UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: September 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-27565
Abazias, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-23532 65-0636277
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
5214 SW 91st Terrace Suite A
Gainesville, FL 32608
(Address of principal executive offices) (Zip Code)
352-264-9940
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [] No[X]
Applicable only to corporate issuers:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, $.001 par value
82,887,109 shares outstanding as of September 30, 2005.
Transitional Small Business Disclosure Format: Yes __ No X
PART I.
Item 1. FINANCIAL INFORMATION
ABAZIAS, INC.
BALANCE SHEET
September 30, 2005
(unaudited)
ASSETS
Current assets
Bank $ 234,813
Accounts receivable 36,375
Inventory 40,964
------------
Total Current Assets 312,152
Property & equipment, net of accumulated
depreciation of $3,126 3,600
------------
TOTAL ASSETS $ 315,752
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 146,912
Note payable 8,000
Loans from stockholders 78,235
------------
Total Current Liabilities 233,147
------------
Commitments and Contingencies --
Stockholders' Equity
Common stock, $.001 par value, 150,000,000 shares
authorized, 82,887,109 issued and outstanding 82,887
Additional paid-in capital 3,637,282
Accumulated deficit (3,637,564)
------------
Total Stockholders' Equity 82,605
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 315,752
============
ABAZIAS, INC.
STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2005 and 2004
(unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
Sales $ 520,105 $ 616,819 $ 1,669,376 $ 1,535,737
Cost of sales 480,351 566,142 1,446,053 1,406,063
------------ ------------ ------------ ------------
Gross profit 39,754 50,677 223,323 129,674
Share based compensation 240,500 -- 305,950 970,000
General and administrative 134,360 65,822 302,333 177,502
------------ ------------ ------------ ------------
Net operating loss (335,106) (15,145) (384,960) (1,017,828)
Interest income 25 -- 25 --
Interest expense (1,725) (1,565) (5,174) (4,159)
------------ ------------ ------------ ------------
Net loss $ (336,806) $ (16,710) $ (390,109) $ (1,021,987)
============ ============ ============ ============
Basic and diluted
loss per share $ (0.00) $ (0.00) $ (0.01) $ (0.01)
Weighted average
shares outstanding 80,337,109 74,937,109 77,250,778 73,266,160
ABAZIAS, INC.
STATEMENTS OF CASH FLOW
Nine Months Ended September 30, 2005 and 2004
(unaudited)
2005 2004
------------ ------------
Cash Flows From Operating Activities
Net loss $ (390,109) $ (1,021,987)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 305,950 970,000
Imputed interest on stockholder loan 5,174 4,159
Depreciation 721 721
Changes in:
Accounts receivable 38,125 (4,857)
Accounts payable (9,050) 30,013
Inventory (26,730) --
------------ ------------
Net Cash Used In Operating Activities (75,919) (21,951)
------------ ------------
Cash Flows From Financing Activities
Proceeds from the sale of stock 250,000 --
Proceeds from stockholder loan -- 31,900
------------ ------------
Net Cash Provided By Financing Activities 250,000 31,900
------------ ------------
Net change in cash 174,081 9,949
Cash at beginning of period 60,732 --
------------ ------------
Cash at end of period $ 234,813 $ 9,949
============ ============
ABAZIAS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of Abazias, Inc., a
Delaware corporation ("Abazias"), have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited financial statements and notes thereto contained in
the Abazias' latest Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year,
2004, as reported in Form 10-KSB, have been omitted.
NOTE 2 - COMMON STOCK
During the nine months ended September, Abazias issued 3,917,000 shares of
common stock for services valued at $305,950.
During July 2005, Abazias sold 1,500,000 shares of common stock with 2,500,000
warrants for $150,000. The warrants have an exercise price of $.15 and expire in
three years. The relative fair value of the common stock is $90,000 and the
relative fair value of the warrants is $60,000.
During September 2005, Abazias sold 2,000,000 shares of common stock with
500,000 warrants for $100,000. The warrants have an exercise price of $.10 and
expire in three years. The relative fair value of the common stock is $70,871
and the relative fair value of the warrants is $29,129.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Some of the statements contained in this Form 10-KSB that are not historical
facts are "forward-looking statements" which can be identified by the use of
terminology such as "estimates," "projects," "plans," "believes," "expects,"
"anticipates," "intends," or the negative or other variations, or by discussions
of strategy that involve risks and uncertainties. We urge you to be cautious of
the forward-looking statements, that such statements, which are contained in
this Form 10-QSB, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors affecting our
operations, market growth, services, products and licenses. No assurances can be
given regarding the achievement of future results, as actual results may differ
materially as a result of the risks we face, and actual events may differ from
the assumptions underlying the statements that have been made regarding
anticipated events. Factors that may cause actual results, our performance or
achievements, or industry results, to differ materially from those contemplated
by such forward-looking statements include without limitation:
o Our ability to maintain, attract and integrate internal management,
technical information and management information systems;
o Our ability to generate customer demand for our services;
o The intensity of competition; and
o General economic conditions.
All written and oral forward-looking statements made in
connection with this Form 10-QSB that are attributable to us or persons acting
on our behalf are expressly qualified in their entirety by these cautionary
statements. Given the uncertainties that surround such statements, you are
cautioned not to place undue reliance on such forward-looking statements.
Overview
We are an online retailer of high quality loose diamonds and fine jewelry
settings for our diamonds. Our web site at www.abazias.com showcases over 60,000
diamonds almost all of which are independently certified and around 100 styles
of fine jewelry, including rings, wedding bands, earrings, necklaces, and
bracelets.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2005 and 2004
Nine Months
Ended September 30,[unaudited]
2005 2004
------------ ------------
Sales $ 1,669,376 $ 1,535,737
Cost of sales 1,446,053 1,406,063
------------ ------------
Gross profit 223,323 129,674
General and administrative 608,283 1,147,502
------------ ------------
Net operating loss (384,960) (1,017,828)
Interest Income 25 --
Interest expense (5,174) (4,159)
------------ ------------
Net loss $ (390,109) $ (1,021,987)
============ ============
Our sales for the nine months ended September 30, 2005 vs. nine months ended
September 30, 2004 increased 9% to $1,669,376 from $1,535,737 primarily due to
an increase in online marketing campaigns, especially with respect to increasing
our visibility on search engine rankings. This is a result of our extensive
internal search engine optimization campaign. In addition, an increased exposure
in certain jewelry type portals, like pricegrabber.com and pricescope.com,
assisted in this increase in revenue.
Our cost of sales for the nine months ended September 30, 2005 vs. nine months
ended September 30, 2004 increased 3% to $1,446,053 from $1,406,063 due to the
corresponding increase in the amount of diamonds and jewelry sold for the
period. This corresponding increase in costs is consistent with the proportional
increase in additional sales for the period.
Our general and administrative expenses for the nine months ended September 30,
2005, 2005 vs. nine months ended September 30, 2004 decreased 47% to $608,283
from $1,147,502 due to a significant reduction expenses associated with stock
issued to management or consultants. Our interest expense for the nine months
ended September 30, 2005 vs. nine months ended September 30, 2004 increased 24%
to $5,174 from $4,159 due to an increase in principal liability owed to our
major stockholder Oscar Rodriguez.
Accordingly, our net loss for the nine months ended September 30, 2005 vs. nine
months ended September 30, 2004 decreased 62% to $390,109 from $1,021,987.
Liquidity and Capital Resources
At September 30, 2005, we had current assets of:
Cash $ 234,813
Accounts receivable 36,375
Inventory 40,964
------------
Total current assets 312,152
At September 30, 2005, we had current liabilities as follows:
Current Liabilities
Accounts payable $ 146,912
Note payable 8,000
Loans from stockholders 78,235
------------
Total Current Liabilities 233,147
------------
With the exception of loans from stockholders, as described below, for which our
shareholders have not requested and we do not anticipate a request for repayment
in the next 12 months, our current assets exceed our current liabilities by
approximately $90,000 , and thus we do not believe present a liquidity issue.
For the nine months ended September 30, 2005, we had average monthly cash gross
profit of $24,814 and average monthly cash expenses of $33,391. Accordingly, we
had a monthly cash loss of $8,577 for this period. However, we had non-cash
expenses of $65,450, for this period which added to the loss for financial
statement purposes as described above.
We expect that our average cash revenues and expenses will continue at
approximately the same levels during the next 12 months. Therefore, we expect we
will continue to have similar cash flow during this period.
Although this cash flow position can change in the future, management feels
reasonably confidant that it is in a position to maintain the required level of
sales, and/or reduce corresponding expenses as needed to fulfill its financial
obligations from a cash flow perspective on an ongoing basis into the future,
although there is no assurance we can do so.
The majority stockholder advances money to Abazias on an as-needed basis.
Notwithstanding his willingness to make advances in the past, he is under no
legal obligation to make further advances in the future. The advances are due on
demand, bear no interest and have no collateral. At September 30, 2005, the
amount of the advance was $78,235 and the majority stockholder has not needed to
make an advance on behalf of the company for the last four quarters.
As of September 30, 2005, we had $146,912 of trade accounts payable and
receivables of $36,375.
During July 2005, Abazias sold 1,500,000 shares of common stock with 2,500,000
warrants for $150,000. The warrants have an exercise price of $.15 and expire in
three years. The relative fair value of the common stock is $90,000 and the
relative fair value of the warrants is $60,000.
During September 2005, Abazias sold 2,000,000 shares of common stock with
500,000 warrants for $100,000. The warrants have an exercise price of $.10 and
expire in three years. The relative fair value of the common stock is $70,871
and the relative fair value of the warrants is $29,129.
We have no long term commitments.
However, we had non-cash expenses of $305,950 during the nine months ended
September 30, 2005 which resulted in a loss for financial statement purposes. We
also had similar non cash expenses for the fiscal year ended December 31, 2004.
Certain Accounting Policies
Revenue recognition
a) Return Policy- For most of our products, we offer an unconditional 10-day
return policy, under which customers desiring to return a product receive a
return authorization by calling our customer service center. We have, based on
historical return figures, been able to determine that returns have never had
any material impact on our financial statements, and historically been less then
than 5% of total sales, based on analyzing historical return rates. We therefore
expect no more than 5% of sales to be returned witch can only occur within 10
days after the sale is made. Returned products are treated as merchandise
credits and are subject to the same inventory accountability. Revenue is
recognized when the diamonds are shipped, and returns immediately debited
against current sales upon any return.
b) Since we do not hold significant inventory, we have reviewed EITF 99-19, to
clarify if we might be deemed a diamond agent and have to report sales on a net
basis. We clearly do not fit under the appropriate definition as an agent for
several reasons. Although we hold very little inventory, we purchase all of our
diamonds under our credit facilities with our various wholesalers. This varies
between many dealers and in same cases, requires us to wire funds before a
diamond is shipped, to many dealers offering us credit terms of net 30 for
payment. The customer that purchases a diamond or other product, does so with us
solely, and is never even aware of our wholesaler relationships, and even at any
time we're aware, could not purchase from them. Consequently, regardless of
whether we are paid or not for the diamond or other products we sell, we are
obligated to pay our wholesaler for said product once shipped. We have purchased
the diamond or product, and the responsibility of said product solely rests with
us, including accepting a return from a customer, even when we in turn might not
be able to return the same diamond to our wholesaler. Regardless of whether or
not the company is deemed an agent, which we clearly are not, we would still
fulfill all the indicators under EITF 99-19 for gross revenue reporting. We are
the primary obligator in the arrangement, we maintain inventory risk in the
event the product is returned, price establishment rests solely with us, we can
and do modify the product frequently by mounting diamonds, as well as finishing
them and other products, we can and do choose among many suppliers, all products
sold are determined by us, we have physical loss risk, and additionally shoulder
credit risk. Based on these reasons, we clearly are not an agent, and should
report revenues on a gross basis.
Trade up policy
We have a lifetime trade up policy which provides a guaranteed trade up of 80%
of the price of the original diamond purchase. This provides our customers with
the ability and incentive to become and remain our customers for many years to
come. This affords our customers an option that many of our competitors will not
extend to them. If the buyer exercised his/her trade-in right (functionally an
option written by us), we would exchange a new diamond in for the original.
Under normal circumstances, any trade up policy exercised would be even more
profitable than a sale not including an exercised policy. This is because, on
average we would make our normal markup, in addition to getting a discount that
is greater than our cost on the diamond traded. It is conceivably possible, in a
catastrophic event to the diamond markets which caused the value of diamonds to
drop, customers would want to take advantage of this policy. Our policy is
limited to the value of the diamond traded in, being close to the value when
purchased. As such, we are protected from the functional price guarantee as
mentioned in EITF 00-24 and FIN 45. Specifically our policy is only valid when,
the diamond is at least 80% of the wholesale per carat price at time of
purchase, based on published wholesale prices in the Rappaport industry
publication, which is the de-facto standard for diamond pricing. To date, no
customers have exercised this policy with us. After reviewing EITF 00-24 and FIN
45, we would not have any potential financial exposure to account for as a
result of this policy, since our trade in value requirements based on current
market conditions at the time of trade in, require the diamond to be worth 80%
of the wholesale carat price, and if it does not, no trade up policy is valid.
Item 3. Controls and Procedures
The Corporation maintains disclosure controls and procedures designed to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the specified time periods. As of the end of the period covered
by this report, the Corporation's Chief Executive Officer and Chief Financial
Officer evaluated the effectiveness of the Corporation's disclosure controls and
procedures. Based on the evaluation, which disclosed no significant deficiencies
or material weaknesses, the Corporation's Chief Executive Officer and Chief
Financial Officer concluded that the Corporation's disclosure controls and
procedures are effective as of the end of the period covered by this report.
There were no changes in the Corporation's internal control over financial
reporting that occurred during the Corporation's most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2005, Abazias issued the following:
During July 2005, Abazias sold 1,500,000 shares of common stock with 2,500,000
warrants for $150,000. The warrants have an exercise price of $.15 and expire in
three years. The relative fair value of the common stock is $90,000 and the
relative fair value of the warrants is $60,000.
During September 2005, Abazias sold 2,000,000 shares of common stock with
500,000 warrants for $100,000. The warrants have an exercise price of $.10 and
expire in three years. The relative fair value of the common stock is $70,871
and the relative fair value of the warrants is $29,129.
The shares were valued based upon trading prices of our securities. The warrants
were valued based upon recent trading prices of our securities.
These shares were issued in reliance upon Section 4(2) of the 1933 Act in view
of the following:
o None of these issuances involved underwriters, underwriting
discounts or commissions.
o Restrictive legends were and will be placed on all certificates
issued as described above.
o The distribution did not involve general solicitation or
advertising.
o The distributions were made only to investors who were sophisticated
enough to evaluate the risks of the investment.
Although some of the investors may have also been accredited, we provided the
following to all investors:
o Access to all our books and records.
o Access to all material contracts and documents relating to our
operations.
o The opportunity to obtain any additional information, to the extent
we possessed such information, necessary to verify the accuracy of
the information to which the investors were given access.
Item 3. Default Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Item 6. Exhibits
(a) Exhibits:
Exhibit No. Document Description
4.1 Warrants
4.2 Warrants
31.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002.
31.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002.
32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(b) Form 8-K.
SIGNATURES
In accordance with Section 12 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Abazias, Inc.
By: /s/ Oscar Rodriguez
---------------------------
Oscar Rodriguez, President and Director
By: /s/ Jesus Diaz
---------------------------
Jesus Diaz, Principal Financial Officer
and Principal Accounting Officer
Dated: November 14, 2005