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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 March 31, 2005
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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 May 27, 2005, 228,215,561 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.
FINANCIAL STATEMENTS
March 31, 2005
2
AXIA GROUP, INC.
Balance Sheet
ASSETS
March 31,
2005
(Unaudited)
-------------
CURRENT ASSETS
Cash $ 12,464
Prepaid assets 1,666
-------------
Total Current Assets 14,130
-------------
TOTAL ASSETS 14,130
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 163,441
Accrued expenses 97,393
EPA liability 190,000
Notes payable 225,000
Notes payable - related party 94
-------------
Total Current Liabilities 675,928
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TOTAL LIABILITIES 675,928
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, 35,000,000 shares
authorized, -0- shares outstanding --
Series C preferred stock, $.001 par value, 10,000,000
shares authorized, 150,000 shares outstanding 150
Series D preferred stock, $.001 par value, 5,000,000
Shares authorized, 5,000,000 shares outstanding 5,000
Common stock, $.001 par value, 200,000,000 shares
authorized, 95,507,263 shares issued and outstanding 95,507
Additional paid-in-capital 19,586,896
Treasury stock, 1 share at cost (3,202)
Accumulated deficit (20,346,149)
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Total Stockholders' Deficit (661,798)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 14,130
=============
The accompanying notes are an integral part of these financial statements.
3
AXIA GROUP, INC.
Statements of Operations (Unaudited)
For the For the
Six Months Ended Three Months Ended
March 31, March 31,
----------------------------------- --------------------------------
2005 2004 2005 2004
----------------- ---------------- ---------------- --------------
NET SALES $ -- $ -- $ -- $ --
COST OF SALES -- -- -- --
----------------- ---------------- ---------------- --------------
GROSS MARGIN -- -- -- --
----------------- ---------------- ---------------- --------------
OPERATING EXPENSES
Selling, general and administrative 176,410 -- 176,410 --
Payroll expense 16,900 -- 16,900 --
----------------- ---------------- ---------------- --------------
Total Operating Expenses 193,310 -- 193,310 --
----------------- ---------------- ---------------- --------------
LOSS FROM OPERATIONS (193,310) -- (193,310) --
----------------- ---------------- ---------------- --------------
OTHER EXPENSES
Loss on extinguishment of debt (67,847) -- (67,847) --
----------------- ---------------- ---------------- --------------
Total Other Expenses (67,847) -- (67,847) --
----------------- ---------------- ---------------- --------------
LOSS BEFORE DISCONTINUED OPERATION (261,157) -- (261,157) --
----------------- ---------------- ---------------- --------------
DISCONTINUED OPERATIONS
Loss from discontinued operation (644,005) (133,395) -- (124,648)
Loss from disposal of discontinued
operations (356,950) -- (356,950) --
----------------- ---------------- ---------------- --------------
Total Loss on Discontinued Operations (1,000,955) (133,395) (356,950) (124,648)
----------------- ---------------- ---------------- --------------
NET LOSS $ (1,262,112) $ (133,395) $ (618,107) $ (124,648)
================= ================ ================ ==============
BASIC LOSS PER SHARE
Continuing operations $ (0.02) (0.00) (0.01) (0.00)
Discontinued operations (0.09) (333.49) (0.02) (311.62)
----------------- ---------------- ---------------- --------------
Total Loss per Share $ (0.11) $ (333.49) $ (0.03) $ (311.62)
================= ================ ================ ==============
BASIC WEIGHTED AVERAGE SHARES 11,078,884 400 22,035,912 400
================= ================ ================ ==============
The accompanying notes are an integral part of these financial statements.
4
AXIA GROUP, INC.
Statements of Cash Flows (Unaudited)
For the Six Months Ended
March 31,
---------------------------------------
2005 2004
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,262,112) $ (133,395)
Adjustments to reconcile net loss to net cash
used by operating activities:
Common stock issued for services 492,111 --
Loss on extinguishment of debt 90,931 --
Depreciation and amortization 6,083 7,624
Change in Assets and Liabilities:
(Increase) in prepaid assets (1,495) --
Decrease in accounts receivable 29,773 38,787
Increase (decrease) in accounts payable 218,400 (14,284)
(Decrease) in accrued expenses (13,550) (2,700)
Loans Acquired from D & R Crane rescission 356,950 --
--------------- --------------
Net Cash Used by Operating Activities (82,909) (103,968)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets -- (8,060)
--------------- --------------
Net Cash Used by Investing Activities -- (8,060)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
D & R cash at rescission (36,505) --
Bank overdraft (4,175) --
Proceeds from stock option exercises 148,729 --
Payments on notes and contracts payable (51,625) (4,215)
Proceeds from notes payable - 60,000
Proceeds from notes payable - related party 25,000 70,000
Payment on capital lease (1,396) (7,081)
---------------- --------------
Net Cash Provided by Financing Activities 80,028 118,704
--------------- --------------
NET INCREASE (DECREASE) IN CASH (2,881) 6,676
CASH AT BEGINNING OF PERIOD 15,345 15,851
--------------- --------------
CASH AT END OF PERIOD $ 12,464 $ 22,527
=============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ -- $ --
Income taxes $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for extinguishment of debt $ 88,757 $ --
Common stock issued for services $ 492,111 $ --
The accompanying notes are an integral part of these financial statements.
5
AXIA GROUP, INC.
Notes to the Financial Statements
March 31, 2005
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying condensed 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 March 31, 2005 and 2004 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 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
March 31, 2005 and 2004 are not necessarily indicative of the
operating results for the years ended September 30, 2005 and 2004.
NOTE 2 - GOING CONCERN
The Company's 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
March 31, 2005 of $20,346,149, 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 - 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
6
AXIA GROUP, INC.
Notes to the Financial Statements
March 31, 2005
NOTE 3 - COMMITMENTS AND CONTINGENCIES (Continued)
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
March 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 March 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.
7
AXIA GROUP, INC.
Notes to the Financial Statements
March 31, 2005
NOTE 4 - STOCK OPTIONS
A summary of the status of the Company's outstanding stock options as
of March 31, 2005 and September 30, 2004 and changes during the
periods then ended is presented below:
March 31, 2005 September 30, 2004
--------------------------------- ------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------------- ---------------- ------------- ---------------
Outstanding, beginning of year -- $ -- 1 $ 13,458,918
Granted 48,635,090 0.00 354 320
Expired/Cancelled - -- (1) (13,458,918)
Exercised (48,635,090) (0.00) (354) (320)
--------------- ---------------- ------------- ---------------
Outstanding, end of year -- $ -- -- $ --
=============== ================ ============= ===============
Exercisable -- $ -- -- $ --
=============== ================ ============= ===============
NOTE 5 - DISCONTINUED OPERATIONS
On July 21, 2004 the Company acquired D&R Crane, Inc. (D&R), a
California Corporation. This transaction resulted in the Company
issuing 100 million pre-split shares of its restricted common stock
and five million shares of its Series C preferred stock to the
stockholders of D&R Crane, Inc. in exchange for one hundred percent of
D&R Crane's capital stock.
On October 18, 2004 the Company conducted a 1,000 for 1 reverse stock
split of its common stock, therefore the common shares issued for the
acquisition were reduced to 100,000 shares. Additionally, on October
22, 2004 the stockholders converted the series C preferred shares into
an aggregate of 500,000,000 common shares.
On January 13, 2005, the Company entered into a recession agreement
with D&R Crane, Inc. (D&R) which resulted in the Company canceling the
500,100,000 post-split and post-conversion common shares issued for
the acquisition, D&R being spun off, and Axia recording a loss from
discontinued operations.
The following is an unaudited condensed statement of operations
showing the results of operations of D & R Crane, Inc. for the six
months ended March 31, 2005, and the six and three months ended March
31, 2004
8
AXIA GROUP, INC.
Notes to the Financial Statements
March 31, 2005
NOTE 5 - DISCONTINUED OPERATIONS (Continued)
For the For the For the
six months six months three months
ended, March ended, March ended, March
31, 2005 31, 2004 31, 2004
---------------- --------------- ----------------
REVENUES $ 208,234 $ 444,655 $ 269,195
COGS 88,994 205,522 157,548
--------------- --------------- ----------------
GROSS PROFIT 119,240 239,133 111,647
OPERATING EXPENSES
Payroll 95,553 136,042 79,283
Depreciation 6,083 7,624 3,129
Travel -- 3,298 1,164
General and administrative 632,693 224,574 150,731
--------------- --------------- ----------------
Total Operating Expenses 734,329 371,538 234,307
LOSS FROM OPERATIONS (615,089) (132,405) (122,660)
OTHER INCOME (EXPENSES)
Loss on extinguishment of debt 23,084 -- --
Interest expense 5,832 (990) (1,988)
--------------- --------------- ----------------
Total Other Income
(Expenses) 28,916 (990) (1,988)
LOSS BEFORE DISPOSAL (644,005) (133,395) (124,648)
--------------- --------------- ----------------
LOSS FROM DISPOSAL OF
DISCONTINUED OPERATIONS (356,950) -- --
--------------- --------------- ----------------
NET LOSS $ (1,000,955) $ (133,395) $ (124,648)
=============== =============== ================
BASIC LOSS PER SHARE $ (0.09) $ (333.49) $ (311.62)
=============== =============== ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 11,078,884 400 400
=============== =============== ================
9
AXIA GROUP, INC.
Notes to the Financial Statements
March 31, 2005
NOTE 6 - PRIOR PERIOD ADJUSMENT
The accompanying financial statements have been adjusted to correct an
error in the December 31, 2004 financial statements. The change was
made to properly reflect the ending balances of additional paid in
capital and subscriptions receivable as of December 31, 2004, and
expenses for the year then ended.
As originally issued, the December 31, 2004 financial statements did
not include an amount in additional paid in capital, or as an expense,
which should have recorded the market value of the Company's common
stock on the date options were issued and exercised in excess of what
was received for the issuances. Additionally, the subscription
receivable had been overstated at December 31, 2004.
As noted below the three and six month net loss amounts have been
adjusted as of March 31, 2004. This adjustment increased operating
expenses by $55,089.
Net Loss for the 3 Months Ended
December 31, 2004, as reported $ (588,916)
Prior Period Adjustment (55,089)
---------------
Net Loss for the 3 Months Ended
December 31, 2004, as adjusted (644,005)
Net Loss for the 3 Months Ended
March 31, 2005 (618,107)
---------------
Net Loss for the 6 Months Ended
March 31, 2005 $ (1,262,112)
===============
NOTE 7 - SUBSEQUENT EVENTS
Subsequent to March 31, 2005, the Company issued 96,000,000 shares of
common stock to employees in accordance with the Company's employee
stock incentive plan. All options have been exercised.
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
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.
11
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 and six months
ended March 31, 2005 and March 31, 2004 exclude the discontinued operations of
D&R Crane, Inc.
Comparison of the three months ended March 31, 2005 and 2004
Net sales. We had no net sales from continuing operations in the either
the three month period ending March 31, 2005 or the three month period ending
March 31, 2004.
Cost of Sales. We had no cost of sales from continuing operations in
the either the three month period ending March 31, 2005 or the three month
period ending March 31, 2004.
Operating Expenses. Operating expenses increased to $193,310 for the
three months ended March 31, 2005 from $0 for the three months ended March 31,
2004. These operating expenses increased primarily due to our incurring $176,410
in selling, general, and administrative costs, including the issuance of common
stock for services rendered, and our incurring payroll expenses of $16,900.
Operating loss. We incurred an operating loss of $193,310 for the three
months ended March 31, 2005, compared to an operating loss of $0 for the three
months ended March 31, 2004. We had higher operating losses in the second
quarter of fiscal 2005 as compared to the second quarter of fiscal 2004
primarily because our incurring significant selling, general, and administrative
costs, including the issuance of common stock for services rendered, and our
incurring new payroll expenses.
Provision for income taxes. We incurred operating losses for the three
months ended March 31, 2005 and for the three months ended March 31, 2004.
Accordingly, we have made no provision for income taxes.
Comparison of the six months ended March 31, 2005 and 2004
Net sales. We had no net sales from continuing operations in the either
the six month period ending March 31, 2005 or the six month period ending March
31, 2004.
Cost of Sales. We had no cost of sales from continuing operations in
the either the six month period ending March 31, 2005 or the six month period
ending March 31, 2004.
Operating Expenses. Operating expenses increased to $193,310 for the
six months ended March 31, 2005 from $0 for the six months ended March 31, 2004.
These operating expenses increased primarily due to our incurring $176,410 in
selling, general, and administrative costs, including the issuance of common
stock for services rendered, and our incurring payroll expenses of $16,900.
Operating loss. We incurred an operating loss of $193,310 for the six
months ended March 31, 2005, compared to an operating loss of $0 for the six
months ended March 31, 2004. We had higher operating losses in the second
quarter of fiscal 2005 as compared to the second quarter of fiscal 2004
primarily because our incurring significant selling, general, and administrative
costs, including the issuance of common stock for services rendered, and our
incurring new payroll expenses.
12
Provision for income taxes. We incurred operating losses for the six
months ended March 31, 2005 and for the six months ended March 31, 2004.
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 March 31, 2005 was $661,798. We had cash of $12,464 as of March 31,
2005.
We used $82,909 of net cash in operating activities for the six months
ended March 31, 2005 compared to using $103,968 in the six months ended March
31, 2004. Cash generated by operating activities for the six months ended March
31, 2005 was mainly due to non-cash charges of $492,111 in common stock issued
for services rendered, $90,931 for loss on extinguishment of debt, $6,083 in
depreciation and amortization, $29,773 for decreases in accounts receivable,
$218,400 for increases in accounts payable, and $356,950 in loans acquired in
connection with the rescission of the acquisition of D&R Crane, Inc. These cash
flows were offset by a net loss of $1,262,112, an increase in prepaid assets of
$1,495, and $13,550 for decreases in accrued expenses.
There were no net cash flows used in investing activities in either the
six months ended March 31, 2005 or in the six months ended March 31, 2004.
Net cash flows provided by financing activities were $80,028 for the
six months ended March 31, 2005, compared to net cash provided by financing
activities of $118,704 in the six months ended March 31, 2004. This increase in
net cash provided by financing activities is due to proceeds from note payables
issued to related parties of $25,000 and proceeds from the exercise of stock
options issued under our various employee benefit plans of $148,729. These cash
flows were offset by a payment of cash to D&R Crane of $36,505 as a result of
the rescission of the D&R Crane acquisition, a paydown of a bank overdraft of
$4,175, payments on notes and other contracts of $51,625, 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.
13
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
$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.
14
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) None.
(b) None.
(c) None.
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) None.
(b) None.
ITEM 6 - EXHIBITS
Item
No. Description Method of Filing
- ---- ----------- ----------------
31.1 Certification of Richard F. Schmidt pursuant Filed electronically
to Rule 13a-14(a) herewith.
32.1 Chief Executive Officer and Chief Financial Filed electronically
Officer Certification pursuant to 18 U.S.C. herewith.
ss. 1350 adopted pursuant to Section 906
of the Sarbanes Oxley Act of 2002
15
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.
June 3, 2005 /s/ Richard F. Schmidt
------------------------------
Richard F. Schmidt
Chief Executive Officer
(Principal Executive Officer,
Principal Financial Officer, and
Principal Accounting Officer)