia's financial consulting operations decreased for the quarter
ended September 30, 2002, as compared to the same quarter in 2001. Axia recorded
$65,446 in revenues for the quarter ended September 30, 2002, from its financial
consulting operations as compared to $396,916 for the same period of 2001. This
decrease was due to a slow down in consulting activities, due primarily to
adverse conditions in the market-place.
During the nine months ended September 30, 2002, Axia sold investment securities
owned by Axia and its subsidiaries. The bulk of the securities sold were
securities that Axia and its majority owned subsidiaries acquired in past years
for services rendered to clients by Axia's consulting subsidiaries. During the
nine months ended September 30, 2002, Axia and its subsidiaries realized
approximately $197,000 from the sale of investment securities. Axia's basis in
the securities was approximately $364,000, resulting in a loss from the sales of
approximately $168,000. Axia continued to liquidate securities it felt would not
rebound to prevent future losses and to provide needed working capital.
Company Operations as a Whole
Revenues
Gross revenues for the three month period ended September 30, 2002 were
$308,648, as compared to $633,572 for the same period in 2001. The decrease in
revenues is due to an approximate $300,000 decrease in consulting revenues. The
decrease is due in general to a major slow down in financial consulting due to
adverse market conditions.
Gross revenues for the nine month period ended September 30, 2002 were
$3,267,216, as compared to $1,552,935 for the same period in 2001. The increase
in revenues is due to a $2,332,000 increase in sale of property, an approximate
$700,000 decrease in consulting revenues, and an approximate $100,000 increase
in rental revenues.
Rental revenues increased slightly in 2002, due mainly to the Company's
acquisition of the Wichita property in late 2001.
6
Profits
Axia recorded an operating loss of $446,377 for the three months ended September
30, 2002, compared to an operating profit of $177,452 for the comparable period
in the year 2001. Axia recorded a net loss of $385,725 for the three months
ended September 30, 2002, compared to a net loss of $675,108 for the comparable
period in 2001. Axia's decrease in net loss for the three month period ended
September 30, 2002, as compared to the same period in 2001, was due primarily to
significant losses from the sale of securities and impairment of property and
equipment in 2001, offset by the decrease in consulting revenue in 2002.
Axia's operating loss increased to $1,217,970 for the nine months ended
September 30, 2002, from an operating loss of $52,702 for the comparable period
in the year 2001. Axia recorded a net loss of $1,162,866 for the nine months
ended September 30, 2002, compared to a net loss of $1,429,736 for the
comparable period in 2001. Axia's decrease in operating losses for the nine
month period ended September 30, 2002, as compared to the same period in 2001,
was due to reduced consulting revenue as a result of adverse market conditions
and an increase in general and administrative expenses.
Axia does not expect to operate at a profit through fiscal 2002. Since Axia's
consulting activities are closely tied to the securities markets, future
profitability or its revenue growth tends to follow changes in the market place.
There can be no guarantee that profitability or revenue growth can be achieved
in the future.
Expenses
General and administrative expenses for the three months ended September 30,
2002, were $113,980 compared to $148,208 for the same period in 2001. General
and administrative expenses for the nine months ended September 30, 2002, were
$652,973 compared to $429,988 for the same period in 2001. The reason for the
increase is higher costs related to negotiating and completing structural
changes in the corporation.
Depreciation and amortization expenses for the nine months ended September 30,
2002, and September 30, 2001, were $137,210 and $161,004, respectively. The
decrease was due to a disposition of assets at the beginning of 2002 as well as
some assets being fully depreciated and not yet replaced.
Capital Resources and Liquidity
On September 30, 2002, Axia had current assets of $763,939 and $6,870,836 in
total assets compared to $1,671,366 of current assets and $9,770,017 in total
assets at the year ended December 31, 2001. Axia had a net working capital
deficit of $1,268,392 on September 30, 2002, compared to net working capital of
$81,585 on December 31, 2001. The decrease in total assets is attributable to
the sale of the General LaFayette Motel. The major contributing factor to the
decrease in net working capital is that two of the Company's mortgages will be
due in the next year and the mortgage on the Kearns building being callable.
Axia is currently attempting to refinance approximately $368,000 in current
liabilities by the last quarter of the fiscal year 2002 and we are also
currently working on a refinance of the Kearns property. This should improve the
working capital position by year-end. However, there can be no guarantee that
this will be
7
completed.
Total stockholders' equity in Axia was $1,456,522 as of September 30, 2002,
compared to $3,022,954 as of December 31, 2001. This decrease is attributable to
changes in the values of securities, as well as increases in minority interest
in the subsidiaries caused by the first quarter acquisition of Nexia and the
concurrent transfer of assets, liabilities, and subsidiaries to Nexia.
Net Cash flow used in operating activities was $913,928 for the nine months
ended September 30, 2002, compared to cash flow used in operating activities of
$382,790 for the nine months ended September 30, 2001. Changes in cash flows
from operating activities for the nine months ended September 30, 2002, are
primarily attributable to change in securities values and stock issued for
services.
Cash flow provided by investing activities was $358,301 for the nine months
ended September 30, 2002, compared to cash flow used in investing activities of
$31,990 for the same period in 2001. The increase is largely due to a reduction
in the purchase of investment securities coupled with a reduction in the
proceeds from the sale of investment securities, and an increase in proceeds
from the sale of properties.
Cash flow provided by financing activities was $359,022 for the nine months
ended September 30, 2002, compared to cash flows provided by financing
activities of $385,902 for the nine months ended September 30, 2001. The
decrease was largely due to a lack of financing through sale of common stock as
well as the purchase of treasury stock, payments on long term debt, and an
increase in long term financing.
Due to Axia's debt service on real estate holdings, willingness to acquire
properties with negative cash flow shortages, and acceptance of non-cash assets
for consulting services, Axia may experience occasional cash flow shortages.
Currently, the Company is experiencing one of these cash flow issues and is
considering options to remedy the situation.
Impact of Inflation
Axia believes that inflation has had a negligible effect on operations over the
past three years. Axia believes that it can offset inflationary increases in the
cost of materials and labor by increasing sales and improving operating
efficiencies.
Known Trends, Events, or Uncertainties
General Real Estate Investment Risks
Axia's investments are subject to varying degrees of risk generally incident to
the ownership of real property. Real estate values and income from Axia's
current properties may be adversely affected by changes in national or local
economic conditions and neighborhood characteristics, changes in interest rates
and in the availability, cost and terms of mortgage funds, the impact of present
or future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, changes in governmental rules and fiscal
policies, civil unrest, acts of God, including earthquakes and other natural
disasters which may result in uninsured losses, acts of war, adverse changes in
zoning laws and other factors which are beyond the control of Axia. To cover
these shortages we may need to sell securities from time to time at a loss.
8
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of Axia to vary its
ownership of real estate property in response to changes in economic and other
conditions is limited. If Axia must sell an investment, there can be no
assurance that Axia will be able to dispose of it in the time period it desires
or that the sales price of any investment will recoup the amount of Axia's
investment.
Property Taxes
Axia's real property is subject to real property taxes. The real property taxes
on this property may increase or decrease as property tax rates change and as
the property is assessed or reassessed by taxing authorities. If property taxes
increase, Axia's operations could be adversely affected.
Forward Looking Statements
The information herein contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward looking statements involve risks and uncertainty, including, without
limitation, the ability of Axia to continue its expansion strategy, changes in
the real estate markets, labor and employee benefits, as well as general market
conditions, competition, and pricing. Although Axia believes that the
assumptions underlying the forward looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward looking statements included in the Form 10-QSB
will prove to be accurate. In view of the significant uncertainties inherent in
the forward looking statements included herein, the inclusion of such
information should not be regarded as a representation by Axia or any other
person that the objectives and plans of Axia will be achieved
Controls and Procedures
1. Evaluation of disclosure controls and procedures
Under the supervision and with the participation of the Company's Sole Executive
Officer, the Company evaluated the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-14(c) and
15d-14(c) under the Exchange Act) as of a date (the "Evaluation Date") within 90
days prior to the filing date of this report. Based upon that evaluation, the
Sole Executive Officer concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in timely alerting him to the
material information relating to the Company (or its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings.
2. Changes in internal controls.
There were no significant changes made in the Company's internal controls during
the period covered by this report or, to the Company's knowledge, in other
factors that could significantly affect these controls subsequent to the date of
the Sole Executive Officer's evaluation.
9
PART II
ITEM 1. LEGAL PROCEEDINGS
During the third quarter of 2002, with the exception of information provided
below no material developments occurred regarding Axia's legal proceedings. For
more information please see Axia's Form 10-KSB for the year ended December 31,
2001 and prior 10-QSB filings for this year.
Hudson Consulting Group, Inc. v. Technical Ventures, Inc..
- ---------------------------------------------------------
Suit was filed by Hudson Consulting Group, Inc. (a subsidiary of Axia), on
October 10, 2001, against Technical Ventures, Inc., in the Third Judicial
District Court of Salt Lake County, State of Utah, and assigned civil cause No.
010908909. Hudson has filed suit seeking recovery of fees owed to it arising
from an Advisory Agreement entered into in July of 1999. The suit alleges that
575,000 shares of Technical Ventures, Inc., common stock has not been delivered
to Hudson as required by the agreement. The trial court has granted Technical
Ventures, Inc. motion to set aside the default earlier granted to Hudson and
Technical Ventures, Inc. has filed a counter- claim against Hudson seeking
recovery of the shares previously delivered to Hudson. The matter has not been
set for trial and the parties are engaged in pre-trial activities.
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
No sales of unregistered securities were conducted during the quarter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Exhibits required to be attached by Item 601 of Regulation S-B
are listed in the Index to Exhibits on page 12 of this Form 10-QSB, and
are incorporated herein by this reference.
(b) Reports on Form 8-K.
-------------------
The Company did not file a report on Form 8-K during the quarter for which this
report is filed.
[THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY]
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized, this 19th day of December, 2002.
AXIA GROUP, INC.
/s/ Richard S. Surber
Richard D. Surber December 19, 2002
President, Chief Executive Officer and Director
11
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Axia Group, Inc. (the"
Company") on Form 10-QSB for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the"Report"), I,
Richard Surber, Chief Executive Officer of the Company, and I, Richard Surber,
Sole Executive Officer, certify, pursuant to 18 U.S.C. S 1350, as adopted
pursuant to S 906 of the Sarbanes-Oxley Act of 2002, that:
1. I have reviewed this quarterly report on Form 10-QSB of Axia
Group, Inc. and:
(a) The Report complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(b) The financial information contained in the Report fairly
presents, in all material respects, the financial condition and
result of operations of the Company.
2. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Company and I have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made know to me by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report are my conclusions about
the effectiveness of the disclosure controls and procedures
based on my evaluation as of the Evaluation Date:
3. I have disclosed, based on my most recent evaluation, to the
Company's auditors and the board of directors
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the Company's ability to record, process,
summarize and report financial data and have
identified for the Company's auditors any material
weakness in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Company's internal controls; and
4. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Richard Surber
---------------------------------
Richard Surber
Sole Executive Officer
December 19, 2002
12
INDEX TO EXHIBITS
EXHIBIT PAGE DESCRIPTION
NO. NO.
3(i) * Articles of Incorporation of the Company (note that
these were amended by the Articles of Merger
constituting Exhibit 2 to this Form 10-KSB)
(incorporated herein by reference from Exhibit No.
3(i) to the Company's Form 10-KSB for the year ended
December 31, 1993).
3(ii) * Bylaws of the Company, as amended (incorporated
herein by reference from Exhibit 3(ii) of the
Company's Form 10 KSB for the year ended December 31,
1995).
3(iii) * Certificate of Determination of the Rights and
Preferences of Preferred Stock by Axia for 5,000,000
shares of preferred stock out of the 20,000,000
authorized (incorporated herein by reference from a
Form 8-K filed on August 24, 2001).
10(i)(o) * Stock Purchase Agreement dated February 15, 2002
with Nexia Holdings, Inc. for acquisition of 82% of
the common stock of Nexia in exchange for various
assets and holdings in subsidiary corporations.
(Incorporated by reference from Exhibit 1 of Form
8-K/A filed with the SEC on February 27, 2002 and
amended on May 1, 2002)
* Previously filed as indicated and incorporated herein by reference from
the referenced filings previously made by the Company.
13