================================================================================
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 June 30, 2005
|_| 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.)
5520 Wellesley Street, Suite 109
La Mesa, CA 91942
(Address of principal executive offices)
Issuer's telephone number: (619) 466-4928
(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 August 9, 2005, 228,377,263 shares of our common stock were outstanding.
Transitional Small Business Disclosure Format: Yes No X
---- ----
================================================================================
Item 1 - CONDENSED FINANCIAL STATEMENTS
AXIA GROUP, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
June 30,
2005
------------
(Unaudited)
CURRENT ASSETS
Cash $ 343
Prepaid assets 1,666
------------
Total Current Assets 2,009
------------
TOTAL ASSETS $ 2,009
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 163,842
Accrued expenses 97,393
EPA liability 190,000
Notes payable 220,000
Notes payable - related party 4,694
------------
Total Current Liabilities 675,929
------------
TOTAL LIABILITIES 675,929
------------
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, 5,000,000,000 shares
authorized, 228,357,263 shares issued and outstanding 228,357
Additional paid-in-capital 19,500,131
Treasury stock, 1 share at cost (3,202)
Accumulated deficit prior to development stage (20,084,992)
Accumulated deficit during development stage (319,364)
------------
Total Stockholders' Deficit (673,920)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,009
============
The accompanying notes are an integral part of these financial statements.
2
AXIA GROUP, INC.
(A Devlelopment Stage Company)
Statements of Operations (Unaudited)
From Inception
For the For the of the
Nine Months Ended Three Months Ended Development
June 30, June 30, Stage through
-------------------------------- -------------------------------- June 30,
2005 2004 2005 2004 2005
------------- ------------- ------------- ------------- ----------------
REVENUES $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- ----------------
OPERATING EXPENSES
Selling, general and
administrative 197,767 -- 21,357 -- 197,767
Payroll expense 33,700 -- 16,800 -- 33,700
------------- ------------- ------------- ------------- ----------------
Total Operating Expenses 231,467 -- 38,157 -- 231,467
------------- ------------- ------------- ------------- ----------------
LOSS FROM OPERATIONS (231,467) -- (38,157) -- (231,467)
------------- ------------- ------------- ------------- ----------------
OTHER INCOME (EXPENSES)
Other income 7,000 -- 7,000 -- 7,000
Loss on extinguishment
of debt (94,897) -- (27,050) -- (94,897)
------------- ------------- ------------- ------------- ----------------
Total Other Expenses (87,897) -- (20,050) -- (87,897)
------------- ------------- ------------- ------------- ----------------
LOSS BEFORE DISCONTINUED
OPERATIONS (319,364) -- (58,207) -- (319,364)
------------- ------------- ------------- ------------- ----------------
DISCONTINUED OPERATIONS
Loss from discontinued
operations (644,005) (332,139) -- (198,744) --
Loss from disposal of
discontinued operations (356,950) -- -- -- --
------------- ------------- ------------- ------------- ----------------
Total Loss on Discontinued
Operations (1,000,955) (332,139) -- (198,744) --
------------- ------------- ------------- ------------- ----------------
NET LOSS $ (1,320,319) $ (332,139) $ (58,207) $ (198,744) $ (319,364)
============= ============= ============= ============= ================
BASIC LOSS PER SHARE
Continuing operations $ (0.01) $ (0.00) $ (0.00) $ (0.00)
Discontinued operations (0.01) (830.35) (0.00) (496.86)
------------- ------------- ------------- -------------
Total Loss per Share $ (0.02) $ (830.35) $ (0.00) $ (496.86)
============= ============= ============= =============
BASIC WEIGHTED
AVERAGE SHARES 75,044,293 400 201,624,296 400
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
3
AXIA GROUP, INC.
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
From Inception
of the
For the Nine Months Ended Development
June 30, Stage through
---------------------------- June 30,
2005 2004 2005
----------- ----------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,320,319) $ (332,139) $ (319,364)
Adjustments to reconcile net loss to net cash
used by operating activities:
Common stock issued for services 498,641 -- 20,184
Contributed services 15,000 -- 15,000
Loss on extinguishment of debt 94,897 -- 71,813
Depreciation and amortization 6,083 13,857 --
Changes in assets and liabilities:
(Increase) in prepaid assets (1,495) (150) (796)
Decrease in accounts receivable 29,773 33,769 --
Increase in accounts payable 222,320 49,210 153,569
(Decrease) in accrued expenses (13,550) (1,711) --
Loans acquired from D&R Crane rescission 356,950 -- --
----------- ----------- ---------------
Net Cash Used by Operating Activities (111,700) (237,164) (59,594)
----------- ----------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets -- (9,610) --
----------- ----------- ---------------
Net Cash Used by Investing Activities -- (9,610) --
----------- ----------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
D&R cash at rescission (36,505) -- --
Bank overdraft (4,175) -- --
Common stock issued for cash 165,799 -- 70,681
Payments on notes and contracts payable (56,625) (10,930) (45,000)
Proceeds from notes payable -- 200,000 --
Proceeds from notes payable - related party 29,600 80,000 4,600
Payment on capital lease (1,396) (8,432) --
----------- ----------- ---------------
Net Cash Provided by Financing Activities 96,698 260,638 30,281
----------- ----------- ---------------
NET INCREASE (DECREASE) IN CASH (15,002) 13,864 (29,313)
CASH AT BEGINNING OF PERIOD 15,345 15,851 29,656
----------- ----------- ---------------
CASH AT END OF PERIOD $ 343 $ 29,715 $ 343
=========== =========== ===============
The accompanying notes are an integral part of these financial statements.
4
AXIA GROUP, INC.
(A Development Stage Company)
Statements of Cash Flows (Unaudited) (Continued)
From Inception
of the
For the Nine Months Ended Development
June 30, Stage through
--------------------------- June 30,
2005 2004 2005
----------- ----------- ---------------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Common stock issued for extinguishment of debt $ 92,276 $ -- $ 79,971
Common stock issued for services $ 498,641 $ -- $ 20,184
The accompanying notes are an integral part of these financial statements.
5
AXIA GROUP, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 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 June 30, 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 United States
generally accepted accounting principles 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 June 30, 2005 and 2004 are not necessarily indicative
of the operating results for the years ended September 30, 2005 and
2004.
As stated in Note 5, the Company acquired D&R Crane, Inc. (D&R) on
July 21, 2004 and on January 13, 2005 the Company entered into a
rescission agreement with D&R, which resulted in D&R being spun off
and the Company reentering the development stage.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using United States
accounting principles 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 June 30, 2005 of
$20,404,356, which raises substantial doubt about the Company's
ability to continue as a going concern.
Our current purpose is to seek, investigate and, if such
investigation warrants, acquire an interest in business
opportunities presented to us by persons or firms who or which
desire to seek the perceived advantages of a corporation which is
registered under the Securities Exchange Act of 1934, as amended. We
do not restrict our search to any specific business; industry or
geographical location and we may participate in a business venture
of virtually any kind or nature.
We may seek a business opportunity with entities which have recently
commenced operations, or which wish to utilize the public
marketplace in order to raise additional capital in order to expand
into new products or markets, to develop a new product or service or
for other corporate purposes. We may acquire assets and establish
wholly owned subsidiaries in various businesses or acquire existing
businesses as subsidiaries.
6
AXIA GROUP, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2005
NOTE 2 - GOING CONCERN (Continued)
As part of our investigation of potential merger candidates, our
officers and directors will meet personally with management and key
personnel, may visit and inspect material facilities, obtain
independent analysis or verification of certain information
provided, check references of management and key personnel and take
other reasonable investigative measures, to the extent of our
financial resources and management expertise. The manner in which we
participate in an opportunity will depend on the nature of the
opportunity, the respective needs and desires of us and other
parties, the management of the opportunity, our relative negotiation
strength and that of the other management.
We intend to concentrate on identifying preliminary prospective
business opportunities that may be brought to our attention through
present associations of our officers and directors, or by our
stockholders. In analyzing prospective business opportunities, we
will consider such matters as the available technical, financial and
managerial resources; working capital and other financial
requirements; history of operations, if any; prospects for the
future; nature of present and expected competition; the quality and
experience of management services which may be available and the
depth of that management; the potential for further research,
development or exploration; specific risk factors not now
foreseeable but which then may be anticipated to impact our proposed
activities; the potential for growth or expansion; the potential for
profit; the perceived public recognition or acceptance of products,
services or trades; name identification; and other relevant factors.
Our officers and directors will meet personally with management and
key personnel of the business opportunity as part of their
investigation. We will not acquire or merge with any company for
which audited financial statements cannot be obtained within a
reasonable period of time after closing of the proposed transaction,
as required by the Exchange Act.
We will not restrict our search to any specific kind of firms, but
may acquire a venture which is in its preliminary or development
stage, which is already in operation, or which is in essentially any
stage of its corporate life. It is impossible to predict at this
time the status of any business in which we may become engaged, in
that such business may need to seek additional capital, may desire
to have its shares publicly traded or may seek other perceived
advantages which we may offer.
7
AXIA GROUP, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2005
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 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.
8
AXIA GROUP, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2005
NOTE 4 - STOCK OPTIONS
A summary of the status of the Company's outstanding stock options
as of June 30, 2005 and September 30, 2004 and changes during the
periods then ended is presented below:
June 30, 2005 September 30, 2004
------------------------- -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------- ---------- ---------- -------------
Outstanding, beginning of
year -- $ -- 1 $ 13,458,918
Granted 144,635,090 0.00 354 320
Expired/Cancelled -- -- (1) (13,458,918)
Exercised (144,635,090) (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 in exchange for one hundred percent of D&R'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 rescission agreement
with 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 the Company 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 nine
months ended June 30, 2005, and the nine and three months ended
March 31, 2004
9
AXIA GROUP, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2005
NOTE 5 - DISCONTINUED OPERATIONS (Continued)
For the For the For the
nine months nine months three months
ended, June ended, June ended, June
30, 2005 30, 2004 30, 2004
---------------- --------------- ----------------
REVENUES $ 208,234 $ 659,348 $ 214,693
COGS 88,994 370,295 164,773
--------------- --------------- ----------------
GROSS PROFIT 119,240 289,053 49,920
--------------- --------------- ----------------
OPERATING EXPENSES
Payroll 95,553 228,137 92,094
Depreciation 6,083 13,858 6,234
Travel -- 4,349 1,051
General and administrative 632,693 373,468 148,896
--------------- --------------- ----------------
Total Operating Expenses 734,329 619,812 248,275
--------------- --------------- ----------------
LOSS FROM OPERATIONS (615,089) (330,759) (198,355)
--------------- --------------- ----------------
OTHER EXPENSES
Loss on extinguishment of debt (23,084) -- --
Interest expense (5,832) (1,380) (389)
--------------- --------------- ----------------
Total Other Expenses (28,916) (1,380) (389)
--------------- --------------- ----------------
LOSS BEFORE DISPOSAL (644,005) (332,139) (198,744)
LOSS FROM DISPOSAL OF
DISCONTINUED OPERATIONS (356,950) -- --
--------------- --------------- ----------------
NET LOSS $ (1,000,955) $ (332,139) $ (198,744)
=============== =============== ================
BASIC LOSS PER SHARE $ (0.01) $ (830.35) $ (496.86)
=============== =============== ================
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 75,044,293 400 400
=============== =============== ================
10
AXIA GROUP, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2005
NOTE 6 - MATERIAL EVENTS
On June 27, 2005, Axia Group, Inc. (Axia), entered into a stock
purchase Agreement by and among Axia, Jeffrey W. Flannery, and
Richard F. Schmidt. Pursuant to the terms of the agreement, Mr.
Schmidt sold 150,000 shares of Series C Preferred Stock and
5,000,000 shares of Series D Preferred Stock of Axia to Mr.
Flannery.
Also, on June 27, 2005, Richard F. Schmidt resigned as President,
Chief Financial Officer, and Secretary of Axia. The board of
directors appointed Jeffrey W. Flannery as the new President, Chief
Financial Officer, and Secretary.
Thereafter, Richard D. Mangiarelli resigned as a director of Axia.
Mr. Schmidt, as the remaining sole director, appointed Mr. Flannery
to fill the vacancy on the board of directors.
11
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.
On June 27, 2005, Richard F. Schmidt sold 150,000 shares of Series C
Preferred Stock and 5,000,000 shares of Series D Preferred Stock. In connection
with this sale, Mr. Schmidt resigned as our President, Chief Financial Officer
and Secretary and our Board appointed Jeffrey W. Flannery to fill the offices
vacated by Mr. Schmidt. Thereafter, Richard D. Mangiarelli resigned from our
Board of Directors and Mr. Schmidt, as the sole remaining director, appointed
Mr. Flannery to fill the vacancy on the Board of Directors.
3
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.
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 nine months
ended June 30, 2005 and June 30, 2004 exclude the discontinued operations of D&R
Crane, Inc.
Comparison of the nine months ended June 30, 2005 and 2004
Net sales. We had no net sales from continuing operations in the either
the nine month period ending June 30, 2005 or the nine month period ending June
30, 2004.
Cost of Sales. We had no cost of sales from continuing operations in the
either the nine month period ending June 30, 2005 or the nine month period
ending June 30, 2004.
Operating Expenses. Operating expenses increased to $231,467 for the nine
months ended June 30, 2005 from $0 for the nine months ended June 30, 2004.
These operating expenses increased primarily due to our incurring $197,767 in
selling, general, and administrative costs, including the issuance of common
stock for services rendered, and our incurring payroll expenses of $33,700.
Operating loss. We incurred an operating loss of $231,467 for the nine
months ended June 30, 2005, compared to an operating loss of $0 for the nine
months ended June 30, 2004. We had higher operating losses in the third quarter
of fiscal 2005 as compared to the third 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 nine
months ended June 30, 2005 and recognized no revenues for the nine months ended
June 30, 2004. Accordingly, we have made no provision for income taxes.
Comparison of the three months ended June 30, 2005 and 2004
Net sales. We had no net sales from continuing operations in the either
the three month period ending June 30, 2005 or the three month period ending
June 30, 2004.
Cost of Sales. We had no cost of sales from continuing operations in the
either the three month period ending June 30, 2005 or the three month period
ending June 30, 2004.
4
Operating Expenses. Operating expenses increased to $38,157 for the three
months ended June 30, 2005 from $0 for the three months ended June 30, 2004.
These operating expenses increased primarily due to our incurring $21,357 in
selling, general, and administrative costs, including the issuance of common
stock for services rendered, and our incurring payroll expenses of $16,800.
Operating loss. We incurred an operating loss of $38,157 for the three
months ended June 30, 2005, compared to an operating loss of $0 for the three
months ended June 30, 2004. We had higher operating losses in the third quarter
of fiscal 2005 as compared to the third 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 June 30, 2005 and recognized no revenues for the three months ended
June 30, 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 June 30, 2005 was $673,920. We had cash of $343 as of June 30, 2005.
We used $111,700 of net cash in operating activities for the nine months
ended June 30, 2005 compared to using $237,164 in the nine months ended June 30,
2004. Cash generated by operating activities for the nine months ended June 30,
2005 was mainly due to non-cash charges of $498,641 in common stock issued for
services rendered, $94,897 for loss on extinguishment of debt, $6,083 in
depreciation and amortization, $29,773 for decreases in accounts receivable,
$222,320 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 $1,320,319, 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 the nine
months ended June 30, 2005 as compared to $9,610 which was used in the nine
months ended June 30, 2004.
Net cash flows provided by financing activities were $96,698 for the nine
months ended June 30, 2005, compared to net cash provided by financing
activities of $260,638 in the nine months ended June 30, 2004. This change in
net cash provided by financing activities is due to proceeds from note payables
issued to related parties of $29,600 and proceeds from the exercise of stock
options issued under our various employee benefit plans of $165,799. 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 $56,625, 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.
5
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.
6
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) On June 27, 2005, Richard F. Schmidt sold 150,000 shares of Series C
Preferred Stock and 5,000,000 shares of Series D Preferred Stock. In connection
with this sale, Mr. Schmidt resigned as our President, Chief Financial Officer
and Secretary and our Board appointed Jeffrey W. Flannery to fill the offices
vacated by Mr. Schmidt. Thereafter, Richard D. Mangiarelli resigned from our
Board of Directors and Mr. Schmidt, as the sole remaining director, appointed
Mr. Flannery to fill the vacancy on the Board of Directors.
(b) None.
ITEM 6 - EXHIBITS
Item
No. Description Method of Filing
31.1 Certification of Jeffrey W. Flannery pursuant to Filed electronically herewith.
Rule 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
7
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.
August 10, 2005 /s/ Jeffrey W. Flannery
-----------------------------------------
Jeffrey W. Flannery
Chief Executive Officer
(Principal Executive Officer, Principal
Financial Officer, and Principal
Accounting Officer)
8