UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or 12(g) of The Securities Exchange Act of 1934
AXIS
TECHNOLOGIES GROUP, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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26-1326434
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(State
of incorporation)
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(IRS
Employer Identification Number)
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2055 S. Folsom, Lincoln NE
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68522
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(Address
of principal executive offices)
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(Zip
Code)
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(Registrant's
telephone number) (866) 458-9880
Securities
to be registered pursuant to Section 12(b) of the Act:
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Title of each class to be so
registered
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Name of each exchange on which each class is to be
registered
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Not
Applicable
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Securities
to be registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.001 per share
(Title of
class)
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
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TABLE
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EXPLANATORY
NOTE
We are
filing this General Form for Registration of Securities on Form 10 to register
our common stock, par value $0.001, pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Once we
have completed this registration, we will be subject to the requirements of
Regulation 13A under the Exchange Act, which will require us to file annual
reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on
Form 8-K, and we will be required to comply with all other obligations of the
Exchange Act applicable to issuers filing registration statements pursuant to
Section 12(g).
As used
in this Form 10, unless the context requires otherwise, "we", "us", “our”,
“Axis”, "Company" or “Issuer” means Axis Technologies Group, Inc. and its
consolidated subsidiaries. Our principal place of business is located at 2055
South Folsom, Lincoln, Nebraska 68522.
CAUTION
REGARDING FORWARD-LOOKING INFORMATION
All
statements contained in this Form 10, other than statements of historical facts
that address future activities, events or developments are forward-looking
statements, including, but not limited to, statements containing the words
"believe," "anticipate," "expect" and words of similar import. These statements
are based on certain assumptions and analyses made by us in light of our
experience and our assessment of historical trends, current conditions and
expected future developments as well as other factors we believe are appropriate
under the circumstances. However, whether actual results will conform to the
expectations and predictions of management is subject to a number of risks and
uncertainties that may cause actual results to differ materially.
Such
risks include, among others, the following: international, national and local
general economic and market conditions: our ability to sustain, manage or
forecast our growth; raw material costs and availability; new product
development and introduction; existing government regulations and changes in, or
the failure to comply with, government regulations; adverse publicity;
competition; the loss of significant customers or suppliers; fluctuations and
difficulty in forecasting operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and retain
qualified personnel; the ability to protect technology; and other factors
referenced in this filing.
Consequently,
all of the forward-looking statements made in this Form 10 are qualified by
these cautionary statements and there can be no assurance that the actual
results anticipated by management will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on our
business operations.
Axis
Technologies Group, Inc. (the “Company”), a Delaware corporation which was
incorporated on September 30, 1997 under the name C2i Solutions, Inc., through
its wholly owned operating subsidiary, Axis Technologies, Inc., a Delaware
corporation is in the business of the development and marketing of daylight
harvesting fluorescent lighting ballasts that use natural lighting to reduce
electricity consumption. A ballast is an electronic component that
regulates voltage in lighting. The Company’s market for advertising
and selling the product currently lies within North America.
The Company was originally
incorporated as C2i Solutions,
Inc., and after several name changes was named
Axis Technologies Group, Inc. On October 25, 2006, the
Company acquired all of the issued and outstanding shares of its subsidiary
company Axis Technologies, Inc. in a share exchange
transaction. Axis Technologies, Inc. had a total of six
shareholders, each of which exchanged all of their ownership interest in the
subsidiary for shares in the Company. In exchange for their shares,
the owners of the subsidiary shares received a combined total of 45,000,000
newly issued restricted shares of the Company.
The
Company’s primary products are self-contained electronic, dimming and daylight
harvesting, fluorescent ballasts. The Company markets energy-saving
electronic components for the commercial lighting sector and has spent over two
years in its product development. The Company develops, tests, and
patents unique technology to create energy efficient products that meet federal
energy code standards and encourage Green initiatives for high-profile
companies. Extensive testing was conducted to ensure product
reliability, and energy-saving properties. The Company has obtained
and owns the patent rights for our ballasts’ unique control system, and has
trademarked our slogan “The Future of Fluorescent Lighting”. UL
(Underwriters Laboratory), the lighting industry’s certification
authority, has approved our products for use in the United States and
Canada.
The
Company’s target market is small to large commercial users of fluorescent
lighting including office buildings, wholesale and retail buildings, hospitals,
schools and government buildings. We have contracted with sales
representatives, electrical distributors, electrical contractors, retrofitters,
ESCO’s (Energy Service Companies), and OEM’s (Original Equipment Manufacturers)
to market, distribute and install the Company’s products.
We have
not been in bankruptcy, receivership, or any similar proceeding, and have not
defaulted on the terms of any note, loan, lease, or other indebtedness or
financing arrangement requiring us to make any material payments.
Market
for Electronic Dimming Ballasts
We
believe the market for electronic ballasts to be in excess of $700 million
in annual sales. Based on the market data, we anticipate that this
market will continue moderate growth for the next ten to fifteen
years. Although the overall economic outlook for the U.S. is
presently not optimistic, we do not believe that the sales of our products will
correlate with the overall economic conditions because of the present need to
establish more efficient use of energy and reduce energy
costs. However, due to switching costs of our customers and the
higher price of our products, there can be no assurance that our products will
be accepted by the market.
T8
Ballasts
Our
current and primary product is the patented T8 Axis Daylight Harvesting Dimming
Ballast. This ballast uses simple technology that transforms the
standard ballast, into a dynamic energy saving system that can reduce lighting
energy costs by up to 70%. The Axis Ballast utilizes an individual
photo sensor to automatically adjust the amount of electrical current flowing to
the light fixture and then dims or increases lighting in conjunction with the
amount of available sunlight. The Axis Ballast is the only ballast on
the market that has automatic dimming controls integrated into each
ballast. This feature reduces the costs of acquisition and
installation by up to two-thirds over that of competing dimming
systems.
T5HO
Ballasts
We plan
to introduce a line of dimming and daylight harvesting ballasts with the same
control system as our present T8 ballasts which utilize 32 watt, T8 lamps; that
would utilize T5HO (54 watt, High Output) lamps. These lamps are
smaller in diameter and put out more light per lamp than T8
lamps. They are used mainly in “high-bay” fixtures which are normally
installed in warehouses, gymnasiums, larger retail stores,
etc. Skylights are frequently installed in these applications, and a
dimming ballast as provided by Axis would be an economical choice to greatly
reduce the lighting energy needed to illuminate these spaces.
This
ballast is in the process of being submitted to UL for testing and
approval.
Status
of New Products
In
October of 2007, we commenced development work on a new line of wireless
addressable, load shedding ballasts. Using our affiliate membership,
in which we pay an annual membership fee, with the
California Lighting Technology Center, (CLTC, www.cltc.ucdavis.edu
) at the University of California-Davis, we have been working with the CLTC
personnel to develop an additional line of Axis ballasts that would specifically
address peak demand load shedding. Most utility companies charge
their customers a surcharge or “peak demand” charge during those times of day
when the load on the power plants are at the highest. Usually this
means the power companies must start up higher cost generators, and/or buy power
from the electrical grid at higher rates. Our ballast would allow the
power companies the ability to reduce the lighting load for their customers
during those peak demand periods by sending a signal to their subscriber
customers. This would provide a benefit for both the utility company
and their customers. Several utility companies have expressed
interest in working with us to complete the development of the load shedding
ballasts in order to provide for the installation of the ballasts in their
customer facilities. The U.S. federal government has mandated that
power companies nation-wide reduce their greenhouse gas emissions and reduce
energy consumption by January of 2009.
Because
both the Load Shedding Ballast and T5HO Ballast are simpler, more cost
effective, and directly serve the market needs, we believe these qualities
create a competitive advantage for us and allow us to gain a larger acceptance
in the market.
Competition
The
energy saving electronic component market is very competitive. There
are other companies that manufacture dimming ballasts, such as Advance,
Sylvania, GE and others. These companies have larger financial
resources, including larger operating, staffing and advertising
budgets. These companies are also better-known than us. We
believe that most of these ballasts from competitive companies, however,
primarily require that a separate control system be installed, that separate
photosensors be installed, and that all components must be “hard-wired”
together, then “commissioned” (adjusted) in order to work
properly. These systems cost about three times that of our system
because of the extra components to purchase and labor to
install. Also, because of their complexity, they have proved
cumbersome to maintain.
The other
type of general competition for our ballasts is standard electronic
ballasts. Even though the Axis ballast system is cost-efficient and
has demonstrated to reduce up to 40% of the lighting energy costs over these
ballasts, the end consumer is many times reluctant to pay the switching costs to
install the Axis dimming system.
With
regard to our daylight harvesting products, to our knowledge, there are
currently no direct competitors to this technology. However, we do
experience indirect competition from other lower cost ballasts, which have a
lower installation cost and which do not utilize the daylight harvesting
technique, as an alternative solution. To minimize the effects of
competition, we are working with energy agencies to promote the usage and
acceptance of our products. We are also continuously upgrading and
improving the performance and reliability of our ballasts. We believe
that our products’ lower acquisition costs, lower installation costs, and
improved energy savings will differentiate our ballasts from the current
ballasts in the market and increase our products’ acceptance in the
market.
Principal
Suppliers and Manufacturers
At this
time, Shanghai Gold Lighting Company, Ltd. headquartered in Shanghai, China, is
our sole provider for all merchandise, manufacturing and equipment produced and
sold by us. They are an ISO 9002 rated manufacturer which builds
ballasts and other electronic equipment for other companies within the industry
in addition to us. As an ISO 9002 rated manufacturer, Shanghali Gold
Lighting Company has been certified by the International Organization for
Standardization to meet established quality control and management standards to
ensure that their manufacturing processes have complied with rigorous quality
control metrics and requirements. They have supplied us with high quality and
reliable products, and at competitive prices. All component materials
are sourced and provided by Shanghai Gold, and our ballasts are built to our
specifications and under the direct supervision of the Underwriters
Laboratory. Test results of each production run are provided to us
before shipment.
Our
operations will suffer a setback if our relationship with Shanghai Gold Lighting
Company is terminated. However, should we cease to do business with
Shanghai Gold Lighting Company, we can replace their services with other similar
vendors. Additionally, we are currently in the process of soliciting
additional providers to diversify our dependence on a sole
supplier.
Customers
For our
fiscal year ended December 31, 2007, one customer accounted for twenty-three
percent (23%) of our sales revenue and for the three months ended March 31,
2008, two customers accounted for sixty-one percent (61%) of our sales
revenues. We are, however, in the process of talking with several
utilities who have indicated an interest in adopting our products to further
broaden our customer base.
In
efforts to expand our customer base, we have working agreements with large
wholesale distributors such as Grainger, Graybar, Consolidated Electrical
Distributors (CED), Crescent, Wesco, Rexel, FSG, Winlectric; and smaller
distributors across the country such as Jewel, Munro, Walter’s Wholesale,
Shepherd, Gilman, Kriz-Davis, American Light, Loeb, Platt, Motors & Controls
who market and distribute our ballasts to third parties. Our ballasts
are marketed and sold through these distributors to, among others, electrical
contractors and building owners.
We have
relationships with over 30 fluorescent fixture manufacturers who have
factory-installed our ballasts. Many of these original equipment
manufacturers have made a catalog entry featuring their own “dimming/daylight
harvesting” fixture which utilizes our ballasts.
Governmental
Approvals and the Effect of Regulations on our Business
There are
many states that have passed legislation that requires lighting controls at a
minimum, and in some cases (California for example), there are requirements that
new construction and major lighting retrofits incorporate daylight
harvesting. These regulations are specific to lighting, and there are
many further regulations in place from cities and states, that are requiring
government buildings to save a certain amount of all forms of energy by
specified dates. We believe that our dimming ballast system can help
greatly in achieving these energy-reduction goals.
Newer and
stricter energy efficiency codes mandated by the U.S. Federal government will
encourage the use of our products. We believe that due to these new
regulations, the size of the electronic ballast market will expand
significantly. While these new regulations do not expose us to
additional liabilities, we will adhere to and comply with these
requirements. With exception to standard business licenses and the
certification of our products by the Underwriters Laboratory, we are not
required to obtain any additional governmental approvals. We can obtain our
standard business licenses with minimal cost and can renew them with
relative ease.
License
Agreement
On
January 1, 2008. we entered into a license agreement with The Regents of the
University of California, a California Corporation, (“Regents”). Only
one other company has a license from the Regents. However, that company uses the
license for a different application and purpose. The material terms
of the License Agreement are as follows:
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We
are granted a co-exclusive license to make, have made, use, offer for
sale, import, sell, and have sold the Simplified Daylight Harvesting
Technology which has been developed by
Regents;
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We
have paid the Regents a $5,000.00 License
Fee
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Until
the first sale of the Simplified Daylight Harvesting Technology products
and services, we will pay to the Regents a license maintenance fee of
$3,000 on each of the one-year, two-year, and three-year anniversaries of
the license and $5,000 on each subsequent one-year anniversary of the
license thereafter.
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Additionally,
royalties calculated as a percentage of net sales shall be paid to the
Regents which may vary from 0.85% to 1.70% based upon the components that
are sold.
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Earned
royalties will be paid quarterly to the
Regents
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Beginning
in the first calendar year in which the sale of the Simplified Daylight
Harvesting Technology products and services occur, we will pay the Regents
a minimum annual royalty in accordance to the following payment
schedule:
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Five
Thousand Dollars ($5,000.00) for the first calendar
year;
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Six
Thousand Dollars ($6,000.00) for the second calendar
year;
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Eight
Thousand Dollars ($8,000.00) for the third calendar
year;
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Ten
Thousand Dollars ($10,000.00) for the fourth calendar
year;
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Ten
Thousand Dollars ($10,000.00) for each subsequent calendar year thereafter
for the life of the license which is until the last patent expires or is
abandoned, whichever is later.
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Not
including our executive officers, the Company currently has five full-time
employees and no part-time employees. We believe our relationship
with our employees is good.
During
the last two full fiscal years, we have collaborated with the California
Lighting and Technology Center through the Regents of the University of
California by engaging in research and development activities and
have signed a licensing agreement with them effective as of January
1, 2008. In the event that we undertake research and
development activities in the future, the costs of those efforts will not
be bourn directly by our consumers.
In
November, 2005, we were issued a patent (Patent #6,969,955) for a term of
17 years from the date of issuance (expires November, 2022) to
protect the ATI ballast and its unique control system, which utilizes a
7-position dipswitch to provide pre-set fixed output from 100% to 40% in
approximately 10% increments; and an integral photo sensor which further dims
the fixture to as much as an 80% reduction depending on available
daylight. The ATI ballast is an apparatus and method for providing
dimming control of an electronic ballast circuit that includes a electronic
ballast circuit that is electrically connected to a plurality of input voltage
terminals that can receive alternating current and the electronic ballast
circuit is electrically connected to the plurality of fluorescent lamp
terminals.
In
September, 2005,
the Company trademarked our slogan “The Future of Fluorescent Lighting” (under
trademark # 78437293).
We
currently do not manufacture any product or conduct any activity that is subject
to environmental laws. All manufacturing is undertaken by a third
party. Nevertheless, it is possible that our activities could fall within the
ambit of environmental regulation in the future.
An
investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below before deciding to purchase
shares of our common stock. If any of the events, contingencies,
circumstances or conditions described in the risks below actually occurs, our
business, financial condition or results of operations could be seriously
harmed. The trading price of our common stock could, in turn,
decline, and you could lose all or part of your investment.
RISK
FACTORS CONCERNING OUR BUSINESS AND OPERATIONS:
WE HAVE A
LIMITED OPERATING HISTORY, WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO
PREDICT OUR FUTURE PERFORMANCE BASED ON OUR CURRENT OPERATIONS.
We have a
limited operating history upon which investors may base an evaluation of our
potential future performance. As a result, there can be no assurance that we
will be able to develop consistent revenue sources, or that our operations will
be profitable. Our prospects must be considered in light of the risks, expense
and difficulties frequently encountered by companies in an early stage of
development.
We must,
among other things, determine appropriate risks, rewards and level of investment
in each project, respond to economic and market variables outside of our
control, respond to competitive developments and continue to attract, retain and
motivate qualified employees. There can be no assurance that we will be
successful in meeting these challenges and addressing such risks and the failure
to do so could have a materially adverse effect on our business, results of
operations and financial condition.
WE HAVE
EXPERIENCED SUBSTANTIAL OPERATING LOSSES AND MAY INCUR ADDITIONAL OPERATION
LOSSES IN THE FUTURE.
During
the twelve month period ended December 31, 2007, we have incurred a net loss of
$775,019 and during the three months ended March 31, 2008, we have incurred
a net loss of $122,740, and have not generated significant revenues to date. We
may continue to incur losses until we are able to generate sufficient revenues
and cash flows from our marketing and distribution of ballasts in the
commercial lighting market discussed herein. If we are unable to generate
sufficient revenues and cash flows to meet our costs of operations, we could be
forced to curtail or cease our business operations without obtaining additional
financing.
WE COULD
CEASE TO OPERATE AS A GOING CONCERN.
We have
had and could have in the future losses, deficits and deficiencies in liquidity,
which could impair our ability to continue as a going concern.
In
Note #2 to our consolidated financial statements, our independent auditors have
indicated that certain factors raise substantial doubt about our ability to
continue as a going concern. During our periods of operation, we have
suffered recurring losses from operations and have been dependent on existing
stockholders and new investors to provide the cash resources to sustain our
operations. During the year ended December 31, 2007, and the
three months ended March 31, 2008, we had a negative working capital
position of $300,089 and $413,202, respectively, an accumulated deficit of
$2,247,944 and $2,370,684, respectively, and a stockholder’s deficit of $277,667
and $365,491, respectively. During the years ended December 31, 2007
and 2006, we reported net losses and negative cash flows from operations as
follows:
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2007
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2006
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Loss
from operations
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$ |
(756,868 |
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$ |
(364,299 |
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Net
loss from continuing operations
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$ |
(775,019 |
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$ |
(438,799 |
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Net
cash (used in) operating activities
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$ |
(763,382 |
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$ |
(521,215 |
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Our
long-term viability as a going concern is dependent on certain key factors, as
follows:
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Our
ability to continue to obtain sources of outside financing that will
supplement current revenue and allow us to continue to develop and market
our products.
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Our
ability to increase profitability and sustain a cash flow level that will
ensure support for continuing operations as well as to continue to develop
and market our products.
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WE MAY
NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE
TERMS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, AS NEEDED, THE FUTURE
GROWTH OF OUR BUSINESS AND OPERATIONS WOULD BE SEVERELY LIMITED.
A
limiting factor on our growth, including its ability to penetrate new markets,
attract new customers, and deliver products and services in the commercial
lighting market, is our limited capitalization compared to other companies in
the industry. While we are currently able to fund all basic operating
costs, it is possible that we may require additional funding in the future to
achieve all of our proposed objectives.
If we
raise additional capital through the issuance of debt, this will result in
increased interest expense. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
the Company held by existing shareholders will be reduced and our shareholders
may experience significant dilution. In addition, new securities may
contain rights, preferences or privileges that are senior to those of our common
stock. There can be no assurance that acceptable financing necessary
to further implement our plan of operation can be obtained on suitable terms, if
at all. Our ability to develop our business could suffer if we are
unable to raise the additional funds on acceptable terms, which would have the
effect of limiting our ability to increase our revenues or possibly attain
profitable operations in the future.
WE DEPEND
ON KEY EMPLOYEES AND PERSONNEL TO OPERATE OUR BUSINESS, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE IF WE ARE UNABLE TO RETAIN
OR REPLACE THESE PERSONS.
Our
future success is largely dependent upon its existing management team, including
Kipton P. Hirschbach, our Chief Executive Officer, and Jim Erickson, our
President. The loss of either of these officers or directors through injury,
death or termination of employment could result in the investment of significant
time and resources for recruiting and replacement. We do not have
employment agreements with our executive officers and do not maintain any key
man insurance on their lives for our benefit. Additionally, the loss of
the services of our executive officers could have a serious and adverse effect
on our business, financial condition and results of operations. There
is also no assurance that as we grow, the existing team can successfully manage
our growth or that we can attract the new talent that will be necessary to run
the Company at a high level. Our success will also depend upon our ability
to recruit and retain additional qualified senior management personnel.
Competition is intense for highly skilled personnel in our industry and,
accordingly, no assurance can be given that we will be able to hire or retain
sufficient personnel.
WE FACE
COMPETITION FROM SEVERAL SOURCES, WHICH MAY MAKE IT MORE DIFFICULT TO INTRODUCE
NEW PRODUCTS INTO THE COMMERCIAL LIGHTING MARKET.
The
market segments in which the Company competes are rapidly evolving and intensely
competitive, and have many competitors in different industries, including both
lighting and energy industries. These competitors include
market-specific retailers and specialty retailers. Many of the
Company’s current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we have. They may be
able to operate with a lower cost structure, and may be able to adopt more
aggressive pricing policies. Competitors in both the retail lighting
and energy industries also may be able to devote more resources to technology
development and marketing than the Company
WE MAY
ISSUE ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE, WHICH COULD CAUSE
DILUTION TO ALL SHAREHOLDERS.
We may
seek to raise additional equity capital in the future. Any issuance
of additional shares of our common stock will dilute the percentage ownership
interest of all shareholders and may dilute the book value per share of our
common stock.
WE RELY
ON THIRD PARTY INDUSTRY VENDORS FOR MANUFACTURING SERVICES AND PROCESSING
FACILITIES.
At this
time, we depend on Shanghai Gold Lighting Company, Ltd. (“SGLC”) headquartered
in Shanghai, China for all merchandise, manufacturing and equipment produced and
sold by us. Should we cease to do business with our sole manufacturer
or should SGLC cease to do business and is unable to provide their services to
us, our business may be disrupted because a suitable replacement may be
difficult to retain. While we believe that SGLC’s facilities have the
capacity to meet our current production needs and our current demands, we cannot
be certain that these facilities will continue to meet our needs or future
demands. In addition, these facilities are subject to certain risks of damage,
including fire that would disrupt production of our products. To the extent we
are forced to find alternate facilities, it would likely involve delays in
manufacturing and potentially significant costs
WE DEPEND
ON A LIMITED NUMBER OF CUSTOMERS FOR A SIGNIFICANT PERCENTAGE OF OUR REVENUES,
AND ANY LOSS CANCELLATION, REDUCTION OR DELAY IN PURCHASES BY THESE CUSTOMERS
COULD HARM OUR BUSINESS.
A limited
number of customers have, historically, consistently accounted for a significant
portion of our revenues. For the fiscal year ended December 31, 2007, we had one
customer account for 23% of our sales and 38% of our outstanding accounts
receivable and as of March 31, 2008, we had two customers who accounted for 61%
of sales and 57% of outstanding accounts receivable. For the
fiscal year ended December 31, 2006, we had two customers account for 50% of our
sales and 58% of our outstanding accounts receivables. Revenues from our major
customer may decline or fluctuate significantly in the future. We are attempting
to expand our customer base by entering into working agreements with large
wholesale distributors and manufacturers. Accordingly, our success will depend
on our ability to develop and manage relationships with our distributors and
utility companies who market and utilize our ballasts, and we expect that the
majority of our revenues will continue to depend on sales of our products to a
limited number of customers for the foreseeable future. We may not be able to
offset any decline in revenues from our existing major customer with revenues
from new customers or other existing customers. Because of our reliance on a
limited number of customers, any decrease in revenues from, or loss of, one or
more of these customers without a corresponding increase in revenues from other
customers would harm our business, operating results and financial condition. In
addition, any negative developments in the business of our existing significant
customer could result in significantly decreased sales to this customer, which
could seriously harm our business, operating results and financial
condition.
RISK
FACTORS CONCERNING INVESTMENT IN OUR COMPANY:
THERE IS
ONLY A LIMITED PUBLIC MARKET FOR OUR SHARES, AND IF AN ACTIVE MARKET DOES
NOT DEVELOP, INVESTORS MAY HAVE DIFFICULTY SELLING THEIR SHARES.
There is
a limited public market for our common stock. We cannot predict the
extent to which investor interest in the
Company will lead to the development of an
active trading market or how liquid
that trading market might become. If a trading market does not
develop or is not sustained, it may be difficult for investors to sell shares of
our common stock at a price that is attractive. As a result, an
investment in our common stock may be illiquid and investors may not be able to
liquidate their investment readily or at all when he/she desires to
sell.
OUR
COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY
REQUIREMENTS.
The SEC
has adopted regulations that define a “penny stock”, generally, to be an equity
security that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to specific exemptions. The market
price of our common stock has been less than $5.00 per share. This designation
requires any broker or dealer selling our securities to disclose certain
information concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to
sell our common stock and may affect the ability of stockholders to sell their
shares. In addition, since our common stock is currently quoted on the Pink
Sheets, stockholders may find it difficult to obtain accurate quotations of our
common stock, may experience a lack of buyers to purchase our shares or a lack
of market makers to support the stock price.
FUTURE
SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND
OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Sales of
our common stock in the public market could lower our market price for our
common stock. Sales may also make it more difficult for us to sell equity
securities or equity-related securities in the future at a time and price
that management deems acceptable or at all.
THERE IS
LIMITED LIQUIDITY IN OUR SHARES.
Historically,
the volume of trading in our common stock has been low. A more active public
market for our common stock may not develop or, even if it does in fact develop,
may not be sustainable. The market price of our common stock may fluctuate
significantly in response to factors, some of which are beyond our control.
These factors include:
|
|
·
|
the
announcement of new products or product enhancements by us or our
competitors;
|
|
|
·
|
developments
concerning intellectual property rights and regulatory
approvals;
|
|
|
·
|
quarterly
variations in our results of operations or the results of operations of
our competitors;
|
|
|
·
|
developments
in our industry; and
|
|
|
·
|
general
market conditions and other factors, including factors unrelated to our
own operating performance.
|
Recently,
the stock market in general has experienced extreme price and volume
fluctuations. Continued market fluctuations could result in extreme volatility
in the price of shares of our common stock, which could cause a decline in the
value of our shares. Price volatility may be worse if the trading volume of our
common stock is low.
Management’s
Discussion and Analysis of Financial Condition and Plan of
Operations.
The
following information should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Form
10. This discussion contains forward-looking statements about our
future expectations and are within the meaning of applicable federal securities
laws, and are not guarantees of future performance. When used herein,
the words “may,” “should,” “anticipate,” “believe,” “appear,” “intend,” “plan,”
“expect,” “estimate,” “approximate” and similar expressions are intended to
identify such forward-looking statements. These statements involve
risks and uncertainties inherent in our business, including those set forth
under the caption “Risk Factors,” appearing elsewhere in this disclosure
statement, and are subject to change at any time. Our actual results
could differ materially from these forward-looking statements. We
undertake no obligation to update publically any forward-looking
statement.
Overview.
We are in
the business of developing and marketing energy-saving electronic components for
the commercial lighting sector. Our primary products are self-contained
electronic, dimming and daylight harvesting, fluorescent ballasts. A “ballast”
is an electronic component that regulates voltage in lighting. We
develop, test, and patent unique technology to create energy efficient products
that meet federal energy code standards and encourage Green initiatives for
high-profile companies. Extensive testing is conducted to ensure
product reliability and energy-saving properties. We have obtained
and own the patent rights for our ballasts’ unique control system and have
trademarked our slogan “The Future of Fluorescent Lighting”. UL (Underwriters
Laboratory), the lighting industry’s certification authority, has approved our
products for use in the United States and Canada.
Our
current and primary product is the patented T8 Axis Daylight Harvesting Dimming
Ballast. This ballast uses simple technology that transforms the
standard ballast, into a dynamic energy saving system that can reduce lighting
energy costs by up to 70%. The Axis Ballast utilizes an individual
photo sensor to automatically adjust the amount of electrical current flowing to
the light fixture and then dims or increases lighting in conjunction with the
amount of available sunlight. The Axis Ballast is the only ballast on
the market that has automatic dimming controls integrated into each
ballast. This feature reduces the costs of acquisition and
installation by up to two-thirds over that of competing dimming
systems.
We have
developed a high-output T5HO ballast that capitalizes on the features of our
current T8 Axis Ballast. This ballast is in the process of being
submitted to UL for testing and approval.
We plan
to introduce a line of dimming and daylight harvesting ballasts that would
support and complement T5 lamps. The T5 lamps are used mainly in
“high-bay” fixtures which are installed in warehouses, gymnasiums, etc. in
conjunction with Skylights. Because skylights are frequently
installed in this type of application, the T5 lamp that is provided by Axis
would be an applicable choice to serve as an economical dimming
ballast.
Our next
generation ballast is a wirelessly addressable, load shedding ballast, which
offers power companies the ability to reduce the lighting load (load shedding)
for their customers during peak demand periods. Most utility
companies charge their customers a surcharge or “peak demand” charge during
those times of day when the load on the power plants are at the
highest. Usually this means the power companies must start up higher
cost generators, and/or buy power from the electrical grid at even higher
rates. This ballast allows the consumer or the power company to
reduce the output of the ballast. The consumer who installs this
ballast can agree to participate in the power company’s Peak Demand Reduction
Program which can offer reduced electric rates. This ballast is being
developed through our affiliate membership with the California Lighting
Technology Center (CLTC) at the University of California,
Davis. Additionally, several utility companies have expressed
interest in working with us to complete the development of the load shedding
ballasts in order to provide for the installation of the ballasts in their
customers' facilities.
The U.S.
Government has mandated that power companies nation-wide reduce their greenhouse
gas emissions and reduce energy consumption. There are many states
that have passed legislation that require lighting controls, and in some cases
(California for example), there are requirements that new construction projects
and major lighting retrofits incorporate daylight harvesting. These
regulations are specific to lighting, and there are many further regulations in
place from cities and states, that require government buildings to save a
certain amount of all forms of energy by specified dates. We believe
that the Axis dimming ballast system can help greatly in achieving these
energy-reduction goals.
Our
target market is small to large commercial users of fluorescent lighting
including office buildings, wholesale and retail buildings, hospitals, schools
and government buildings. In order to achieve our sales goals, we
have contracted with sales representatives, electrical distributors, electrical
contractors, retrofitters, ESCO’s (Energy Service Companies), and OEM’s
(Original Equipment Manufacturers) to market, distribute and install the
Company’s products.
Our
revenues consist primarily of sales of our T8 fluorescent ballasts to electrical
distributors and OEM’s for placement in commercial and governmental
buildings. Our next generation ballast is expected to be sold
primarily to utility companies in addition to our existing customer
market.
Recent
increases in energy costs have spurred many government agencies and private
companies to work towards decreasing their energy consumption. This
“green” movement has helped to increase the awareness of our
product. Our company is dedicated to helping our nation reduce its
energy consumption and greenhouse gas emissions.
Results
of Operation
For the Year Ended December
31, 2007:
Consolidated
net sales for the years ended December 31, 2007 and 2006 totaled $162,195 and
$157,857, respectively. Net sales increased $4,338 or 3%. There was
limited growth in 2007 as the Company was focusing its efforts on the
integrating of our product into utility rebate programs and additional product
development. Cost of goods sold for the years ended December 31, 2007 and 2006
was $126,589 and $118,352, respectively. After deducting costs of
goods sold, including warehouse salaries and allocated overhead, we finished the
year with $35,606 in gross profit, compared to $39,505 for 2006. This decrease
in gross profit of $3,899 was primarily related to an isolated warranty
claim.
For the
year ended December 31, 2007, operating expenses increased $388,670 or 96% to
$792,474. The increase in operating expenses is a result of our continued
efforts to enhance our current product, develop our next generation products,
and in building market awareness of our company and
products. Compared to a year ago, we have seen increases in salaries,
sales & marketing efforts and professional fees.
For the
year ended December 31, 2007, interest expense was $20,845 compared to $74,500
for the prior period. This decrease of $53,655 was primarily the
result of paying off some higher interest rate debt early on in
2007.
For the year ended December 31,
2007, the net loss was $775,019 compared to a net loss of $438,799 for the year
ended December 31, 2006.
Three-month period from
January 1, 2008 to March 31, 2008:
Consolidated
net sales for the three months ended March 31, 2008 and 2007 totaled $122,709
and $7,408, respectively, for an increase of $115,301. This increase is due to
increased sales to a supplier working with utility companies and their rebate
programs. Cost of goods sold for the three months ended March 31, 2008 and 2007
was $96,369 and $21,217, respectively. The increase is primarily due to our
increase in sales. After deducting costs of goods sold, including warehouse
salaries and allocated overhead, we finished the three months ended March 31,
2008 with $26,340 in gross profit, compared to a negative gross profit of
$13,809 for the three months ended March 31, 2007.
For the
three months ended March 31, 2008, operating expenses totaled $146,168 compared
to $239,381 for the three months ended March 31, 2007. This decrease was the
result of lower advertising expenses due to the use of a less expensive press
release company, fewer professional fees incurred, and lower salaries paid to
employees.
For the
three months ended March 31, 2008, interest expense was $2,920 compared to
$7,058 for the three months ended March 31, 2007. This decrease of
$4,138 was the result of lower interest rate debt and a lower outstanding
balance.
For the three months ended March
31, 2008, the net loss was $122,740 compared to a net loss of $259,982 for the
three months ended March 31, 2007.
Assets
and Employees; Research and Development
At
December 31, 2007, our ballast inventory represents 68% of our assets. Inventory
is manufactured in China and is shipped to our warehouse in Lincoln,
Nebraska. The time from ordering the product to receipt of the
product can exceed 90 days. We are currently working to reduce this
turnaround time to 60 days. We maintain our inventory at levels that
are deemed reasonable based upon projected sales.
At this
time, we do not anticipate purchasing or selling any significant equipment or
other assets in the near term. Neither do we anticipate any imminent or
significant changes in the number of our employees. We may, however, increase
the number of independent sales representatives in the event that we expand into
other markets or our current market significantly increases.
We expect
that we will invest time, effort, and expense in the continued development and
refinement of our current and next generation ballasts, through our relationship
with CLTC and the power companies.
Liquidity
and Capital Resources; Anticipated Financing Needs
For the Year Ended December
31, 2007:
For the
year ended December 31, 2007, we incurred net operating losses aggregating
$775,019 which was the result of funding marketing and advertising, business
development and other activities as discussed above. We funded these operations
primarily through cash of $634,723 received from private placements of our
common stock during the year.
Overall,
we used $763,382 of cash in operating for the year ended December 31, 2007,
compared to $521,215 for the prior year. Cash used in operations for the year
ended December 31, 2007, included a net loss of $775,019, which was offset by
$3,669 of non-cash expenses for depreciation and amortization. Changes in
operating assets and liabilities also offsetting the loss were increases in
accounts payable and other accrued expenses of $98,692 and decreases in prepaid
expense of $33,489. Other changes in operating assets and liabilities increasing
the cash used were an increase in accounts receivable and inventory of $25,218
and $98,995, respectively. Cash used in operations for the year ended
December 31, 2006 included a net loss of $438,799 which was increased from a net
overall change in operating assets and liabilities totaling $84,670 with an
offset of non-cash items totaling $2,254. Cash flows used in investing
activities included purchases of equipment of $909 for 2007 compared to $8,005
for 2006. Cash flows from financing activities for the year ended December 31,
2007 was $582,569 compared to $706,276 for the prior year. Cash flows from
financing activities for 2007 included issuance of common stock for $634,723
offset by payments on the bank note of $52,154. In 2006, the Company received
stock proceeds of $1,015,548 offset by note payments of $309,272.
For the Three Months Ended
March 31, 2008
Cash of
$22,352 was provided by operating activities during the three months ended March
31, 2008, compared to $257,919 in cash used for the three months ended March 31,
2007. Cash provided by operations, for the three months ended March 31, 2008,
included a net loss of $122,740, which included $20,513 of non-cash expenses for
stock issued for services, depreciation, amortization, and share-based
compensation. Changes in operating assets and liabilities contributing to the
use of cash primarily included increases in accounts receivable and prepaid
expenses of $14,561, while an increase in accounts payable, accrued salary to
officers/stockholders and other accrued expenses of $67,120 and a decrease in
inventory and inventory deposits of $72,020 offset the loss from operations.
Cash used in operations for the three months ended March 31, 2007 included a net
loss of $259,982 offset by an overall net increase in operating assets and
liabilities which totaled $1,672. There were no cash flows used in investing
activities for the three months ended March 31, 2008, compared to $909 used for
the three months ended March 31, 2007. Cash flows from financing activities for
the three months ended March 31, 2008 included financing costs incurred of
$10,886 and payments on the bank note of $173. Cash flows from
financing activities for the three months ended March 31, 2007 included the
issuance of common stock for $403,423 offset by payments on the bank note of
$51,937. The Company’s cash balance as of March 31, 2008 is
$25,821.
In
addition to the net proceeds of $1,014,000 received from the convertible debt
issuance on April 25, 2008, and anticipated revenue increases from
the sale of our current ballasts, we expect to seek additional capital funding
for the final development and introduction of our next generation ballast, as
well as for the purchase of adequate inventory. Assuming that we
successfully obtain additional funding, we believe that such funding will be
sufficient to finance our operations through December 31, 2009. Thereafter, we
believe that revenues from our current and next generation products will be
sufficient to fund operations.
Additional
financing may not be available on terms favorable to us, especially in light of
current debt and equity markets. If additional funds are raised by the issuance
of our equity securities, such as through the issuance and/or exercise of common
stock warrants, then existing stockholders will experience dilution of their
ownership interest. If additional funds are raised by the issuance of debt or
other types of (typically preferred) equity instruments, then we may be subject
to certain limitations in our operations, and issuance of such securities may
have rights senior to those of the then existing holders of our common stock. If
adequate funds are not available or not available on acceptable terms, we may be
unable to fund expansion, develop or enhance products or respond to competitive
pressures.
The
Company currently has one (1) office located in Lincoln NE. The
address is as follows:
2055
South Folsom
Lincoln,
NE 68522
On March
1, 2003, the Company leased the office warehouse location, comprised of
approximately 2,800 square feet of space which is held under a 36 month lease at
a rate of approximately $1,300 per month (with payments started in March
2003). The Company currently leases this office warehouse location on
a month-to-month basis at a current rate of $1,302 per month. The
Company uses 1,000 square feet as their corporate office and 1,800 square feet
of warehouse with additional square footage as needed. The Company believes
that these properties are adequate for its corporate office and operational
needs at this time.
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
The
following table shows the beneficial ownership of our common stock as of July 1,
2008. The table shows the amount of shares owned by:
(1) each
person known to us who owns beneficially more than five percent
of the outstanding shares of any class of the Company's stock,
based on the number of shares outstanding as of July
1, 2008;
(2) each
of the Company's Directors and Executive
Officers; and
(3) all of its Directors and Executive Officers as a group.
The
percentage of shares owned is based on 62,267,767 shares being outstanding as of
July 1, 2008. Where the beneficially owned shares of any individual
or group in the following table includes any options, warrants, or
other rights to
purchase shares in the Company's stock, the
percentage of shares owned includes such shares as if the right to
purchase had been duly exercised.
|
Title
of Class
|
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Ownership
|
Percent
of Class
|
|
Common
|
Kipton P. Hirschbach
Director/CEO
2055
South Folsom
Lincoln,
NE 68522
|
10,663,507
|
17.12%
|
|
Common
|
Jim Erickson
Director/President/Principal
Financial Officer
2055
South Folsom
Lincoln,
NE 68522
|
10,663,507
|
17.12%
|
|
Common
|
John F. Hanson
Director
3410
N. 140th
Street
Omaha,
NE 68154
|
10,663,507
|
17.12%
|
|
Common
|
David P. Petersen
Director
17162
O Street
Omaha,
NE 68135-1423
|
131,091(1)
|
0.21%
|
|
Common
|
All
Directors and Officers as a Group (a total of 4)
|
32,121,612
|
51.58%
|
|
Common
|
Mark B. Gruenewald
4215 So. 147th Plaza,
#102
Omaha, NE 68137
|
10,663,507
|
17.12%
|
______________________
(1) Includes 60,000 shares due
MPC Capital Funding, Inc. in which Mr. Petersen has shared voting and
investment power, which have not yet been issued.
Item 5. Directors and Executive Officers.
The
following table sets forth the names, ages, and positions of our current
directors and executive officers. Our Board of Directors elects our executive
officers annually. Our directors serve one-year terms or until their successors
are elected, qualified and accept their positions. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships or understandings between any of
the directors and executive officers. In addition, there was no arrangement or
understanding between any executive officer and any other person pursuant to
which any person was selected as an executive officer.
|
Name
|
Age
|
Position
|
|
|
|
|
|
Kipton
P. Hirschbach
|
63
|
Director,
Chief Executive Officer
|
|
Jim
Erickson
|
44
|
Director,
President, Principal Financial Officer
|
|
John
F. Hanson
|
45
|
Director
|
|
David
P. Petersen
|
51
|
Director
|
Mr. Kipton P.
Hirschbach serves and has served as the CEO, Secretary/Treasurer and
director of Axis Technologies, Inc. since February 2003 and of Axis Technologies
Group, Inc. since October 2006. Prior to joining Axis,
Mr. Hirschbach was operations and later general manager of Gillette Dairy,
Inc., a manufacturer of dairy products, for approximately 23
years. Mr. Hirschbach is knowledgeable of manufacturing, sales,
warehousing, and distribution where he has experience in commercial and
industrial processes, and energy saving measures. Mr. Hirschbach is a
graduate of the University of Nebraska with a Chemistry major.
Mr. Jim
Erickson serves as the Company’s Director, President and Principal
Financial Officer. Mr. Erickson has served as President and Director
for Axis Technologies, Inc. since February 2003 and as President and Director
for Axis Technologies Group, Inc. since October 2006. Mr. Erickson is
a 15-year veteran of the automotive industry, where he served in roles of sales,
finance and insurance. Prior to joining Axis Technologies, Inc. in
February of 2003, for approximately one year, Mr. Erickson served as an
administrator of an electronic ballast company, where he gained knowledge of the
lighting industry, especially in the energy saving arena.
Mr. John F. Hanson has
served as a Director for Axis Technologies, Inc. since February 2003 and as a
Director for Axis Technologies Group, Inc. since October 2006. Since 2001,
Mr. Hanson has been President of Venture Capital, Inc. Since 2007,
Mr. Hanson has been President of Parliament Pub,
LLC. From 1988 to 2001, Mr. Hanson was President and CEO
for U Save Foods, Inc. which had over $200 million in revenue and over 2,000
employees.
Mr. David P.
Peterson has served as a Director for Axis Technologies Group, Inc.
since October 2006. Since 2003, Mr. Peterson has served as the
President of MPC Capital Funding Inc. and Merit Media Inc., where he is
responsible for all financial aspects of the companies as well as providing
assistance in financing, business and marketing plan development, and
implementation.
Our Board
of Directors does not currently have an Audit Committee, Nominating Committee or
Compensation Committee.
There are
no family relationships amongst our directors and officers.
Legal
and Disciplinary History
None of
our officers, directors or control persons have been the subject
of:
1. A
conviction in a criminal proceeding or named as a defendant in a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
2. The
entry of an order, judgment, or decree, not subsequently reversed, suspended or
vacated, by a court of competent jurisdiction that permanently or temporarily
enjoined, barred, suspended or otherwise limited such person's involvement in
any type of business, securities, commodities, or banking
activities;
3. A
finding or judgment by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission, the Commodity Futures Trading
Commission, or a state securities regulator of a violation of federal or state
securities or commodities law, which finding or judgment has not been reversed,
suspended, or vacated; or
4. The
entry of an order by a self-regulatory organization that permanently or
temporarily barred, suspended or otherwise limited such person's involvement in
any type of business or securities activities.
COMPENSATION
DISCUSSION AND ANALYSIS
Objectives
and Philosophy of our Executive Compensation Program
We do not
have a standing compensation committee. Our board of directors as a
whole makes the decisions as to employee benefit programs and officer and
employee compensation. The primary objectives of our executive
compensation programs are to:
|
-
|
attract,
retain and motivate skilled and knowledgeable
individuals;
|
|
-
|
ensure
that compensation is aligned with our corporate strategies and business
objectives;
|
|
-
|
promote
the achievement of key strategic and financial performance measures by
linking short-term and long-term cash and
equity incentives to the achievement of measurable corporate and
individual performance goals; and
|
|
-
|
align
executives’ incentives with the creation of stockholder
value.
|
To
achieve these objectives, our board of directors evaluates our executive
compensation program with the objective of setting compensation at levels they
believe will allow us to attract and retain qualified executives. In addition, a
portion of each executive's overall compensation is tied to key strategic,
financial and operational goals set by our board of directors.
Named
Executive Officers
The
following table identifies our principal executive officer, our principal
financial officer and our most highly paid executive officers, who, for purposes
of this Compensation Disclosure and Analysis only, are referred to herein as the
"named executive officers."
|
Name
|
Corporate Office |
|
|
Kipton P. Hirschbach
|
Chief
Executive Officer
|
|
James Erickson
|
President
and Principal Financial Officer
|
Components
of Our Executive Compensation Program
At this
time, the primary elements of our executive compensation program are base
salaries, although the board of directors has the authority to award cash
bonuses, benefits and other forms of compensation as it sees fit.
We do not
have any formal or informal policy or target for allocating compensation between
short-term and long-term compensation, between cash and non-cash compensation or
among the different forms of non-cash compensation. Instead, we have determined
subjectively on a case-by-case basis the appropriate level and mix of the
various compensation components. Similarly, we do not rely on
benchmarking against our competitors in making compensation related
decisions.
Equity
Awards
We
currently do not have an employee stock option plan. However, we may
elect to create an employee stock option plan in the future.
Base
Salaries
Base
salaries are used to recognize the experience, skills, knowledge and
responsibilities required of our named executive officers. Base
salary, and other components of compensation, may be evaluated by our board of
directors for adjustment based on an assessment of the individual’s performance
and compensation trends in our industry.
Cash
Bonuses
Our board
of directors has the discretion to award cash bonuses based on our financial
performance and individual objectives. The corporate financial
performance measures (revenues and profits) will be given the greatest weight in
this bonus analysis. We have not yet granted any cash bonuses to any
named executive officer nor have we yet developed any specific individual
objectives while we wait to attain revenue and profitability levels sufficient
to undertake any such bonuses.
Benefits
and Other Compensation
Our named
executive officers are not currently receiving any health care, disability
insurance, bonus or other employee benefits plans. As of the date of
this Registration Statement, we have not implemented any such employee benefit
plans. Mr. Hirschbach’s and Mr. Erickson’s health
care costs are not paid by the Company.
CURRENT
LEVELS OF EXECUTIVE COMPENSATION
Summary
Annual Salary
As
discussed above, we have agreed to pay Messrs. Hirschbach and Erickson an
annual salary. Base salary may be increased from time to time with
the approval of the board of directors. The following table
summarizes the agreed annual salary of each of the named executive
officers.
|
Name
|
|
Annual Salary
|
|
|
Kipton P. Hirschbach
|
|
$ |
131,250.00 |
|
|
James Erickson
|
|
$ |
131,250.00 |
|
SUMMARY
COMPENSATION TABLE
The
following information is provided concerning the compensation of the named
executive officers for the last two fiscal years ended December 31, 2007 and
December 31, 2006:
|
Name
and Principal Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan Compensation
|
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
|
|
|
All
other Compensation
|
|
|
Total
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Kipton P. Hirschbach (1)
|
|
2007
|
|
$ |
131,250 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
131,250 |
|
|
CEO/Director
|
|
2006
|
|
$ |
100,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
100,000 |
|
|
James A. Erickson (2)
|
|
2007
|
|
$ |
131,250 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
131,250 |
|
|
President/Director
|
|
2006
|
|
$ |
100,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
$ |
100,000 |
|
_____________________
(1) Prior
to January 1, 2007, Mr. Hirschbach elected to defer a certain portion of
his salary due to limited operating funds. The total balance of this
deferred compensation owed as of December 31, 2006 is
$209,159 This amount is due and payable to Mr. Hirschbach
as funds become available in the future. In addition, during 2007,
Mr. Hirschbach was owed $3,459 for unreimbursed business expenses, which
have since been paid.
(2) Prior
to January 1, 2007, Mr. Erickson elected to defer a certain portion of his
salary due to limited operating funds. The total balance of this
deferred compensation owed as of December 31, 2006 is $180,862. This
amount is due and payable to Mr. Erickson as funds become available in the
future.
Outstanding
Equity Awards at Fiscal Year End
We have
not issued any stock options, warrants, or any equity based awards to any of our
directors.
Compensation
of Directors
We do not
compensate directors for their services at the present
time. Therefore, Mr. David Peterson did not receive any compensation
for his service on our board of directors, and we have not provided any
compensation to any member of our Board of Directors for the latest fiscal year
ended December 31, 2007.
Item 7. Certain Relationships and Related Transactions.
Except as
set forth below, none of the following persons has any direct or indirect
material interest in any transaction to which we were or are a party since the
beginning of our last fiscal year, or in any proposed transaction to which we
propose to be a party:
|
(A)
|
any
of our directors or executive
officers;
|
|
(B)
|
any
nominee for election as one of our
directors;
|
|
(C)
|
any
person who is known by us to beneficially own, directly or indirectly,
shares carrying more than 5% of the voting rights attached to our common
stock; or
|
|
(D)
|
any
member of the immediate family (including spouse, parents, children,
siblings and in-laws) of any of the foregoing persons named in paragraph
(A), (B) or (C) above.
|
MPC
Capital Funding, Inc. in which David Petersen, one of our Directors, has a
direct interest, received $33,000 and is entitled to receive 60,000 shares of
our restricted common stock (valued at $15,600) in connection with the issuance
of our Convertible Note in April, 2008, to Gemini Master Fund,
Ltd. In addition, MPC Capital received $30,750 as a fee in connection
with the issuance of our restricted common stock in November and December,
2006.
Our Board
of Directors has adopted a policy that our business affairs will be conducted in
all respects by standards applicable to publicly held corporations and that we
will not enter into any future transactions between us and our officers,
directors and 5% shareholders unless the terms are no less favorable than could
be obtained from independent, third parties and will be approved by a majority
of our independent and/or disinterested directors. In our view, any of the
transactions that we enter into, if any, will meet this standard.
The
Company is not a party to any material legal proceedings and, to the Company's
knowledge, no such proceedings are threatened or contemplated by any
party. There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of
our company or any of our subsidiaries, threatened against or affecting our
company, our common stock, any of our subsidiaries or of our company’s or our
company’s subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a material adverse effect.
Item 9. Market Price of and Dividends on the Registrant’s Common
Equity and Related Stockholder Matters.
Our
common stock is currently quoted on the Pink Sheets Electronic Interdealer
Quotation and Trading System under the symbol
“AXTG.”
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock, as reported by www.pinksheets.com. These prices
represent inter-dealer quotations without retail markup, markdown, or commission
and may not necessarily represent actual transactions.
|
Periods
|
|
High
|
|
|
Low
|
|
|
Fiscal
Year 2006
|
|
|
|
|
|
|
|
Third
Quarter (July – September 2006)(1)
|
|
$ |
3.00 |
|
|
$ |
0.70 |
|
|
Fourth
Quarter (October - December 2006)
|
|
$ |
0.70 |
|
|
$ |
3.47 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
|
|
First
Quarter (January - March 2007)
|
|
$ |
2.39 |
|
|
$ |
0.88 |
|
|
Second
Quarter (April - June 2007)
|
|
$ |
1.03 |
|
|
$ |
0.43 |
|
|
Third
Quarter (July - September 2007)
|
|
$ |
1.44 |
|
|
$ |
0.41 |
|
|
Fourth
Quarter (October - December 2007)
|
|
$ |
1.39 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2008
|
|
|
|
|
|
|
|
|
|
First
Quarter (January - March 2008)
|
|
$ |
0.53 |
|
|
$ |
0.28 |
|
|
Second
Quarter (April-June 2008)
|
|
$ |
0.76 |
|
|
$ |
0.31 |
|
______________________
(1) All
figures shown do not reflect post-reverse split (1 for
1,000).
On July
23, 2008, the closing price of our common stock was $ 0.55.
As
of July 1, 2008 we had approximately 94 holders of record of our
common stock. The number of record holders was determined from the records of
our transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies.
Item 10. Recent Sales of Unregistered Securities.
1. On
April 25, 2008 the Company issued a 10% Senior Secured Convertible Note (the
“Convertible Note”) in the principal amount of $1,388,888.89, to Gemini
Master Fund, Ltd, an accredited investor. The Convertible Note is
convertible at the option of the holder at any time into shares of the Company’s
common stock at an initial conversion price of $0.26 per share. The
Convertible Note can be converted into a maximum of 4.9% of the Company’s
outstanding common stock as of the date of a conversion. This
issuance was completed in accordance with Section 4(2) of the Securities Act, as
amended (the “Act”), in an offering without any public offering, advertising or
general solicitation. The Convertible Note bears an appropriate
restrictive legend. The Company paid $173,000 in cash and agreed to
issue 240,000 shares of restricted common stock valued at $64,900 for placement
fees. As of April 25, 2008, 50,000 of these restricted shares have
been issued and the remaining 190,000 shares have not yet been
issued.
2. In
connection with the issuance of the Convertible Note, on April 25, 2008, the
Company issued warrants to Gemini Master Fund, Ltd. to purchase 5,341,880 shares
of its common stock at an exercise price of $0.26 per share. The
right to exercise the warrants will terminate on April 25, 2013. The
warrants can be converted into a maximum of 4.9% of the Company’s outstanding
common stock as of the date on which the warrant is exercised. This
issuance was completed in accordance with Section 4(2) of the Act in an offering
without any public offering, advertising or general solicitation. The
warrant bears an appropriate restrictive legend.
3. On
March 7, 2008, the Company issued 60,000 shares of restricted common stock at
$0.31 per share for a total value of $18,600 as compensation for public and
investor relations. This issuance was completed in accordance with
Section 4(2) of the Act in an offering without any public offering, advertising
or general solicitation. These shares are restricted securities and
include an appropriate restrictive legend.
4. On
March 7, 2008, the Company issued 20,000 shares of restricted common stock at
$0.31 per share to each of three (3) employees for a total value of $6,200 to
each employee. This issuance was completed in accordance with Section
4(2) of the Act in an offering without any public offering, advertising or
general solicitation. These shares are restricted securities and
include an appropriate restrictive legend.
5. From
March 2007 to December 2007, the Company issued 758,675 shares of restricted
common stock to nineteen (19) accredited investors at a price of $0.50 per share
in connection with a private offering. This issuance was completed in
accordance with Section 4(2) of the Act in an offering without any public
offering, advertising or general solicitation. These shares are
restricted securities and include an appropriate restrictive
legend. The Company paid $37,614 in finder’s fees to third
parties.
6. From
November 2006 through January 2007, the Company sold 1,025,000 shares of
restricted common stock to an accredited investor at a price of $1.00 per share
in connection with a private offering. This issuance was completed in
accordance with Section 4(2) of the Act in an offering without any public
offering, advertising or general solicitation. These shares are
restricted securities and include an appropriate restrictive
legend. The Company paid $61,500 in finder’s fees and issued 60,000
shares of its restricted common stock valued at $18,600 on March 7, 2008, in
connection with this transaction.
7. In
October 2006, the Company issued 45,000,000 shares of restricted common stock in
exchange for all of the issued and outstanding shares of common stock of Axis
Technologies, Inc. Axis Technologies, Inc. had a total of six (6)
shareholders, each of whom exchanged all of their ownership interest in Axis
Technologies, Inc. This issuance was completed in accordance with
Section 4(2) of the Act in an offering without any public offering, advertising
or general solicitation. These shares are restricted securities and
include an appropriate restrictive legend.
8. In
September 2006, the Company sold 15,000,000 shares of its common stock to
accredited investors at a price of $0.02 per share. This issuance was
completed in accordance with Rule 504 of Regulation D promulgated under the
Act.
Item 11. Description of Registrant’s Securities to be
Registered.
The
following is a description of certain provisions relating to our capital
stock. For additional information regarding our stock, please refer
to our Articles of Incorporation, as amended, and Bylaws, which have been
previously filed with the SEC.
General
Our
authorized capital stock consists of 500,000,000 shares of common stock, par
value $0.001 per share.
Common
Stock
The
Company is authorized to issue 500,000,000 shares of common stock, $0.001 par
value. As of July 1, 2008, there were 62,267,767 shares of common stock issued
and outstanding. Holders of shares of common stock are entitled to
one vote per share on all matters to be voted upon by the shareholders. The
approval of proposals submitted to shareholders at a meeting other than for the
election of directors requires the favorable vote of a majority of the shares
voting, except in the case of certain fundamental matters (such as certain
amendments to the Articles of Incorporation, and certain mergers and
reorganizations). Shareholders are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefore, and in the event of liquidation, dissolution or winding up
of the Company, to share ratably in all assets remaining after payment of the
liquidation preference on the then outstanding preferred stock, if any, and
liabilities. The holders of shares of Common Stock have no preemptive,
conversion or subscription rights. All shares of common stock issued upon the
exercise of any warrants to purchase common stock, shall be, when issued, fully
paid and non-assessable. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of our
liquidation, the shares of common stock are entitled to share equally in
corporate assets after satisfaction of all liabilities and the payment of any
liquidation preferences.
Our
Articles of Incorporation, as amended, do not provide for the issuance of
Preferred Stock. There are presently no shares of preferred stock
outstanding.
Convertible
Note and Warrant
On April
25, 2008, we executed a 10% Senior Secured Convertible Note in the principal
amount of $1,388,888.89 to Gemini Master Fund, Ltd. (the “Convertible
Note”) At the option of the Holder, the Convertible Note is
convertible into shares of our common stock at a price per share of $0.26 at any
time before the maturity of the Convertible Note. The Convertible
Note can be converted into a maximum of 4.9% of the Company’s outstanding common
stock as of the date of the conversion. The Convertible Note will
mature two years from the date of issuance and will accrue interest payable, in
cash, quarterly in arrears at the rate of 10% per annum. At the closing on
April 25, 2008, we executed both a Security Agreement and Intellectual Property
Security Agreement. Under both of these Security Agreements, the
Convertible Note is collateralized by security interests in the Company’s
assets, including, without limitation, the Company’s intellectual property,
machinery, equipment, and accounts. In
addition, Kip Hirschbach, Jim Erickson and John Hanson entered into a Lock-Up
Agreement with the Company whereby they each agreed that for a period of 15
months after the execution of the Convertible Note that they would not offer,
pledge, sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
of the Company.
In
connection with the issuance of the Convertible Note, on April 25, 2008, we
issued warrants to Gemini Master Fund, Ltd. to purchase 5,341,880 shares of our
common stock at an exercise price of $0.26 per share. The right to
exercise the warrants will terminate on April 25, 2013. The number of
warrants that can be exercised cannot exceed 4.9% of our outstanding common
stock as of the date on which the warrants are
exercised. Additionally, we may be obligated to issue another 373,932
warrants at an exercise price of $0.26 per share if the underlying Convertible
Note is converted by the holder.
The
holders of the common stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of legally available
funds. We have not issued any dividends on our common stock to date,
and do not intend to issue any dividends on our common stock in the near
future. We currently intend to retain earnings, if any, to further
the growth and development of the Company.
Therefore,
prospective investors who anticipate the need for immediate income by way of
cash dividends from their investment should not purchase our Shares of common
stock.
We intend
to comply with the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended. We plan to furnish our stockholders with an
annual report for the fiscal year ended December 31, 2007 containing
financial statements audited by our independent certified public accountants.
The SEC maintains an Internet site at www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The public may also read and copy any materials we
file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 (call 1-800-SEC-0330 for
information).
Transfer
Agent
The
transfer agent and registrar for our Common Stock is:
Holladay
Stock Transfer, Inc.
2939 N.
67th
Place
Scottsdale,
AZ 85251
480-481-3940
Item 12. Indemnification of Directors and Officers.
The
Delaware General Corporation Law provides that we will indemnify our directors
and officers if they are a party to any civil or criminal
action. This may discourage claimants from making claims against the
directors and officers even if the claims have merit. The cost of
indemnification could be high.
Item 13. Financial Statements and Supplementary Data.
See “Item
15 – Financial Statements and Exhibits” for our consolidated financial
statements, the notes thereto as part of this Filing.
Item 14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
We have
had no changes in or disagreements with our accountants on accounting and
financial disclosure.
(a) Please
see the following financial statements set forth below beginning on page
F-1:
AXIS
TECHNOLOGIES GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
Page
|
|
|
|
|
|
Audited
Consolidated Financial Statements for December 31, 2007 and
2006:
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
|
|
Consolidated
Balance Sheets – December 31, 2007 and 2006
|
F-2
- F-3
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2007 and
2006
|
F-4
|
|
|
|
|
|
|
Consolidated
Statement of Shareholders’ Deficit for the Years Ended December 31, 2007
and 2006
|
F-5
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007 and
2006
|
F-6
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
- F-15
|
|
|
|
|
|
Unaudited
Consolidated Financial Statements for three months ended March 31,
2008:
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets – March 31, 2008 and December 31, 2007
|
F-16
- F-17
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the Three Months Ended March 31, 2008 and
2007
|
F-18
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Three Months Ended March 31,
2008 and 2007
|
F-19
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-20
- F-24
|
(b) Exhibits.
The
following is a list of exhibits filed as part of this registration
statement.
Exhibit
|
|
Articles
of Incorporation of Axis Technologies Group,
Inc.
|
|
|
Bylaws
of Axis Technologies Group, Inc.
|
|
|
Securities
Purchase Agreement dated April 25, 2008 with Gemini Master Fund,
Ltd.
|
|
|
10%
Senior Secured Convertible Note dated April 25, 2008 with Gemini Master
Fund, Ltd.
|
|
|
Common
Stock Purchase Warrant dated April 25, 2008 with Gemini Master Fund,
Ltd.
|
|
|
Security
Agreement dated April 25, 2008 with Gemini Master Fund,
Ltd.
|
|
|
Intellectual
Property Security Agreement dated April 25, 2008 by and between Axis
Technologies, Inc. and Gemini Master Fund,
Ltd.
|
|
|
Guarantee
Agreement dated April 25, 2008 by Axis Technologies, Inc., as Guarantor,
in favor of Gemini Master Fund,
Ltd.
|
|
|
Co-Exclusive
License Agreement for Simplified Daylight Harvesting Technology dated
January 1, 2008 with The Regents of the University of California, a
California Corporation
|
|
|
Manufacturing Agreement
with Shanghai Lighting and Gold, Inc. dated August 22,
2003
|
|
|
United
States Patent (No. U.S. 6,969,955) for a “Method and Apparatus for Dimming
Control of Electronic Ballasts” dated November 29,
2005
|
|
|
United
States Trademark (Reg No. 3,001,445) for “The Future of Fluorescent
Lighting” dated September 27, 2005
|
| 10.8 |
Form
of Lock-Up Agreement |
|
|
List
of Subsidiaries
|
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
AXIS
TECHNOLOGIES GROUP, INC.
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
Date:
July 24, 2008
|
/s/ Kipton P.
Hirschbach
|
|
|
|
Kipton
P. Hirschbach
|
|
|
|
Chief
Executive Officer
|
|
AXIS
TECHNOLOGIES GROUP, INC.
Consolidated
Financial Statements
December
31, 2007 and 2006
AXIS
TECHNOLOGIES GROUP, INC.
TABLE
OF CONTENTS
December
31, 2007 and 2006
|
|
|
Page
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
|
|
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
F-2
- F-3
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
F-4
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Deficit
|
|
F-5
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
F-6
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-7
- F-15
|
REPORT OF
INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and
Stockholders
of Axis Technologies Group, Inc.
We have
audited the accompanying consolidated balance sheets of Axis Technologies Group,
Inc. (the “Company”) as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders’ deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Axis Technologies Group, Inc. and
its subsidiary as of December 31, 2007 and 2006 and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Carver Moquist & O'Conner, LLC
Minneapolis,
Minnesota
July 11,
2008
Axis
Technologies Group, Inc.
Consolidated
Balance Sheets
December
31, 2007 and 2006
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$ |
14,528 |
|
|
$ |
196,250 |
|
|
Accounts
receivable
|
|
|
39,316 |
|
|
|
14,098 |
|
|
Inventory
|
|
|
327,559 |
|
|
|
270,952 |
|
|
Inventory
deposit
|
|
|
74,000 |
|
|
|
31,612 |
|
|
Prepaid
expenses
|
|
|
2,629 |
|
|
|
36,118 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
458,032 |
|
|
|
549,030 |
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
17,093 |
|
|
|
16,184 |
|
|
Less:
accumulated depreciation
|
|
|
(9,933 |
) |
|
|
(7,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Property and Equipment
|
|
|
7,160 |
|
|
|
9,068 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
Patents,
net of accumulated amortization of $1,775 and $923,
respectively
|
|
|
15,262 |
|
|
|
16,114 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
15,262 |
|
|
|
16,114 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
480,454 |
|
|
$ |
574,212 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Balance Sheets
December
31, 2007 and 2006
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
49,003 |
|
|
$ |
24,007 |
|
|
Accrued
expenses
|
|
|
70,338 |
|
|
|
- |
|
|
Note
payable - bank
|
|
|
195,074 |
|
|
|
247,228 |
|
|
Accrued
salary - officers/stockholders
|
|
|
443,706 |
|
|
|
440,348 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
758,121 |
|
|
|
711,583 |
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 500,000,000 shares authorized,62,037,767 and
61,029,092 shares issued and outstanding, respectively
|
|
|
62,038 |
|
|
|
61,029 |
|
|
Additional
paid-in capital
|
|
|
1,908,239 |
|
|
|
1,274,525 |
|
|
Accumulated
deficit
|
|
|
(2,247,944 |
) |
|
|
(1,472,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficit
|
|
|
(277,667 |
) |
|
|
(137,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
480,454 |
|
|
$ |
574,212 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Statements of Operations
For
the Years Ended December 31, 2007 and 2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Sales,
net
|
|
$ |
162,195 |
|
|
$ |
157,857 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
126,589 |
|
|
|
118,352 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
35,606 |
|
|
|
39,505 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
792,474 |
|
|
|
403,804 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(756,868 |
) |
|
|
(364,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,694 |
|
|
|
- |
|
|
Interest
expense
|
|
|
(20,845 |
) |
|
|
(74,500 |
) |
|
Total
other income (expense)
|
|
|
(18,151 |
) |
|
|
(74,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(775,019 |
) |
|
|
(438,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(775,019 |
) |
|
$ |
(438,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share (basic and diluted)
|
|
$ |
(0.013 |
) |
|
$ |
(0.009 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
61,699,759 |
|
|
|
47,425,470 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Statement of Changes in Stockholders' Deficit
For
the Years Ended December 31, 2007 and 2006
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
Shares
Issued
|
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
|
and
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
42,654,027 |
|
|
$ |
42,654 |
|
|
$ |
277,352 |
|
|
$ |
(1,034,126 |
) |
|
$ |
(714,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of additional founder shares
|
|
|
2,274,882 |
|
|
|
2,275 |
|
|
|
(2,275 |
) |
|
|
- |
|
|
|
- |
|
|
Issuance
of common stock for compensation related to the merger
|
|
|
71,091 |
|
|
|
71 |
|
|
|
(71 |
) |
|
|
- |
|
|
|
- |
|
|
Issuance
of common stock shares,net of $1,000 in transaction costs
|
|
|
15,000,000 |
|
|
|
15,000 |
|
|
|
284,000 |
|
|
|
- |
|
|
|
299,000 |
|
|
Recapitalization
of shares issued by Riverside Entertainment, Inc.prior to the
merger
|
|
|
254,092 |
|
|
|
254 |
|
|
|
(254 |
) |
|
|
- |
|
|
|
- |
|
|
Issuance
of common stock shares,net of $59,452 in transaction costs
|
|
|
775,000 |
|
|
|
775 |
|
|
|
715,773 |
|
|
|
- |
|
|
|
716,548 |
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(438,799 |
) |
|
|
(438,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
61,029,092 |
|
|
|
61,029 |
|
|
|
1,274,525 |
|
|
|
(1,472,925 |
) |
|
|
(137,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock shares,net of $37,000 in transaction costs
|
|
|
250,000 |
|
|
|
250 |
|
|
|
212,750 |
|
|
|
- |
|
|
|
213,000 |
|
Cash received for a
price adjustment on shares sold to an investor during November
2006 and January 2007
|
|
|
- |
|
|
|
- |
|
|
|
80,000 |
|
|
|
- |
|
|
|
80,000 |
|
|
Issuance
of common stock shares,net of $37,614 in transaction costs
|
|
|
758,675 |
|
|
|
759 |
|
|
|
340,964 |
|
|
|
- |
|
|
|
341,723 |
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(775,019 |
) |
|
|
(775,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
62,037,767 |
|
|
$ |
62,038 |
|
|
$ |
1,908,239 |
|
|
$ |
(2,247,944 |
) |
|
$ |
(277,667 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2007 and 2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(775,019 |
) |
|
$ |
(438,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) to net cash (used in) operations:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,817 |
|
|
|
1,402 |
|
|
Amortization
|
|
|
852 |
|
|
|
852 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
(25,218 |
) |
|
|
34,845 |
|
|
(Increase)
in inventory and inventory deposits
|
|
|
(98,995 |
) |
|
|
(66,224 |
) |
|
(Increase)
decrease in prepaid expenses
|
|
|
33,489 |
|
|
|
(36,118 |
) |
|
Increase
in accounts payable
|
|
|
24,996 |
|
|
|
10,975 |
|
|
Increase
in accrued salary - officers/stockholders
|
|
|
3,358 |
|
|
|
81,596 |
|
|
Increase
(decrease) in accrued expenses
|
|
|
70,338 |
|
|
|
(109,744 |
) |
|
Net
cash (used in) operating activities
|
|
|
(763,382 |
) |
|
|
(521,215 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(909 |
) |
|
|
(8,005 |
) |
|
Net
cash (used in) investing activities
|
|
|
(909 |
) |
|
|
(8,005 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
|
Payments
on notes payable
|
|
|
(52,154 |
) |
|
|
(309,272 |
) |
|
Cash
received for stock purchase price adjustment
|
|
|
80,000 |
|
|
|
- |
|
Proceeds
from issuance of common stock, net of transaction costs of $74,614
and $60,452, respectively
|
|
|
554,723 |
|
|
|
1,015,548 |
|
|
Net
cash provided by financing activities
|
|
|
582,569 |
|
|
|
706,276 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(181,722 |
) |
|
|
177,056 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
196,250 |
|
|
|
19,194 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
14,528 |
|
|
$ |
196,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
19,925 |
|
|
$ |
109,500 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
NOTE
1:
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Riverside
Entertainment, Inc ("Riverside") was incorporated in the State of Delaware. On
September 18, 2006, Riverside entered into a Share Exchange and Acquisition
Agreement whereby it agreed to issue 45,000,000 shares of its common stock to
acquire all of the outstanding shares of Axis Technologies, Inc. ("Axis"), a
private corporation incorporated in 2003 in the State of Delaware. At the time
of the share exchange transaction, Riverside was a non-reporting public company
and had no current operations. Axis has developed and sells a daylight
harvesting fluorescent lighting ballast that uses natural lighting to reduce
electricity consumption. The Company's market for advertising and selling the
product currently lies within North America.
Upon
completion of the transaction on October 25, 2006, Axis became a wholly-owned
subsidiary of Riverside and Riverside changed its name to Axis Technologies
Group, Inc. (the "Company"). Since this transaction resulted in the existing
shareholders of Axis acquiring control of Riverside, the share exchange
transaction has been accounted for as an additional capitalization of Riverside
(a reverse acquisition, with Axis being treated as the accounting acquirer for
financial statement purposes.)
The
operations of Axis are the only continuing operations of the Company. In
accounting for this transaction, Axis was deemed to be the purchaser and parent
company for financial reporting purposes. Accordingly, its net assets were
included in the consolidated balance sheet at their historical
value.
The
accompanying financial statements as of and for the year ended December 31, 2006
present the historical financial information of Axis consolidated with Riverside
from the date of the transaction (October 25, 2006) to December 31, 2006. The
outstanding common shares of Axis at December 31, 2005 and all 2006 activity
prior to the share exchange transaction have been restated to reflect the shares
issued upon the recapitalization.
Principles of
Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary,
Axis Technology, Inc. Inter-company transactions and balances have
been eliminated in the consolidation.
Cash and Cash
Equivalents: For purposes of reporting cash flows, the Company
considers all cash accounts which are not subject to withdrawal restrictions or
penalties, and certificates of deposit with original maturities of 90 days or
less to be cash or cash equivalents.
The
Company has concentrated its credit risk for cash by maintaining deposits in
financial institutions within the geographic region of Lincoln, Nebraska, which
may at times exceed amounts covered by insurance provided by the U.S. Federal
Deposit Insurance Corporation (FDIC). The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
to cash.
Customer Concentrations and
Accounts Receivable: The accounts receivable arise in the
normal course of business of providing services to
customers. Concentrations of credit risk with respect to accounts
receivable arise because the Company grants unsecured credit in the form of
trade accounts receivable to its customers.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
At
December 31, 2007, one customer accounted for 23% of sales and 38% of
outstanding accounts receivable. At December 31, 2006, two customers accounted
for 50% of sales and 58% of outstanding accounts receivable.
Accounts
are written-off as they are deemed uncollectible based upon a periodic review of
the accounts. As of December 31, 2007 and 2006, management has
estimated that accounts receivable is fully collectible, and thus, has not
established an allowance for bad debts.
Supplier Concentrations and
Inventory: The Company maintains its inventory on a perpetual
basis utilizing the first-in first-out (FIFO) method. Inventories
have been valued at the lower of cost or market. Management has not recorded an
obsolescence reserve for inventory as all inventory is considered usable and
market value is above cost.
The Company purchases 100% of its
inventory from a supplier located in China.
Property and
Equipment: Property and equipment is reported at cost less
accumulated depreciation. Maintenance and repairs are charge to expense as
incurred. The cost of property and equipment is depreciated over the following
estimated useful lives of the related assets using the straight-line
basis:
|
Office
Equipment and Vehicle
|
|
5
years
|
|
Computer
Equipment
|
|
3
years
|
Long-Lived
Assets: The Company periodically evaluates the carrying value
of long-lived assets to be held and used, including but not limited to, capital
assets and intangible assets, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the long-lived asset. Fair value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be disposed
of are determined in a similar manner, except that fair values are reduced for
the cost to dispose. The Company has reviewed long-lived assets and certain
intangible assets with estimable useful lives and determined that the carrying
value as of December 31, 2007 are recoverable in future periods.
Revenue
Recognition: The Company recognizes revenue when persuasive
evidence of an arrangement exists, transfer of title has occurred or services
have been rendered, the selling price is fixed or determinable, collectability
is reasonably assured and delivery has occurred per the contract
terms.
Warranty
and return costs are estimated and accrued based on historical rates. Management
has determined that no warranty reserve is required at December 31, 2007 and
2006.
Segment
Reporting: The Company operates and manages the business under
one reporting segment.
Advertising
Costs: The Company expenses advertising costs in the period
incurred. Advertising costs were $39,936 and $28,483 for the years
ended December 31, 2007 and 2006, respectively.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
Fair Value of Financial
Instruments: The respective carrying value of certain on-balance sheet
financial instruments approximates their fair values. These financial
instruments include cash, accounts receivable, accounts payable and accrued
liabilities, indebtedness to related parties and notes payable. Fair
values were assumed to approximate cost or carrying values as most of the debt
was incurred recently and the assets were acquired within one year. Management
is of the opinion that the Company is not exposed to significant interest,
credit or currency risks arising from these financial instruments.
Income Taxes: The
Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109") as clarified by
FIN No. 48 which requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are
recorded based on the differences between the financial statement and tax bases
of assets and liabilities and the tax rates in effect when these differences are
expected to reverse. SFAS No. 109 requires the reduction of deferred tax assets
by a valuation allowance if, based on the weight of the available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized. At December 31, 2007 and 2006, the Company has recorded a
full valuation allowance against its deferred tax assets.
FIN No.
48 requires the recognition of a financial statement benefit of a tax position
only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority.
Management
Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the period. Actual results could differ
from those estimates.
Comprehensive Income
(Loss): Comprehensive income (loss) includes net income (loss)
and items defined as other comprehensive income (loss). Items defined as other
comprehensive income (loss) include items such as foreign currency translation
adjustments and unrealized gains and losses on certain marketable securities.
For the years ended December 31, 2007 and 2006, there were no adjustments to net
loss to arrive at comprehensive loss.
Net Loss per Common
Share: Basic net loss per common share is computed by dividing
net loss applicable to common shareholders by the weighted average number of
common shares outstanding during the periods presented. Diluted net loss per
common share is determined using the weighted average number of common shares
outstanding during the periods presented, adjusted for the dilutive effect of
any common stock equivalents, consisting of shares that might be issued upon
exercise of options, warrants and conversion of convertible debt. The Company
did not have any common stock equivalents outstanding at December 31, 2007 and
2006.
Effect of Recently Issued
Accounting Standards: In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements ("SFAS No. 157"). This standard clarifies the
principle that fair value should be based on the assumptions that market
participants would use when pricing an asset or liability. Additionally, it
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. This standard is effective for financial statements
issued for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact of this statement. The Company
believes the adoption of SFAS No. 157 will not have a material impact on the
consolidated financial position or results of operations.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
In
February 2008, the FASB issued FASB Staff Position FAS 157-2 (“FSP FAS 157-2”) “
Effective Date of FASB Statement No. 157” which delays the effective date
of SFAS No. 157 for non-financial assets and non-financial liabilities that
are recognized or disclosed in the financial statements on a nonrecurring basis
to fiscal years beginning after November 15, 2008. These non-financial
items include assets and liabilities such as reporting units measured at fair
value in a goodwill impairment test and non-financial assets acquired and
non-financial liabilities assumed in a business combination. The Company has not
applied the provisions of SFAS No. 157 to its non-financial assets and
non-financial liabilities in accordance with FSP FAS 157- 2.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115,” which permits entities to elect to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. This election is irrevocable.
This standard is effective beginning after December 31, 2007. The Company
believes the adoption of SFAS No. 159 will not have a material impact on the
Company’s financial position or results of operations.
In
December 2007, the FASB issued Statement No. 141R, “Business Combinations,”
which establishes principles for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired and liabilities
assumed in a business combination, the goodwill acquired in a business
combination, and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of a
business combination. The Company is required to apply this
standard prospectively to business combinations for which the acquisition date
is on or after January 1, 2009. Earlier application is not
permitted.
NOTE
2:
LIQUIDITY/GOING
CONCERN
The
Company has incurred significant operating losses during its periods of
operation. At December 31, 2007, the Company reports a negative working capital
position of $300,089, an accumulated deficit of $2,247,944 and a stockholders'
deficit of $277,667. It is management's opinion that these facts raise
substantial doubt about the Company's ability to continue as a going concern
without additional debt or equity financing or the ability of the Company to
increase revenues.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
Subsequent
to December 31, 2007, the Company issued a debt instrument generating net cash
proceeds of $1,014,000 (see Note 10). Additionally, in order to meet its working
capital needs through the next twelve months, the Company plans to seek to
obtain outside debt financing to support the planned increase in revenues via
new channels and products over the next year.
NOTE
3:
INVENTORIES
Inventories
at December 31, 2007 and 2006 consisted entirely of finished goods, totaling
$327,559 and $270,952, respectively.
Deposits
on purchases of inventory not received as of year-end totaled $74,000 and
$31,612, at December 31, 2007 and 2006, respectively.
NOTE
4:
NOTE
PAYABLE
Note
payable to bank at December 31, 2007 and 2006 consisted of the
following:
|
|
|
2007
|
|
|
2006
|
|
|
Bank:
|
|
|
|
|
|
|
|
Variable
interest note at prime plus 1.5%, 8.75%at December 31, 2007, due June 10,
2008, interest due monthly, principal due at maturity, secured by all
business assets and personal guarantees of the stockholders. Thisloan was
repaid in April 2008.
|
|
$ |
195,074 |
|
|
$ |
247,228 |
|
NOTE
5:
ACCRUED
SALARY - OFFICERS/STOCKHOLDERS
Prior to
January 1, 2007, certain officers/stockholders of the Company have elected to
forego a certain portion of their salary due to limited operating funds. These
amounts are due and payable to these officers/stockholders as funds become
available in the future. The increase in 2007 was due to unreimbursed business
expenses to the officers. The total balance owed as of December 31,
2007 and 2006 is $443,706 and $440,348, respectively.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
NOTE
6:
STOCKHOLDERS'
DEFICIT
On
January 23, 2007, the Company completed the private placement of its common
stock at $1.00 per share by selling an additional 250,000 shares. Net
proceeds amounted to $213,000 after deducting cash transaction costs of
$37,000. In addition, the Company is required to issue 60,000 shares
of common stock, as a finder's fee for capital raised from November 2006 to
January 2007, which were subsequently issued on March 7, 2008. Further to this
transaction, on October 11, 2007, the Company received $80,000 in cash from the
third-party investor as a purchase price adjustment for the common stock sold to
them during November 2006 to January 2007 for the failure to purchase a total
number of shares committed.
From
March to December 2007, the Company completed another private placement of its
common stock at $0.50 per share for a total of 758,675 shares
sold. Net proceeds amounted to $341,723 after deducting transaction
costs of $37,614.
On
September 26, 2006, prior to the completion of the reverse merger, the Company
completed a private placement of its common stock totaling 15,000,000 shares at
an issuance price of $0.02 per share. Net proceeds amounted to
$299,000 after deducting transaction costs of $1,000.
During
November and December 2006, after completion of the reverse merger, the Company
initiated a private placement of its common stock totaling 775,000 shares at an
issuance price of $1.00 per share. Net proceeds amounted to $716,548
after deducting transaction costs of $59,452.
NOTE
7:
INCOME
TAXES
On
October 25, 2006, the Company became a C-Corporation as a result of the reverse
merger transaction with Riverside Entertainment, Inc. Prior to the merger, the
net loss of Axis was passed through and reported on the tax returns of the
S-Corporation shareholders, therefore, there was no tax provision recorded for
the period from January 1, 2006 to October 24, 2006. Subsequent to the merger on
October 25, 2006, the Company follows the income tax accounting guidance of FAS
109. Under SFAS No. 109, deferred income taxes reflect the impact of temporary
differences between the amounts of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Also, in connection
with the merger, the Company recorded net deferred tax assets of $165,500 due to
a change in tax status.
The
provisions for income taxes for the years ended December 31, 2007 and 2006 are
as follows:
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$ |
- |
|
|
$ |
- |
|
|
State
|
|
|
- |
|
|
|
- |
|
|
Deferred:
|
|
|
(300,700 |
) |
|
|
(202,300 |
) |
|
|
|
|
(300,700 |
) |
|
|
(202,300 |
) |
|
Increase
in deferred tax valuation allowance
|
|
|
300,700 |
|
|
|
202,300 |
|
|
Total
income tax provision
|
|
$ |
- |
|
|
$ |
- |
|
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
The
provision for income taxes varies from the income tax rates applied to the total
loss for the years ended December 31:
|
|
|
2007
|
|
|
2006
|
|
|
Federal
income tax benefit at an average rate (33%)
|
|
$ |
(255,800 |
) |
|
$ |
(144,800 |
) |
|
State
tax benefit, net of federal
|
|
|
(46,500 |
) |
|
|
(26,300 |
) |
|
Operating
loss passed to S-Corporation shareholders prior to reverse merger (January
1, 2006 to October 24, 2006)
|
|
|
- |
|
|
|
134,100 |
|
|
Non-deductible
expenses
|
|
|
1,600 |
|
|
|
200 |
|
|
Establishment
of net deferred tax assets as of October 25, 2006;due to tax status change
as a result of the reverse merger
|
|
|
- |
|
|
|
(165,500 |
) |
|
Current
valuation allowance
|
|
|
300,700 |
|
|
|
202,300 |
|
|
Total
income tax provision
|
|
$ |
- |
|
|
$ |
- |
|
Significant
components of the Company's deferred tax assets and liabilities were as follows
at December 31:
|
|
|
2007
|
|
|
2006
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$ |
337,500 |
|
|
$ |
36,900 |
|
|
Reserves
and accruals
|
|
|
171,700 |
|
|
|
171,700 |
|
|
|
|
|
509,200 |
|
|
|
208,600 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
300 |
|
|
|
- |
|
|
Amortization
|
|
|
5,900 |
|
|
|
6,300 |
|
|
|
|
|
6,200 |
|
|
|
6,300 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
503,000 |
|
|
|
202,300 |
|
|
Valuation
allowance
|
|
|
(503,000 |
) |
|
|
(202,300 |
) |
|
|
|
$ |
- |
|
|
$ |
- |
|
As of
December 31, 2007, the Company has net operating loss carryforwards aggregating
approximately $865,400, which begin to expire in 2026. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences will become deductible. The Company considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. The Company has recorded a full valuation
allowance against its net deferred tax assets because it is not currently able
to conclude that it is more likely than not that these assets will be realized.
The amount of deferred tax assets considered to be realizable could be increased
in the near term if estimates of future taxable income during the carryforward
period are increased.
Under the
Internal Revenue Code Section 382, certain stock transactions which
significantly change ownership, including the sale of stock to new investors,
the exercise of options to purchase stock, or other transactions between
shareholders could limit the amount of net operating loss carryforwards that may
be utilized on an annual basis to offset taxable income in future
periods.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
NOTE
8:
OPERATING
LEASE
The
Company leases office and warehouse space on a month-to-month basis at a current
rate of $1,302 per month. Rental expense was $14,325 and $16,777 for
the years ended December 31, 2007 and 2006, respectively.
NOTE
9:
LITIGATION
The
Company periodically is subject to claims and lawsuits that arise in the
ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the financial position of the Company.
NOTE
10:
SUBSEQUENT
EVENTS
On
January 1, 2008, the Company entered into an agreement with The Regents of the
University of California to develop the Company's next generation product. The
agreement requires the Company to pay a $5,000 license issuance fee, an annual
license maintenance fee of $3,000, and product royalties of .85% to 1.7% based
on units sold.
On March
7, 2008, the Company issued 60,000 shares of common stock valued at $18,600 as
compensation for public and investor relations for the period from April 1, 2007
to March 31, 2008. At December 31, 2007, $13,950 was included in accrued
expenses.
On March
7, 2008, the Company issued 60,000 shares of restricted common stock to three
employees valued at $18,600 which will be expensed over the vesting period
through September 2009.
On April
25, 2008, the Company entered into a debt instrument security agreement with
Gemini Master Find LTD, (“Gemini”), pursuant to which Gemini was issued a 10%
Senior Secured Convertible Promissory Note in the principal amount of $1,388,889
(the “Note”). The Company received net proceeds of approximately $1,014,000. The
difference between the principal amount and net proceeds totaled $374,889 and
consisted of an original issue discount of $138,889, estimated legal costs of
$63,000 and placement fees of $173,000. Additionally, the Company agreed to
issue 240,000 shares of common stock valued at $64,900 as additional placement
fees, of which 50,000 shares were issued on March 7, 2008. The remaining 190,000
shares have not yet been issued as of July 11, 2008. The Note has a
maturity date of April 25, 2010. The Note is convertible at the option of the
holder at any time into shares of the Company's common stock at an initial
conversion price of $0.26 per share. The conversion price is subject to a
weighted-average anti-dilution adjustment in the event the Company issues equity
or equity-linked securities at a price below the then-applicable conversion
price. The Note accrues interest at a rate of 10% per annum, and such interest
is payable on a quarterly basis commencing July 26, 2008, with the principal
balance of the Note, together with any accrued and unpaid interest thereon, due
and payable on the maturity date.
Pursuant
to the Note, the Company issued Gemini a five-year warrant to purchase up to
5,341,880 shares of its common stock at an exercise price of $0.26 per share
(the “Warrant”). In the event the Company does not have an effective Form 10
registration statement by February 25, 2009, the warrant provides for a cashless
exercise. The warrant also provides for a weighted-average
anti-dilution adjustment to the exercise price in the event the Company issues
equity or equity-linked securities at a price below the then-applicable exercise
price. Additionally, the Company maybe obligated to issue another 373,932
warrants at an exercise price of $0.26 per share if the underlying convertible
promissory note is converted by the holder.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
December
31, 2007 and 2006
NOTE
11:
RECLASSIFICATIONS
Certain
amounts in the 2006 financial statements have been reclassified to conform to
the 2007 presentation. The reclassifications had no effect on the 2006 cash
flows, financial position or net loss as originally reported.
AXIS
TECHNOLOGIES GROUP, INC.
Consolidated
Financial Statements
(Unaudited)
March
31, 2008
AXIS
TECHNOLOGIES GROUP, INC.
TABLE
OF CONTENTS
March
31, 2008
|
|
|
Page
|
|
|
|
|
|
FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007
(Audited)
|
|
F-16
- F-17
|
|
|
|
|
|
Consolidated
Statements of Operations for the three months ended March 31, 2008 and
2007 (Unaudited)
|
|
F-18
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31, 2008 and
2007 (Unaudited)
|
|
F-19
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-20
- F-24
|
Axis
Technologies Group, Inc.
Consolidated
Balance Sheets
|
ASSETS
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$ |
25,821 |
|
|
$ |
14,528 |
|
|
Accounts
receivable
|
|
|
51,561 |
|
|
|
39,316 |
|
|
Inventory
|
|
|
329,539 |
|
|
|
327,559 |
|
|
Inventory
deposit
|
|
|
- |
|
|
|
74,000 |
|
|
Prepaid
expenses
|
|
|
4,945 |
|
|
|
2,629 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
411,866 |
|
|
|
458,032 |
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
17,093 |
|
|
|
17,093 |
|
|
Less:
accumulated depreciation
|
|
|
(10,817 |
) |
|
|
(9,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
Property and Equipment
|
|
|
6,276 |
|
|
|
7,160 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
Patents,
net of accumulated amortization of $1,988 and $1,775,
respectively
|
|
|
15,049 |
|
|
|
15,262 |
|
|
Deferred
financing costs
|
|
|
26,386 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
41,435 |
|
|
|
15,262 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
459,577 |
|
|
$ |
480,454 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Balance Sheets
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
77,980 |
|
|
$ |
49,003 |
|
|
Accrued
expenses
|
|
|
73,258 |
|
|
|
70,338 |
|
|
Note
payable - bank
|
|
|
194,901 |
|
|
|
195,074 |
|
|
Accrued
salary - officers/stockholders
|
|
|
478,929 |
|
|
|
443,706 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
825,068 |
|
|
|
758,121 |
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 500,000,000 shares authorized, 62,267,767 and
62,037,767 shares issued and outstanding, respectively
|
|
|
62,268 |
|
|
|
62,038 |
|
|
Additional
paid-in capital
|
|
|
1,960,709 |
|
|
|
1,908,239 |
|
|
Unearned
compensation
|
|
|
(17,784 |
) |
|
|
- |
|
|
Accumulated
deficit
|
|
|
(2,370,684 |
) |
|
|
(2,247,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders' Deficit
|
|
|
(365,491 |
) |
|
|
(277,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
459,577 |
|
|
$ |
480,454 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
|
For
the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Sales,
net
|
|
$ |
122,709 |
|
|
$ |
7,408 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
96,369 |
|
|
|
21,217 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
26,340 |
|
|
|
(13,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
146,168 |
|
|
|
239,381 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(119,828 |
) |
|
|
(253,190 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8 |
|
|
|
266 |
|
|
Interest
expense
|
|
|
(2,920 |
) |
|
|
(7,058 |
) |
|
Total
other income (expense)
|
|
|
(2,912 |
) |
|
|
(6,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(122,740 |
) |
|
|
(259,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(122,740 |
) |
|
$ |
(259,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share (basic and diluted)
|
|
$ |
(0.002 |
) |
|
$ |
(0.004 |
) |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
62,100,954 |
|
|
|
61,274,139 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
For
the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(122,740 |
) |
|
$ |
(259,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net (loss) to net cash provided by (used in)
operations:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
884 |
|
|
|
178 |
|
|
Amortization
|
|
|
213 |
|
|
|
213 |
|
|
Share
based compensation
|
|
|
816 |
|
|
|
- |
|
|
Issuance
of common stock for services
|
|
|
18,600 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
(12,245 |
) |
|
|
2,941 |
|
|
(Increase)
decrease in inventory and inventory deposits
|
|
|
72,020 |
|
|
|
(24,479 |
) |
|
(Increase)
decrease in prepaid expenses
|
|
|
(2,316 |
) |
|
|
17,710 |
|
|
Increase
(decrease) in accounts payable
|
|
|
28,977 |
|
|
|
(11,493 |
) |
|
Increase
in accrued salary - officers/stockholders
|
|
|
35,223 |
|
|
|
- |
|
|
Increase
in accrued expenses
|
|
|
2,920 |
|
|
|
16,993 |
|
|
Net
cash provided by (used in) operating activities
|
|
|
22,352 |
|
|
|
(257,919 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
- |
|
|
|
(909 |
) |
|
Net
cash (used in) investing activities
|
|
|
- |
|
|
|
(909 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
|
Financing
costs incurred
|
|
|
(10,886 |
) |
|
|
- |
|
|
Payments
on notes payable
|
|
|
(173 |
) |
|
|
(51,937 |
) |
|
Proceeds
from issuance of common stock, net of transaction costs of
$59,477
|
|
|
- |
|
|
|
403,423 |
|
|
Net
cash provided by (used in) financing activities
|
|
|
(11,059 |
) |
|
|
351,486 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
11,293 |
|
|
|
92,658 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
14,528 |
|
|
|
196,250 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
25,821 |
|
|
$ |
288,908 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash and non-cash flow information
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
2,863 |
|
|
$ |
5,647 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs incurred with issuance of common stock
|
|
$ |
15,500 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
For
the Three Months Ended March 31, 2008
NOTE
1:
BASIS
OF PRESENTATION
The
accompanying unaudited consolidated financial information has been prepared
by Axis Technologies Group, Inc. (the “Company”) in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly,
it does not include all of the information and notes required by accounting
principles generally accepted in the Untied States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair statement of
this financial information have been included. Financial results for the interim
period presented are not necessarily indicative of the results that may be
expected for the fiscal year as a whole or any other interim period. This
financial information should be read in conjunction with the consolidated
financial statements and notes for the years ended December 31, 2007 and
2006.
NOTE
2:
NATURE
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Riverside
Entertainment, Inc ("Riverside") was incorporated in the State of Delaware. On
September 18, 2006, Riverside entered into a Share Exchange and Acquisition
Agreement whereby it agreed to issue 45,000,000 shares of its common stock to
acquire all of the outstanding shares of Axis Technologies, Inc. ("Axis"), a
private corporation incorporated in 2003 in the State of Delaware. At the time
of the share exchange transaction, Riverside was a non-reporting public company
and had no current operations. Axis has developed and sells a daylight
harvesting fluorescent lighting ballast that uses natural lighting to reduce
electricity consumption. The Company's market for advertising and selling the
product currently lies within North America.
Upon
completion of the transaction on October 25, 2006, Axis became a wholly-owned
subsidiary of Riverside and Riverside changed its name to Axis Technologies
Group, Inc. (the "Company"). Since this transaction resulted in the existing
shareholders of Axis acquiring control of Riverside, the share exchange
transaction has been accounted for as an additional capitalization of Riverside
(a reverse acquisition, with Axis being treated as the accounting acquirer for
financial statement purposes.)
The
operations of Axis are the only continuing operations of the Company. In
accounting for this transaction, Axis was deemed to be the purchaser and parent
company for financial reporting purposes. Accordingly, its net assets were
included in the consolidated balance sheet at their historical
value.
Principles of
Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary,
Axis Technology, Inc. Inter-company transactions and balances have
been eliminated in the consolidation.
Management
Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the period. Actual results could differ
from those estimates.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
For
the Three Months Ended March 31, 2008
Customer Concentrations and
Accounts Receivable: The accounts receivable arise in the normal course
of business of providing services to customers. Concentrations of credit risk
with respect to accounts receivable arise because the Company grants unsecured
credit in the form of trade accounts receivable to its customers.
At March
31, 2008, two customers accounted for 61% of sales and 57% of outstanding
accounts receivable. At March 31, 2007, two customers accounted for
69% of sales.
Revenue
Recognition: The Company recognizes revenue when persuasive
evidence of an arrangement exists, transfer of title has occurred or services
have been rendered, the selling price is fixed or determinable, collectability
is reasonably assured and delivery has occurred per the contract
terms.
Warranty
and return costs are estimated and accrued based on historical rates. Management
has determined that no warranty reserve is required at March 31, 2008 and
December 31, 2007.
Deferred Financing
Costs: Costs related to the convertible debt instrument issued
by the Company on April 25, 2008 (see Note 7). The financing costs will be
amortized on a straight line basis (which approximates the effective interest
method) over the term of the debt instrument to April 2010.
Income Taxes: The
Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109") as clarified by
FIN No. 48 which requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are
recorded based on the differences between the financial statement and tax bases
of assets and liabilities and the tax rates in effect when these differences are
expected to reverse. SFAS No. 109 requires the reduction of deferred tax assets
by a valuation allowance if, based on the weight of the available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized. At March 31, 2008 and December 31, 2007, the Company has
recorded a full valuation allowance against its deferred tax
assets.
FIN No.
48 requires the recognition of a financial statement benefit of a tax position
only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority.
Effect of Recently Issued
Accounting Standards: In February 2008, the FASB issued FASB Staff
Position FAS 157-2 (“FSP FAS 157-2”) “Effective Date of FASB Statement
No. 157” which delays the effective date of SFAS No. 157 for
non-financial assets and non-financial liabilities that are recognized or
disclosed in the financial statements on a nonrecurring basis to fiscal years
beginning after November 15, 2008. These non-financial items include assets
and liabilities such as reporting units measured at fair value in a goodwill
impairment test and non-financial assets acquired and non-financial liabilities
assumed in a business combination. The Company has not applied the provisions of
SFAS No. 157 to its non-financial assets and non-financial liabilities in
accordance with FSP FAS 157- 2.
In
December 2007, the FASB issued Statement No. 141R, “Business Combinations,”
which establishes principles for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired and liabilities
assumed in a business combination, the goodwill acquired in a business
combination, and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of a
business combination. The Company is required to apply this
standard prospectively to business combinations for which the acquisition date
is on or after January 1, 2009. Earlier application is not
permitted.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
For
the Three Months Ended March 31, 2008
NOTE
3:
LIQUIDITY/GOING
CONCERN
The
Company has incurred significant operating losses during its periods of
operation. At March 31, 2008, the Company reports a negative working capital
position of $413,202, an accumulated deficit of $2,370,684 and a stockholders'
deficit of $365,491. It is management's opinion that these facts raise
substantial doubt about the Company's ability to continue as a going concern
without additional debt or equity financing or the ability of the Company to
increase revenue.
Subsequent
to March 31, 2008, the Company issued a convertible debt instrument generating
net cash proceeds of $1,014,000 (see Note 7). Additionally, in order to meet its
working capital needs through the next twelve months, the Company plans to seek
to obtain outside debt financing to support the planned increase in revenues via
new channels and products over the next year.
NOTE
4:
NOTE
PAYABLE
Note
payable to bank at March 31, 2008 and December 31, 2007 consisted of the
following:
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Bank:
|
|
|
|
|
|
|
|
Variable
interest note at prime plus 1.5%, 6.75% at March 31, 2008, due June 10,
2008, interest due monthly, principal due at maturity, secured by all
business assets and personal guarantees of the stockholders. This loan was
repaid in April 2008.
|
|
$ |
194,901 |
|
|
$ |
195,074 |
|
NOTE
5:
ACCRUED
SALARY - OFFICERS/STOCKHOLDERS
Certain
officers/stockholders of the Company have elected to forego a certain portion of
their salary due to limited operating funds. These amounts are due and payable
to these officers/stockholders as funds become available in the future. The
increase in 2008 was due to unreimbursed business expenses to the officers
totaling $723 and a portion of their current year salaries for the three months
ended March 31, 2008 totaling $34,500. The total balance owed as of March 31,
2008 and December 31, 2007 is $478,929 and $443,706,
respectively.
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
For
the Three Months Ended March 31, 2008
NOTE
6:
STOCKHOLDERS'
DEFICIT
On March
7, 2008, the Company issued 60,000 shares of common stock valued at $18,600 as
compensation for public and investor relations for the period from April 1, 2007
to March 31, 2008.
On March
7, 2008, the Company issued 50,000 shares of common stock valued at $15,500 as
advance compensation for services being rendered in connection with the
convertible debt issuance on April 25, 2008 (see Note 7).
On
January 23, 2007, the Company completed the private placement of its common
stock at $1.00 per share by selling an additional 250,000 shares. Net
proceeds amounted to $213,000 after deducting cash transaction costs of
$37,000. In addition, the Company was required to issue 60,000
shares of common stock as a finder's fee for capital raised from November 2006
to January 2007, which was issued on March 7, 2008. Further to this transaction,
on October 11, 2007, the Company received $80,000 in cash from the third-party
investor as a purchase price adjustment for the common stock sold to them during
November 2006 to January 2007 for the failure to purchase a total number of
shares committed.
From
March to December 2007, the Company completed another private placement of its
common stock at $0.50 per share for a total of 758,675 shares
sold. Net proceeds amounted to $341,723 after deducting transaction
costs of $37,614.
Restricted
Stock:
For the
three month period ended March 31, 2008, the Company awarded 60,000 shares of
time-based restricted stock (non-vested) shares to certain employees of the
Company. As a condition of the award, the employees must be employed with the
Company in order to continue to vest in their shares over an 18-month period.
The fair value of the non-vested shares is equal to the fair market value on the
date of grant which was estimated to be $0.31 and will be amortized ratably over
the vesting period.
The
Company recorded $816 of compensation expense in the consolidated statements of
operations related to vested shares (restricted stock) for the three month
period ended March 31, 2008.
A summary
of the status of non-vested restricted shares and changes and remaining unearned
compensation as of March 31, 2008 is set forth below:
|
|
|
Restricted Shares
|
|
|
Weighted
Average Fair Value
|
|
|
Unearned Compensation
|
|
|
Weighted
Average Recognition Period
(Months)
|
|
|
Outstanding,
December 31, 2007
|
|
|
- |
|
|
|
|
|
$ |
- |
|
|
|
|
|
Granted
|
|
|
60,000 |
|
|
$ |
0.31 |
|
|
|
18,600 |
|
|
|
|
|
Vested
|
|
|
(2,628 |
) |
|
|
0.31 |
|
|
|
(816 |
) |
|
|
|
|
Outstanding,
March 31, 2008
|
|
|
57,372 |
|
|
$ |
0.31 |
|
|
$ |
17,784 |
|
|
|
17.2 |
|
Axis
Technologies Group, Inc.
Notes
to Consolidated Financial Statements
For
the Three Months Ended March 31, 2008
NOTE
7:
SUBSEQUENT
EVENTS
On April
25, 2008, the Company entered into a debt instrument security agreement with
Gemini Master Find LTD, (“Gemini”), pursuant to which Gemini was issued a 10%
Senior Secured Convertible Promissory Note in the principal amount of $1,388,889
(the “Note”). The Company received net proceeds of approximately $1,014,000. The
difference between the principal amount and net proceeds totaled $374,889 and
consisted of an original issue discount of $138,889, estimated legal costs of
$63,000 and placement fees of $173,000. Additionally, the Company agreed to
issue 240,000 shares of common stock valued at $64,900 as additional placement
fees, of which 50,000 shares were issued on March 7, 2008. The remaining 190,000
shares have not yet been issued as of July 11, 2008. The Note has a
maturity date of April 25, 2010. The Note is convertible at the option of the
holder at any time into shares of the Company's common stock at an initial
conversion price of $0.26 per share. The conversion price is subject to a
weighted-average anti-dilution adjustment in the event the Company issues equity
or equity-linked securities at a price below the then-applicable conversion
price. The Note accrues interest at a rate of 10% per annum, and such interest
is payable on a quarterly basis commencing July 26, 2008, with the principal
balance of the Note, together with any accrued and unpaid interest thereon, due
and payable on the maturity date.
Pursuant
to the Note, the Company issued Gemini a five-year warrant to purchase up to
5,341,880 shares of its common stock at an exercise price of $0.26 per share
(the “Warrant”). In the event the Company does not have an effective Form 10
registration statement by February 25, 2009, the warrant provides for a cashless
exercise. The warrant also provides for a weighted-average
anti-dilution adjustment to the exercise price in the event the Company issues
equity or equity-linked securities at a price below the then-applicable exercise
price. Additionally, the Company may be obligated to issue another 373,932
warrants at an exercise price of $0.26 per share if the underlying convertible
promissory note is converted by the holder.