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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] For the quarterly period ended December 31, 2004
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No.: 001-09418
AXIA GROUP, INC.
(Exact name of registrant as specified in its charter)
NEVADA 87-0509512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1324 N. MAGNOLIA AVE.
EL CAJON, CA 92020
(Address of principal executive offices)
Issuer's telephone number: (619) 444-1919
(Former name, former address and former fiscal year, if changed since last
report)
-------------------
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
As of February 14, 2005, 1,086,561 shares of our common stock were outstanding.
Transitional Small Business Disclosure Format: Yes ___ No _X_
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PART 1: FINANCIAL INFORMATION
ITEM 1 - CONDENSED FINANCIAL STATEMENTS
AXIA GROUP, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2004
2
AXIA GROUP, INC. AND SUBSIDIARY
Balance Sheets
ASSETS
December 31, September 30,
2004 2004
-------- --------
(Unaudited)
CURRENT ASSETS
Cash $ 66,161 $ 15,345
Accounts receivable, net 57,065 86,838
Prepaid assets 4,620 3,921
-------- --------
Total Current Assets 127,846 106,104
-------- --------
PROPERTY AND EQUIPMENT, NET 90,108 96,191
-------- --------
TOTAL ASSETS $217,954 $202,295
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ -- $ 4,175
Accounts payable 183,615 127,169
Accrued expenses 154,396 167,946
EPA liability 190,000 190,000
Notes payable 215,000 220,000
Notes payable - related party 120,000 95,000
Current portion of contracts payable 19,417 19,201
Current portion of capital lease obligation 2,859 2,986
-------- --------
Total Current Liabilities 885,287 826,477
-------- --------
LONG TERM LIABILITIES
Long term portion of contracts payable 49,127 55,968
Long term portion of capital lease obligation 3,526 4,796
-------- --------
Total Long Term Liabilities 52,653 60,764
-------- --------
TOTAL LIABILITIES $937,940 $887,241
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
AXIA GROUP, INC. AND SUBSIDIARY
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
December 31, September 30,
2004 2004
----------- -----------
(Unaudited)
COMMITMENTS AND CONTINGENCIES
Series A Redeemable Convertible preferred stock;
$0.001 par value; 5,000 authorized, 1,000 shares
issued and outstanding, respectively 5,000 5,000
----------- -----------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, 34,988,000 shares
authorized, -0- shares outstanding -- --
Series B preferred stock, $.001 par value, 12, 000 shares
authorized, -0- shares outstanding -- --
Series C preferred stock, $.001 par value, 10, 000,000
shares authorized, -0- and 5,000,000 shares
outstanding, respectively -- 5,000
Common stock, $.001 par value, 200,000,000 shares
authorized, 1,989,721 and 593 shares issued and
outstanding, respectively 1,990 1
Additional paid-in-capital 456,818 (93,864)
Treasury stock, 1 share at cost (3,202) (3,202)
Stock subscription receivable (1,115) (7,320)
Accumulated deficit (1,179,477) (590,561)
----------- -----------
Total Stockholders' Deficit (724,986) (689,946)
----------- -----------
TOTAL LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT $ 217,954 $ 202,295
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
AXIA GROUP, INC. AND SUBSIDIARY
Statements of Operations
(Unaudited)
For the Three Months Ended
December 31,
------------------------
2004 2003
--------- ---------
NET SALES $ 208,234 $ 175,460
COST OF SALES 88,994 47,974
--------- ---------
GROSS MARGIN 119,240 127,486
--------- ---------
OPERATING EXPENSES
Selling, general and administrative 577,604 73,843
Payroll expense 95,553 56,759
Travel and entertainment -- 2,134
Depreciation expense 6,083 4,495
--------- ---------
Total Operating Expenses 679,240 137,231
--------- ---------
LOSS FROM OPERATIONS (560,000) (9,745)
--------- ---------
OTHER INCOME (EXPENSE)
Loss on extinguishment of debt (23,084) --
Miscellaneous income -- 1,303
Interest expense (5,832) (305)
--------- ---------
Total Other Income (Expense) (28,916) 998
--------- ---------
LOSS BEFORE INCOME TAXES (588,916) (8,747)
PROVISION FOR INCOME TAXES -- --
--------- ---------
NET LOSS $(588,916) $ (8,747)
========= =========
BASIC LOSS PER SHARE $ (2.85) $ (21.87)
========= =========
BASIC WEIGHTED AVERAGE SHARES 206,817 400
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
AXIA GROUP, INC. AND SUBSIDIARY
Statements of Stockholders' Deficit (Continued)
Preferred Stock Common Stock Additional
--------------------- ------------------- Paid-in Subscription Deferred Accumulated
Shares Amount Shares Amount Capital Receivable Consulting Deficit
--------- --------- --------- ------- --------- --------- -------- ---------
Balance, December 31, 2002 -- $ -- 200 $ 1 $ 399 $ -- $ -- $ 64,854
Net loss for the year ended
December 31, 2003 -- -- -- -- -- -- -- (56,847)
--------- --------- --------- ------- --------- --------- -------- ---------
Balance, December 31, 2003 -- -- 200 1 399 -- -- 8,007
Issuance of shares for purchase
of D&R Crane (reverse merger) 5,001,000 10,000 1 1 (389,882) -- (10,000) --
Issuance of common stock for
services -- -- 19 -- 132,445 -- -- --
Issuance of common shares
for cash -- -- 20 -- 50,000 -- -- --
Amortization of deferred consulting -- -- -- -- -- -- 10,000 --
Issuance of common shares to
employees upon exercise of
stock options -- -- 353 -- 113,174 (7,320) -- --
Net loss for the year ended
September 30, 2004 -- -- -- -- -- -- -- (598,568)
--------- --------- --------- ------- --------- --------- -------- ---------
Balance, September 30, 2004 5,001,000 10,000 593 1 (93,864) (7,320) -- (590,561)
Cash received for subscription
receivable (unaudited) -- -- -- -- -- 7,320 -- --
Issuance of common shares
for services (unaudited) -- -- 106,300 106 423,263 -- -- --
Issuance of common shares
for debt (unaudited) -- -- 86,500 87 35,302 -- -- --
Issuance of common shares to
employees for cash (unaudited) -- -- 796,328 796 88,117 (1,115) -- --
--------- --------- --------- ------- --------- --------- -------- ---------
Balance Forward 5,001,000 $ 10,000 989,721 $ 990 $ 452,818 $ (1,115) $ -- $(590,561)
--------- --------- --------- ------- --------- --------- -------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
AXIA GROUP, INC. AND SUBSIDIARY
Statements of Stockholders' Deficit (Continued)
Preferred Stock Common Stock Additional
--------------------- -------------------- Paid-in Subscription Deferred Accumulated
Shares Amount Shares Amount Capital Receivable Consulting Deficit
--------- --------- --------- ------- --------- --------- -------- ---------
Balance Forward 5,001,000 $ 10,000 989,721 $ 990 $ 452,818 $ (1,115) $ -- $ (590,561)
Conversion of series C preferred
shares to common shares
(unaudited) (5,000,000) (5,000) 1,000,000 1,000 4,000 -- -- --
Net loss for the quarter ended
December 31, 2004 (unaudited) -- -- -- -- -- -- -- (588,916)
----------- --------- ---------- --------- ---------- --------- ---- -----------
Balance, December 31, 2004
(unaudited) 1,000 $ 5,000 1,989,721 $ 1,990 $ 456,818 $ (1,115) $ -- $(1,179,477)
=========== ========= ========== ========= ========== ========= ==== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
AXIA GROUP, INC. AND SUBSIDIARY
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
December 31,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(588,916) $ (8,747)
Adjustments to reconcile net loss to net cash
used by operating activities:
Common stock issued for services 423,369 --
Loss on extinguishment of debt 23,084 --
Depreciation and amortization 6,083 4,495
Change in Assets and Liabilities:
(Increase) in prepaid assets (699) --
Decrease in accounts receivable 29,773 46,833
Increase (decrease) in accounts payable 68,750 (28,452)
(Decrease) in accrued expenses (13,550) (12,135)
--------- ---------
Net Cash Provided (Used) by Operating Activities (52,106) 1,994
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -- --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (4,175) --
Common stock issued for cash 87,798 --
Payments on notes and contracts payable (11,625) (1,494)
Cash receipts on stock subscription receivable 7,320 --
Proceeds from notes payable - related 25,000 --
Payment on capital lease (1,396) (6,865)
--------- ---------
Net Cash Provided (Used) by Financing Activities 102,922 (8,359)
--------- ---------
NET INCREASE (DECREASE) IN CASH 50,816 (6,365)
CASH AT BEGINNING OF PERIOD 15,345 15,851
--------- ---------
CASH AT END OF PERIOD $ 66,161 $ 9,486
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ -- $ --
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for extinguishment of debt $ 12,305 $ --
Common stock issued for services $ 423,369 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
AXIA GROUP, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
December 31, 2004 and September 30, 2004
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have
been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at December 31, 2004 and 2003
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
September 30, 2004 audited consolidated financial statements. The
results of operations for the periods ended December 31, 2004 and
2003 are not necessarily indicative of the operating results for
the years ended September 30, 2005 and 2004.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using
accounting principles generally accepted in the United Stated of
America applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred cumulative operating
losses through December 31, 2004 of $1,179,477, which raises
substantial doubt about the Company's ability to continue as a
going concern.
Management's plans include raising capital through either a
private placement or regulations offering or acquiring a business
or operations with sufficient revenues to support its operations.
In the meantime, the Company will rely on short-term financing
from its management and shareholders.
There can be no assurance that the Company can or will be
successful in implementing any of its plans or that they will be
successful in enabling the company to continue as a going concern.
The Company's consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
NOTE 3 - SUBSEQUENT EVENTS
Subsequent to December 31, 2004, the Company issued 48,000,000
shares of common stock to employees in accordance with the
Company's employee stock incentive plan. All options have been
exercised.
On January 11, 2005, the Company, D&R Crane, and D&R Crane's former
stockholders rescinded the Company's acquisition of all of the
capital stock of D&R Crane. In connection therewith, one of the
Company's officers and directors resigned, and the Company assumed
a note issued by D&R Crane in the principal amount of $215,000.
This rescission resulted in a reduction of assets and liabilities
on the Company's books in addition to the Company acquiring the
shares of capital stock that they had initially issued for the
acquisition.
F-7
AXIA GROUP, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004 and September 30, 2004
NOTE 3 - SUBSEQUENT EVENTS (Continued)
On January 12, 2005, the Company designated a series of preferred
stock to be known as Series D Preferred Stock, par value $0.001 per
share. Each share of Series D Preferred Stock is convertible into
such number of shares of the Company's common stock equal to $0.01
per share divided by fifty percent (50%) of the average of the per
share market during the three (3) trading days immediately
preceding the conversion date. Holders of the Series D Preferred
Stock shall be entitled to receive dividends or other distributions
with the holders of the Company's common stock on an as converted
basis when, as, and if declared by the board of directors. The
holders of the Series D Preferred Stock shall also be entitled to
receive, upon liquidation, an amount equal to $0.01 per share of
the Series D Preferred Stock plus all declared but unpaid dividends
with respect to such shares. The shares of Series D Preferred Stock
are not redeemable. The holders of Series D Preferred Stock and the
holders of common stock shall be entitled to notice of any
stockholders' meeting and to vote as a single class upon any matter
submitted to the stockholders for a vote as follows: (i) the
holders of Series D Preferred Stock shall have such number of votes
as is determined by multiplying (a) the number of shares of Series
D Preferred Stock held by such holder, (b) the number of issued and
outstanding shares of common stock (on a fully-diluted basis) as of
the record date for the vote, or, if no such record date is
established, as of the date such vote is taken or any written
consent of stockholders is solicited, and (c) 0.0000004; and (ii)
the holders of common stock shall have one vote per share of common
stock held as of such date.
On January 12, 2005, the Company issued 5,000,000 shares of Series
D Preferred Stock to an individual for $20,000 in cash and a note
in the principal amount of $30,000.00, payable in three monthly
installments of $10,000.00 each. In connection therewith, the
Company appointed the individual as a director of the Company.
On January 13, 2005, the Company rescinded the issuance of 10,000
shares of common stock to a director and officer of the Company for
$50,000. Under the terms of the rescission agreement, the officer
and director returned the 10,000 shares of common stock to the
Company for cancellation, and the Company paid the officer and
director $20,000 in cash and issued a note in the principal amount
of $30,000.00, payable in three monthly installments of $10,000.00
each. In connection therewith, the individual resigned as an
officer and director of the Company.
On January 28, 2005, the Company issued 250,000 shares of Series C
Preferred Stock to the Company's sole officer and director for
$5,000 in cash.
On February 2, 2005, the Company effected a 1 for 500 reverse stock
split. All references to common stock and per share data have been
retroactively restated to show the effect of the reverse stock
split.
F-8
AXIA GROUP, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements (Continued)
December 31, 2004 and September 30, 2004
NOTE 4 - COMMITMENTS AND CONTINGENCIES
A legal action was filed in September 1993 against the Company
seeking the cleanup of tires and potentially toxic paint drums at a
plant in Canton, Illinois, then owned by a consolidated subsidiary
of the Company. On September 28, 1995, the Illinois Environmental
Protection Agency (IEPA) informed the Company it was rejecting the
proposed plan of the Company for tire cleanup, and would send its
own contractor to remove the remaining tires. The Company sought
relief from this decision from the Circuit Court in Fulton County,
Illinois. After a hearing on October 10, 1995, the Circuit Court
denied any relief to the Company. Both the Company and the IEPA
contractor removed tires. The State filed an action before the
Illinois Pollution Control Board seeking to recover $326,154 as
costs incurred to remove the tires and an equal amounts as punitive
damages. An award for costs of $326,154 was entered against the
Company. On August 25, 1999, the Company entered into an agreement
whereby the award was to be paid in quarterly installments of
$20,000 at an interest rate of 5.45%. At December 31, 2003, the
Company had made only $155,000 of the $340,000 of payments it was
supposed to have made by that time per the payment schedule. The
unpaid balance at December 31, 2003 was $234,864. On June 2, 2004,
the Company entered into an agreement whereby the Company changed
its payment schedule. Per the new agreement the Company was to pay
$28,500 and $10,000 per month for 19 months, resulting in a
settlement of $218,500. As the Company's liability on the
settlement date exceeded the revised settlement amount the Company
recorded a gain on the settlement of debt for $20,002. As of
September 30, 2004, the Company had made a payment of $28,500
towards the $218,500, leaving a liability balance of $190,000.
In January 2000 the United States Environmental Protection Agency
forwarded to the Company and to Thistle Holdings Inc. letters
informing each corporation that the EPA has identified them as
potentially responsible parties, as former owners or operators of
the property, for reimbursement of all costs incurred by the EPA
for actions taken pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA). Both
corporations responded that they were not currently owners nor
operators of the property (the City of Canton having taken title to
the property) and that the materials identified as requiring
removal, friable asbestos and asbestos-containing material, were
placed on the site by owners prior to the acquisition of the
property by either of these corporations. The Company declined to
involve itself in the clean-up process.
In a letter dated February 15, 2002, the United States
Environmental Protection Agency gave the company a "General Notice
of Potential Liability for Soil Removal." The letter invites the
Company to participate in the cost of providing site security,
preparing and implementing a site health and safety plan, a site
sampling plan, identifying the extent of contamination in the
buildings and soils, prepare and implement a site re-mediation plan
and required follow-up to those procedures. The notice indicates
that the Company may be considered a responsible party as a former
owner of the property located in Canton, Illinois under the
provisions of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA). The Company has
responded that it does not believe that it has any liability for
the proposed actions as it no longer owns the property and was not
the owner at the time any such contaminants were introduced onto
the property.
F-9
NOTE 5 - STOCK OPTIONS
A summary of the status of the Company's outstanding stock options
as of December 31, 2004 and September 30, 2004 and changes during
the periods then ended is presented below:
December 31, 2004 September 30, 2004
------------------------------- ------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------- ---------------- ------------- ---------------
Outstanding, beginning of
year - $ - 1 $ 13,458,918
Granted 796,328 0.11 354 320
Expired/Cancelled - - (1) (13,458,918)
Exercised (796,328) (0.11) 354 (320)
------------- ---------------- ------------- ---------------
Outstanding, end of year - $ - - $ -
============= ================ ============= ===============
Exercisable - $ - - $ -
============= ================ ============= ===============
F-10
ITEM 2 - PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with our unaudited consolidated condensed financial statements and related notes
included in this report. This report contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. The
statements contained in this report that are not historic in nature,
particularly those that utilize terminology such as "may," "will," "should,"
"expects," "anticipates," "estimates," "believes," or "plans" or comparable
terminology are forward-looking statements based on current expectations and
assumptions.
Various risks and uncertainties could cause actual results to differ
materially from those expressed in forward-looking statements. All
forward-looking statements in this document are based on information currently
available to us as of the date of this report, and we assume no obligation to
update any forward-looking statements. Forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements.
GENERAL
Previously, we operated as a holding company that focused in two
primary areas of business: (1) acquiring, leasing and selling real estate; and
(2) providing financial consulting services. These businesses were spun-off in
December of 2002.
On July 21, 2004, we signed an agreement to acquire 100% ownership of
D&R Crane, Inc. D&R was established in 1991 as an overhead crane and hoist
service company and subsequently began manufacturing material handling systems.
D&R has customers throughout southern California and provides the market with
quality overhead material handling solutions, reliable and professional
technical support and customer service.
On January 11, 2005, we entered into an agreement with D&R Crane and
D&R Crane's former stockholders to rescind the Company's acquisition of all of
the capital stock of D&R Crane. In connection therewith, Dawnelle Patrick, one
of our former officers and directors, resigned, and we assumed a note issued by
D&R Crane in the principal amount of $215,000. This rescission resulted in a
reduction of assets and liabilities on our books in addition to our acquiring
the shares of capital stock that we had initially issued for the acquisition.
On January 12, 2005, we issued 5,000,000 shares of Series D Preferred
Stock to Richard F. Schmidt for $20,000 in cash and a note in the principal
amount of $30,000.00, payable in three monthly installments of $10,000.00 each.
In connection therewith, we appointed Mr. Schmidt as a director of Axia.
On January 13, 2005, we entered into a rescission agreement with Jody
R. Regan, our former officer and director, to rescind Mr. Regan's acquisition of
10,000 shares of our common stock. Under the terms of the rescission agreement,
Mr. Regan returned the 10,000 shares of common stock to us for cancellation, and
we paid Mr. Regan $20,000 in cash and issued a note in the principal amount of
$30,000.00, payable in three monthly installments of $10,000.00 each. In
connection therewith, Mr. Regan resigned as an officer and director. The board
of directors appointed Richard D. Mangiarelli to fill the vacancy on the board
of directors and appointed Richard F. Schmidt as President, Chief Financial
Officer, and Secretary.
On January 28, 2005, we issued 250,000 shares of Series C Preferred
Stock to Richard F. Schmidt for $5,000 in cash.
PLAN OF OPERATIONS
We are currently seeking to identify clients that will need business
consulting, corporate administration, capital structuring, merger and
acquisition, and financial planning services, but we will not provide capital
financing, underwriting, or other broker-dealer services. We are also looking
for potential acquisition targets. To date, we have reviewed and evaluated a
number of business ventures for possible acquisition. However, we do not have
any commitment or understanding to enter into or become engaged in a transaction
as of the date of this filing. We continue to investigate, review, and evaluate
business opportunities as they become available and will seek to acquire or
become engaged in business opportunities at such time as specific opportunities
3
warrant. We anticipate that our owners, affiliates, and consultants will provide
it with sufficient capital to continue operations until the end of the year
2005, but there can be no assurance that this expectation will be fully
realized.
We currently do not have any plans for the purchase or sale of any
plant or equipment. In the next twelve months, we intend to hire from six to up
to fifty employees, depending on the nature of the business opportunities we
elect to pursue. We have established our September 2004 Employee Stock Incentive
Plan in order to attract and retain employees and to provide employees who make
significant and extraordinary contributions to our long-term growth and
performance with equity-based compensation incentives. In addition, we have
established the September 2004 Non-Employee Directors and Consultants Retainer
Stock Plan in order to promote our interests and those of our stockholders by
attracting and retaining non-employee directors and consultants capable of
furthering the future our success.
RESULTS OF OPERATIONS
Basis of Presentation
The results of operations set forth below for the three months ended
December 31, 2004 and December 31, 2003 are those of the continuing operations
of D&R Crane, Inc.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
NET SALES. Net sales increased to $208,234 for the three months ended
December 31, 2004, from $175,460 for the three months ended December 31, 2003.
This increase in sales results primarily from increased demand for D&R Crane's
products.
COST OF SALES. Cost of sales increased to $88,994 for the three months
ended December 31, 2004 from $47,974 for the three months ended December 31,
2003. Our cost of sales increased due to increased sales of D&R Crane in the
first quarter of fiscal 2005.
OPERATING EXPENSES. Operating expenses increased to $679,240 for the
three months ended December 31, 2004 from $137,231 for the three months ended
December 31, 2003. The operating expenses increased primarily due to the
increased cost of operating D&R Crane as a publicly traded company and from
issuing $423,369 worth of common stock for services rendered.
OPERATING LOSS. We incurred an operating loss of $560,000 for the three
months ended December 31, 2004, compared to an operating loss of $9,745 for the
three months ended December 31, 2003. We had higher operating losses in the
first quarter of fiscal 2005 as compared to the first quarter of fiscal 2004
primarily because because our operating expenses significantly increased due to
D&R Crane being operated as a public company and because of our issuance of a
substantial amount of common stock for services rendered.
PROVISION FOR INCOME TAXES. We incurred operating losses for the three
months ended December 31, 2004 and for the three months ended December 31, 2003.
Accordingly, we have made no provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations, debt service, and capital requirements
through debt financing and issuance of equity securities. Our working capital
deficit at December 31, 2004 was $757,441. We had cash of $66,161 as of December
31, 2004.
We used $52,106 of net cash in operating activities for the three
months ended December 31, 2004 compared to generating $1,994 in the three months
ended December 31, 2003. Cash generated by operating activities for the three
months ended December 31, 2004 was mainly due to non-cash charges of $6,083 for
depreciation, $423,369 in common stock issued for services rendered, $29,773 for
decreases in accounts receivable, $68,750 for increases in accounts payable, and
$23,084 for losses from extinguishment of debt. These cash flows were offset by
a net loss of $588,916, $699 for an increase in prepaid assets, and $13,550 for
decreases in accrued expenses.
4
There were no net cash flows used in investing activities in either the
three months ended December 31, 2004 or in the three months ended December 31,
2003.
Net cash flows provided by financing activities were $102,922 for the
three months ended December 31, 2004, compared to net cash used in financing
activities of $8,359 in the three months ended December 31, 2003. This increase
in net cash provided by financing activities is due to proceeds from note
payables issued to related parties of $25,000, proceeds from the exercise of
stock options issued under our various Employee Stock Incentive Plans of
$87,798, and receipt of cash from stock subscriptions receivable of $7,320.
These cash flows were offset by a paydown of a bank overdraft of $4,175,
payments on notes and other contracts of $11,625, and payments on capital lease
obligations of $1,396.
We currently have limited working capital with which to satisfy our
cash requirements, and we will require additional capital in order to conduct
operations. We anticipate that we will require at least $250,000 in additional
working capital in order to sustain operations for the next 12 months. This
requirement may increase substantially, depending on the nature and capital
requirements of the business opportunities we elect to pursue. In order to
obtain the necessary working capital, we intend to continue to seek private
equity financing in 2005. Such financing may not be available to us, when and if
needed, on acceptable terms or at all. In the event that we are unable to obtain
such financing, management may provide additional financing for us. We intend to
retain any future earnings to finance the expansion of its business and any
necessary capital expenditures, and for general corporate purposes.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet financing arrangements.
ITEM 3 - CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. Our Chief Executive Officer and Chief Financial Officer has
reviewed the effectiveness of our "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c))
within the last ninety days and has concluded that the disclosure controls and
procedures are effective to ensure that material information relating to Axia is
recorded, processed, summarized, and reported in a timely manner. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the last day they were
evaluated by our Chief Executive Officer and Chief Financial Officer.
It should be noted that any system of controls, however well designed
and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. As a small organization, the effectiveness of
our controls heavily depends on the direct involvement of our Chief Executive
Officer and Chief Financial Officer.
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The following cases may have a material impact on our company. In
addition, we are involved in other legal matters that are not deemed material at
this time.
State of Illinois vs. CyberAmerica Corporation - The state of Illinois
filed a separate action before the Illinois Pollution Control Board, Case Number
97-8, Enforcement, in July 1996. This action sought recovery of $325,398 in
costs that were allegedly incurred by the State to remove waste tires from the
Canton Plant site located in Canton, Illinois. In a decision adopted on March 5,
1998, the Pollution Control Board denied all punitive damages and ordered us to
pay $326,154 into the state's Used Tire Management Fund. This amount was
determined to be the amount expended by the state to remove tires from the
Canton Plant site. The state's motion requesting that the Pollution Control
Board reconsider its denial of punitive damages was rejected by the Pollution
Control Board. On or about December 23, 1998 the state filed a civil action in
the Fulton County Circuit Court, Case No. 98-CH-57 seeking payment of the
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$326,154 award made by the Pollution Control Board and the imposition of fines
or sanctions for the failure to pay this award. On August 31, 1999 an agreed
Summary Judgment Order was entered in this matter, the order requires us to pay
the sum of $326,154 for tire removal costs from the prior Pollution Control
Board order, with interest, through quarterly payments of $20,000 and denied all
fines and penalties. The State subsequently filed a Motion for Voluntary
Dismissal, to dismiss all causes of action except as set forth in the August 31,
1999 order. The Court signed an order granting this dismissal on February 7,
2000.
On June 14, 2004, we entered into an agreement for satisfaction of
judgment with the State of Illinois whereby we agreed to pay $28,500 upon
completion of our acquisition of D&R Crane and $10,000 per month thereafter for
the next nineteen months. We are currently in default on our payments under the
agreement for satisfaction of judgment.
Utah State Tax Commission vs. Canton Industrial Corp. of SLC DBA: Axia
Group, Inc. - Suit filed by the Utah State Tax Commission in the Third Judicial
District Court of Salt Lake County, State of Utah, Civil No. 016925319TL,
seeking payment of a total of $33,114 in taxes, costs, and interest due to the
State of Utah. The tax number and the sole party to the obligation is Axia
Group, Inc. which bears the liability. We currently do not have any property or
any source of income from which to pay the outstanding taxes due to the State of
Utah. Upon the acquisition of funds or other assets sufficient to retire the
obligation management intends to resolve the claim with the state. The unpaid
balance at December 31, 2003 amounted to $35,917.
POSSIBLE ACTIONS BY GOVERNMENTAL AUTHORITIES
Canton Illinois Property. In January 2000, the United States
Environmental Protection Agency forwarded letters to us and to Thistle Holdings
Inc. informing each corporation that the EPA has identified them as potentially
responsible parties, as former owners or operators of the property, for
reimbursement of all costs incurred by the EPA for actions taken pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA). Both corporations responded that they were not currently owners nor
operators of the property (the City of Canton having taken title to the
property) and that the materials identified as requiring removal, friable
asbestos and asbestos-containing material, were placed on the site by owners
prior to the acquisition of the property by either of these corporations. We
declined to involve ourselves in the clean-up process, no response nor
additional demands have been made by the EPA as of this date, except as set
forth below.
Canton Illinois Property. In a letter dated February 15, 2002, the
United States Environmental Protection Agency gave us a "General Notice of
Potential Liability for Soil Removal." The letter invites us to participate in
the cost of providing site security, preparing and implementing a site health
and safety plan, a site sampling plan, identifying the extent of contamination
in the buildings and soils, prepare and implement a site re-mediation plan and
required follow-up to those procedures. The notice indicates that we may be
considered a responsible party as a former owner of the property located in
Canton, Illinois under the provisions of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA). We have responded
that we do not believe that we have any liability for the proposed actions as we
no longer own the property and we were not the owner at the time any such
contaminants were introduced onto the property. No subsequent demands have been
received from the federal EPA.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
1. See our Current Report on Form 8-K filed on February 15,
2005.
2. On February 17, 2005, Richard F. Schmidt, our President and
Chief Executive Officer, converted 100,000 shares of Series C Preferred
Stock into 10,000,000 shares of our common stock under the terms of the
Series C Preferred Stock. The issuance of the shares of common stock
was exempt under Sections 3(a)(9) and 4(2) of the Securities Act of
1933, as amended.
(b) None.
(c) See our Current Report on Form 8-K filed on February 15, 2005.
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ITEM 3 - DEFAULT UPON SENIOR SECURITIES
(a) None.
(b) None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
(a) See Item 2(a)(2) above.
(b) None.
ITEM 6 - EXHIBITS
Item No. Description Method of Filing
- -------- ----------- ----------------
31.1 Certification of Richard F. Schmidt pursuant to Rule Filed electronically herewith.
13a-14(a)
32.1 Chief Executive Officer and Chief Financial Officer Filed electronically herewith.
Certification pursuant to 18 U.S.C. ss. 1350 adopted
pursuant to Section 906 of the Sarbanes Oxley Act of
2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXIA GROUP, INC.
February 18, 2005 /s/ Richard F. Schmidt
----------------------
Richard F. Schmidt
Chief Executive Officer
(Principal Executive Officer, Principal Financial
Officer, and Principal Accounting Officer)
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