UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One) 

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

or

 

☐    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________to _________________

 

Commission File Number 333-186078

 

AXIOM CORP.

(Exact name of registrant as specified in its charter)

 

Colorado		N/A
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
380 Vansickle Road, Unit 600, St. Catharine’s, ON Canada L2S 0B5		N/A
(Address of principal executive offices)		(Zip Code)

 

(905) 646-8787

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒   YES     ☐    NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒   YES     ☐    NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

☐   YES     ☒    NO

  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

69,232,748 common shares issued and outstanding as of May 5, 2016.

 

 

 

AXIOM CORP.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	11
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	12
Item 1A.	Risk Factors	12
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Mine Safety Disclosures	12
Item 5.	Other Information	12
Item 6.	Exhibits	13
SIGNATURES		14

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

The consolidated financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States and are expressed in US dollars.

  

AXIOM CORP.

 

TABLE OF CONTENTS

 

March 31, 2016 AND 2015

 

Unaudited Interim Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	Page F-1
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2016 and 2015	Page F-2
Unaudited Interim Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2016 and 2015	Page F-3
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	Page F-4
Notes to the Interim Condensed Consolidated Financial Statements	Pages F-5 - F-16

 

 

Axiom Corp. and Subsidiary

Unaudited Interim Condensed Consolidated Balance Sheets

(Expressed in United States dollars)

 

		Notes		March  31, 2016				December 31, 2015
Assets
Current assets
Cash				$	14,270			$	48,116
Accounts receivable (net of allowance of $nil (2014 - $nil))					12,990				9,727
Inventory		5			6,329				13,528
Prepaid expenses and other receivables					10,369				23,759
Total current assets					43,958				95,130
Non-current assets
Equipment		6			18,401				21,646
Total non-current assets					18,401				21,646
Total assets				$	62,359			$	116,776
Liabilities
Current liabilities
Accounts payable and accrued liabilities		8		$	312,357			$	251,433
Other taxes payable					693				3,450
Current portion of deferred revenue		11			8,470				7,948
Due to related parties		9			219,111				169,526
Loans payable and conversion features		10			551,581				462,142
Total current liabilities					1,092,212				894,499
Non-current liabilities
Deferred revenue		11			9,176				10,597
Total non-current liabilities					9,176				10,597
Total liabilities					1,101,388				905,096
Stockholders' Deficit
Capital Stock:
Common stock, (authorized 200,000,000, issued 67,397,975, par value $0.00001 per share)		12			674				674
Series A Preferred, (authorized 5,000,000, issued 2,666,668, par value $0.00001 per share)		12			27				27
Series B Preferred, (authorized 5,000,000, issued 1,000,002, par value $0.00001 per share)		12			10				10
Additional paid-in capital					1,211,240				1,211,240
Accumulated other comprehensive income					36,633				36,633
Deficit					(2,242,924	)			(1,998,650	)
Axiom Corporation Ltd. Stockholders’ deficit					(994,340	)			(750,066	)
Non-controlling interest					(44,689	)			(38,254	)
Total stockholders’ deficit					(1,039,029	)			(788,320	)
Total liabilities and deficit				$	62,359			$	116,776
Going Concern		1
Contingency		13
Subsequent Events		14

 

Approved by the Board
“Scott MacRae”		“Jerry Moes”
Director		Director

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

Axiom Corp. and Subsidiary

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

(Expressed in United States dollars)

 

				For the three				For the three
				months ended				months ended
		Notes		March  31, 2016				March 31, 2015
Revenue		11		$	24,983			$	11,301
Cost of revenue					11,237				7,297
Gross profit					13,746				4,004
Expenses
Advertising and promotion					124				1,333
Interest and financing costs		9, 10			13,521				3,591
Office and general					13,801				8,127
Rent					2,960				3,273
Salaries and fees					86,110				156,263
Travel					1,070				5,160
Depreciation and amortization		6, 7			3,245				5,087
Research and development					14,685				683
Stock-based compensation		12			-				148,125
Professional fees					24,116				55,353
Total operating expenses					159,631				386,995
					(145,885	)			(382,991	)
Valuation adjustment of convertible loans payable		10			(78,505	)			-
Gain (loss) on foreign exchange					(26,319	)			(1,400	)
Net loss and comprehensive loss for the period				$	(250,709	)		$	(384,391	)
Net loss and comprehensive loss attributed to non-controlling interest					(6,435	)			-
Net loss and comprehensive loss attributed to Axiom Corporation					(244,274	)			(384,391	)
Net loss per share - basic and diluted				$	(0.00	)		$	(0.01	)
Weighted average number of shares outstanding  - basic and diluted					67,397,975				69,328,702

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

Axiom Corp. and Subsidiary

Unaudited Interim Condensed Consolidated Statements of Stockholders’ Deficit

(Expressed in United States dollars) 

 

		Common Stock				Series A Preferred Stock				Series B Preferred Stock				Additional Paid-in Capital				Accumulated Other Comprehensive Income				Deficit				Non-controlling interest				Total
		$				$				$				$				$				$				$				$
Balance January 1, 2016			674				27				10				1,211,240				36,633				(1,998,650	)			(38,254	)			(788,320	)
Net (loss) for the period			-				-				-				-				-				(244,274	)			(6,435	)			(250,709	)
Balance March 31, 2016			674				27				10				1,211,240				36,633				(2,242,924	)			(44,689	)			(1,039,029	)

 

		Common Stock				Shares to be Issued				Additional Paid-in Capital				Accumulated Other Comprehensive Income				Deficit				Non-controlling interest				Total
		$				$				$				$				$				$				$
Balance January 1, 2015			798,586				-				-				17,807				(956,868	)			-				(140,475	)
Issuance of warrants			-				-				148,125				-				-				-				148,125
Reverse acquisition by Papernuts Canada			(797,888	)			-				706,785				18,826				-				-				(72,277	)
Proceeds of share subscriptions collected			-				270,000				-				-				-				-				270,000
Net (loss) for the period			-				-				-				-				(384,391	)			-				(384,391	)
Balance March 31, 2015			698				270,000				854,910				36,633				(1,341,259	)			-				(179,018	)

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

Axiom Corp. and Subsidiary

Unaudited Interim Condensed Consolidated Statements of Cash Flows  

(Expressed in United States dollars)

 

		For the three				For the three
		months				months
		ended				ended
		March 31, 2016				March 31, 2015
Operating activities
Net loss for the period		$	(250,709	)		$	(384,391	)
Depreciation and amortization			3,245				5,087
Valuation adjustment of convertible loans			78,505				-
Stock-based compensation			-				148,125
Accrued interest on loans			13,521				2,498
Related party loans and advances			49,585				-
Net changes in non-cash working capital:
Changes in accounts receivable			(3,263	)			(667	)
Change in inventory			7,199				5,983
Changes in prepaid expenses			13,390				5,020
Changes in accounts payable and accrued liabilities and other taxes payable			55,579				26,623
Changes in deferred revenue			(899	)			(4,829	)
Net cash flows (used in) operating activities			(33,847	)			(196,551	)
Investing activities
Purchase of equipment			-				(5,000	)
Net cash flows from investing activities			-				(5,000	)
Financing activities
Proceeds from shares to be issued			-				270,000
Related party loans and advances			-				60,367
Net cash flows generated by financing activities			-				330,367
Net (decrease) increase in cash			(33,846	)			128,816
Cash, beginning of period			48,116				8,602
Cash, end of period		$	14,270			$	137,418

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

1.	Nature of Business, Economic Dependence and Going Concern

 

Axiom Corp. (“Axiom” or the “Company”) was incorporated in the State of Colorado on April 2, 2012.

 

On February 23, 2015, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with shareholders of Papernuts Corporation (the “Papernuts Shareholders”) and Kranti Kumar Kotni, the controlling stockholder of Axiom (the “Controlling Stockholder”). Pursuant to the Share Exchange Agreement, the Papernuts Shareholders agreed to exchange up to 1,220,165 shares, which represents 100% of the common stock of Papernuts Corporation (“Papernuts”), for up to Fifty Two Million (52,000,000) shares of Axiom’s common stock (the “Company Shares”).

 

On February 26, 2015, the Company closed on the Share Exchange Agreement, with 95.6% of the Papernuts Shareholders exchanging a total of 1,166,540 common shares (the “Papernuts Exchanged Shares”) for a total of 49,714,642 Axiom Shares (the “Company Exchanged Shares”). Each Papernuts Exchanged Share was converted into the number of Company Exchanged Shares at an exchange ratio of 42.617187019 (the “Exchange Ratio”), rounded, if necessary, up to the nearest whole share (the “Share Exchange”).

 

Pursuant to the Share Exchange Agreement, the Company also issued warrants to purchase a total of 5,650,000 shares of the Company’s Common Stock at exercise prices ranging from $0.056 to $0.075 per share. These warrants have terms which are the same as and replace warrants previously held by Papernuts warrant holders. (see also note 12).

 

Additionally, on February 23, 2015, Mr. Scott MacRae, the former Chief Executive Officer of Papernuts, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with the Controlling Shareholder, whereby Mr. MacRae purchased 30,000,000 shares (the “Shares”) of the Company’s common stock beneficially owned by Mr. Kotni. The Shares were purchased by Mr. MacRae for an aggregate purchase price of $75,000.

 

As a result of the Share Exchange transaction and the transaction between Mr. MacRae and Mr. Kotni, Papernuts Canada has become a majority owned subsidiary of the Company and the Company now carries on the business of Papernuts Canada as its primary business.

 

Additionally, as required by the Share Exchange Agreement, the Company and Mr. Kotni entered into a Share Transfer & Assignment Agreement dated February 26, 2015, pursuant to which the Company, following the Closing of the Share Exchange Agreement, transferred to Mr. Kotni all of the issued and outstanding shares of the Company’s formerly wholly-owned subsidiary, Acton Holdings Limited, a Kenyan company. Mr. Kotni assumes all the liabilities of Acton Holdings Limited.

 

Papernuts was incorporated in Ontario, Canada on April 8, 2010 as 2239794 Ontario Inc. On January 19, 2015 Papernuts changed its name to Papernuts Corporation. The Company’s primary focus is the sale of paper and equipment. The Company’s registered office is as follows: 380 Vansickle Road, Unit 600, St. Catharines, Ontario, Canada, L2S 0B5.

 

At March 31, 2016, the Company had not yet achieved profitable operations, had an accumulated deficit of $2,242,924 and expects to incur further losses in the development of its business, all of which casts significant doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to raise additional funding to further develop operations and a sales and marketing program so as to grow revenue and attain profitability. Although the Company has been successful in the past in obtaining financing, there remains significant doubt that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company. During the period approximately 43% of revenues were derived from one customer (2015 – 48%).

 

  

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

2.	Significant Accounting Policies

 

Principles of Consolidation and Basis of Presentation

 

These unaudited interim condensed consolidated financial statements include the accounts of the Company and its 95.6% owned subsidiary, Papernuts. All inter-company balances and transactions have been eliminated on consolidation. The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Significant estimates include the use of the going concern assumption, the useful life of equipment, the valuation of equipment and the valuation of convertible debt.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. At March 31, 2016 and December 31, 2015, the Company had a cash balance of $14,270 and $48,116 respectively.

 

Revenue Recognition and Deferred Revenue

 

Revenue from product sales is recognized when the customer takes title, assumes the risks and rewards of ownership and collectability is reasonably assured. Revenue is recorded at the time of shipment for terms designated f.o.b. (free on board) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when title and risk of loss are transferred.

 

Revenue from the sale of licences and distribution agreements is recognized over the related term of the agreement. Proceeds received prior to the Company meeting its revenue recognition criteria is recorded as deferred revenue and shown as either a current or non-current liability depending on the expected timing of recognition.

 

Shipping and Handling Costs

 

Shipping and handling costs, such as freight to our customers’ destinations, are included in cost of revenue in the statement of operations and comprehensive loss. When shipping and handling costs are included in the sales price charged for our products, they are recognized in revenue.

 

Inventories

 

Inventories are valued at the lower of cost or market using the average cost method. Inventory is periodically reviewed for use and obsolescence, and adjusted as necessary. Inventory consists of raw material and finished goods.

 

Equipment

 

Equipment is stated at cost, less accumulated depreciation. Expenditures for betterments are capitalized, whereas normal repairs and maintenance are expensed as incurred. The straight-line method is used to depreciate equipment over its estimated useful life, ranging from 3-5 years.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

2.	Significant Accounting Policies - continued

 

Intangible Assets

 

Intangible assets are stated at cost, less accumulated amortization. The straight-line method is used to amortize intangible assets over their estimated useful life, for a period of 10 years.

 

Impairment of Long-lived Assets

 

The Company periodically evaluates the carrying value of long-lived assets in accordance with GAAP, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal.

 

Fair Value of Convertible Loans

 

The Company has issued convertible loans that are convertible into common stock, at the option of the holder, at conversion prices based on the trading price per share over a period of time. As a result of the variability in the amount of common stock to be issued, the conversion features are reflected at fair value. The instrument is bifurcated into a debt instrument and derivative liability instrument. The debt is accreted to face value over the life of debt. The derivative liability is measured using a binomial lattice valuation methodology and is included in the consolidated balance sheets under the caption “loans payable and conversion features”. Any unrealized and realized gains and losses related to the convertible loans are measured based on the changes in the fair values of the derivative liability. Such gains and losses and accretion costs are recorded as a valuation adjustment of convertible loans payable on the consolidated statements of operations and comprehensive loss.

 

Loss per Share

 

Basic loss per share is calculated by dividing the Company’s net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing the Company’s net loss available to common stockholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity instruments, if dilutive.

 

Income Taxes

 

Income taxes are computed in accordance with the provisions of ASC Topic 740, which requires, among other things, a liability approach to calculating deferred income taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company is required to make certain estimates and judgments about the application of tax law, the expected resolution of uncertain tax positions and other matters. In the event that uncertain tax positions are resolved for amounts different than the Company’s estimates, or the related statutes of limitations expire without the assessment of additional income taxes, the Company will be required to adjust the amounts of related assets and liabilities in the period in which such events occur. Such adjustment may have a material impact on the Company’s income tax provision and results of operations.

 

Fair value of stock-based compensation

 

Stock-based compensation is valued using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different than those of traded options and because changes in the subjective input assumptions can materially affect the calculated fair value, such value is subject to measurement uncertainty.

 

Research and development costs

 

Development expenditures are capitalized if they meet the criteria for recognition as an asset, and are amortized over their expected useful lives once they are available for use. Research costs are expensed as incurred.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

2.	Significant Accounting Policies - continued

 

Fair Value of Financial Instruments

 

The standard, “Disclosures about Fair Value of Financial Instruments”, defines financial instruments and requires fair value disclosures for those instruments. The standard, “Fair Value Measurements”, defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The carrying amounts reported on the balance sheets for cash, accounts receivable, due to related parties, accounts payable and accrued liabilities and loan payable qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest. For the due to related parties, the Company believes the carrying value of the loans approximates fair value as the interest rates are market rates.

 

The standard establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by the standard are as follows:

 

Level 1

Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and U.S. government treasury securities;

 

Level 2

Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as the conversion features of the loans payable; and

 

Level 3

Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value from the perspective of a market participant. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs. At each balance sheet date, the Company performs an analysis of all instruments subject to the standard and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.

 

Other than the conversion features, there were no assets or liabilities measured at fair value on a recurring basis as of March 31, 2016 or December 31, 2015.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

2.	Significant Accounting Policies - continued

 

Foreign Currency Translation

 

As further described in Note 4, the Canadian dollar had been the functional and reporting currency of the Company’s business and the consolidated financial statements for periods up to December 31, 2014 were expressed in Canadian dollars. On February 26, 2015, to reflect the changed circumstances of the Company, the functional currency of the Company and its subsidiaries changed to the United States dollar and the Company decided to change its reporting currency to the United States dollar as well. Accordingly, these consolidated financial statements are expressed in United States dollars.

 

Monetary assets and liabilities denominated in currencies other than United States dollars are translated into United States dollars at the rate of exchange in effect at the end of the reporting period. Revenues and expenses are translated at the transaction exchange rate. Foreign currency gains and losses resulting from translation are reflected in net income of the period. An exchange rate of 0.77 was used to translate the monetary assets and liabilities from Canadian to US dollars at March 31, 2016 (December 31, 2015 – 0.7225). An exchange rate of 0.7287 was used to translate revenue and expenses from Canadian to US dollars for the three months ended March 31, 2016 (2015 - 0.8057).

 

Accounting Principles for Future Adoption

 

In May 2014, FASB issued ASU 2014-09 with the intent of significantly enhancing comparability of revenue recognition practices across entities and industries. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers and introduces new, increased disclosure requirements. The new standard is effective for annual and interim periods beginning on or after December 15, 2017 and may be applied on either a full or modified retrospective basis. The Company is currently assessing the impact of the new standard to the Company’s consolidated financial statements.

 

In August 2014, FASB issued ASU 2014-15 providing guidance on how to account for and disclose going concern risks. The new standard is effective for annual and interim periods beginning on or after December 15, 2016. The Company is currently assessing the impact of the new standard to the Company’s consolidated financial statements.

 

3.	Papernuts Reverse Merger

 

A reverse acquisition transaction involving a non-public operating entity and a non-operating public company is in substance a share-based payment transaction, rather than a business combination. The Transaction is equivalent to the issuance of shares by the non-public operating entity, Papernuts, for the net assets and the listing status of the non-operating public company, Axiom. The fair value of the shares issued was determined based on the fair value of the common shares issued by Axiom.

A summary of the transaction is as follows:

 

	Deemed issuance of 49,714,642 post-Transaction common shares to the former shareholders of Papernuts Canada		$	124,287
	Cash and funds held in trust		$	74,967
	Accounts payable and accrued liabilities			(17,974	)
	Due to related parties			(61	)
	Loans payable			(148,035	)
	Listing costs reallocated to additional paid-in capital			215,390
	Value attributed to Papernuts shares issued		$	124,287

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

4.	Change of Functional and Reporting Currency

 

Effective February 26, 2015, Papernut’s functional currency changed to the United States dollar, and accordingly, Papernuts decided to change its reporting currency to the United States dollar. Prior to February 26, 2015, Papernut’s functional currency was the Canadian dollar and the Company used the Canadian dollar as its reporting currency. With the completion of the Share Exchange Agreement, the Company’s assets, liabilities, revenues and expenses are expected to be predominantly denominated in United States dollars and, accordingly, the use of the Canadian dollar to measure and report the Company’s financial performance and financial position became inappropriate. The impact of the currency translation up to February 26, 2015 is recorded in accumulated other comprehensive income. Under the current rate method for the comparative period presented, all assets and liabilities of the Company’s operations were translated from their Canadian dollar functional currency into United States dollars using the exchange rates in effect on the balance sheet date, shareholders’ equity were translated at the historical rates and revenues, expenses and cash flows were translated at the average rates during the reporting period presented. The resulting translation adjustments are reported under comprehensive income as a separate component of shareholders’ equity.

 

5.

Inventory

 

			March 31, 2016				December 31, 2015
	Raw materials		$	5,306			$	11,306
	Finished goods			1,023				2,222
	Total inventory		$	6,329			$	13,528

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

6.

Equipment

 

							Accumulated
	March 31, 2016		Cost				Depreciation and Impairment				Net Book Value
	Furniture		$	3,723			$	(3,263	)		$	460
	Machinery			53,848				(35,906	)			17,941
			$	57,571			$	(39,169	)		$	18,401

 

							Accumulated
	December 31, 2015		Cost				Depreciation and Impairment				Net Book Value
	Furniture		$	3,723			$	(3,038	)		$	685
	Machinery			53,848				(32,887	)			20,961
			$	57,571			$	(35,925	)		$	21,646

 

Depreciation expense during the three months ended March 31, 2016 was $3,245 (2015 - $3,243).

 

7.	Intangible Assets

 

In June 2014, Papernuts acquired the rights to the Papernuts trademark for $75,000. Terms of the agreement are as follows:

 

●

Upon signing the agreement and paying $20,000 (paid in July 2014), the Company received the temporary right to use the Papernuts name and trademark, provided Papernuts comply with certain insurance and other requirements as stipulated by the vendor.

 

●

Upon payment of an additional $55,000, required to be paid by September 15, 2014 (and paid on that date), Papernuts received permanent use and ownership of the Papernuts name, web domain and any trademarks, patents and rights to sell Papernuts products in the US and Canada.

 

●

Papernuts is required to pay a royalty of 2% of sales of Papernuts products, to a maximum of $100,000.

 

●

As part of this agreement, should Papernuts and the vendor not be able to negotiate a distribution contract in the future, Papernuts would be required to acquire certain of the vendor’s inventory and equipment valued at $40,000 (paid in March, 2015). Papernuts has recorded an impairment charge of $35,000 in December, 2014 with respect to this inventory.

 

Papernuts recorded amortization of $7,377 relating to this asset during the year ended December 31, 2015. The remaining balance of $62,697 was fully written off in 2015 due to the uncertainty of the future benefit that the Company will be able to realize.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

8.	Accounts payable and accrued liabilities

 

Accounts payable and accrued liabilities consisted of the following as at March 31, 2016 and December 31, 2015.

 

			March 31, 2016				December 31, 2015
	Accounts payable		$	198,392			$	159,568
	Accrued liabilities			113,965				91,865
			$	312,357			$	251,433

 

9.	Related Party Transactions and Balances

 

			March 31, 2016				December 31, 2015
	8% Demand loans inclusive of interest		$	160,294			$	147,850
	Due to related party			58,817				21,676
	Payable to related parties		$	219,111			$	169,526

 

On August 1, 2012, PaperNuts Canada received loans of $32,445 (CDN$32,500) from shareholders Jim Vanderzalm and Rob Moes. The loans were unsecured, and were due and payable on demand as they were contracted to meet PaperNuts Canada’s 2012 general fiscal obligations. In April, 2014 and January, 2015 Mr. Moes made additional advances of $6,818 (CDN$7,500) and $30,184 (CDN$37,500) respectively to PaperNuts Canada. As at March 31, 2016 there is principal and interest of $70,671 ($65,199 as at December 31, 2015) outstanding in relation to those loans. The largest outstanding balance during the period ended March 31, 2016 was $70,671, including principal of $59,675.

 

On March 28, 2013, PaperNuts Canada received loans of $18,345 (CDN$18,629) from Jerry Moes, a shareholder and director of PaperNuts Canada. The loans were unsecured, and were due and payable on demand as they were contracted to meet PaperNuts Canada’s 2013 general fiscal obligations. Mr. Moes made further advances of $30,180 (CDN$32,098) on December 31, 2013 and $11,190 (CDN$12,310) from January 1, 2014 to April 1, 2014. In January, 2015 Mr. Moes advanced an additional $15,625 (CDN$18,750). As at March 31, 2016, there is principal and interest of $73,822 ($68,094 as at December 31, 2015) outstanding in relation to those loans. The largest outstanding balance during the period ended March 31, 2016 was $73,822 including principal of $62,975.

 

In January, 2015, PaperNuts Canada received a loan of $15,625 (CDN$18,750) from Ron Vanderzalm, a shareholder of PaperNuts Canada. As at March 31, 2016, there is a principal and interest of $15,801 (December 31, 2015 - $14,557) outstanding in relation to this loan. The largest outstanding balance during the period ended March 31, 2016 was $15,801 including principal of $14,438.

 

During the periods ended March 31, 2016 and 2015 the shareholders above charged interest of $2,588 (CDN$3,551) and $2,500 (CDN$3,101), respectively on these demand loans. No payments of interest have been made and the unpaid interest is included in the loan balances noted above.

 

As at March 31, 2016, due to related party included $58,817 (December 31, 2015 - $21,676) in unpaid fees and salaries due to officers and directors of the Company, including Tyler Pearson, CEO, Scott MacRae, Director and Andrew Hilton, CFO.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars) 

 

10.	Loans Payable and Conversion Features

 

			Demand  loan (a)				Debt (b)				Conversion features (b)				Total
	Loans payable, December 31, 2015		$	83,151			$	74,298			$	304,693			$	462,142
	Accrued interest			1,457				9,476				-				10,933
	Accretion			-				92,165				-				92,165
	Change in fair value of conversion features			-				-				(13,659	)			(13,659	)
	Loans payable, March 31, 2016		$	84,608			$	175,939			$	291,034			$	551,581

 

$10,933 is included in interest expense and $92,165 and $(13,659) are included in valuation adjustment of convertible loan payable.

 

	Key inputs to determine the fair value at March 31, 2016:
	Stock Price		$	0.0130
	Exercise Price		$	0.0087
	Time to expiration – days			188
	Risk-free interest rate			0.54	%
	Estimated volatility			150	%
	Dividend			-

 

(a)

On August 1, 2013, Axiom Corp. entered into a line of credit agreement with a third party, enabling the Company to borrow up to $50,000, at 8% per annum, with related amounts being due on demand (“Demand loan”). During 2014, the third party agreed to increase the maximum principal amount to $85,000, however no amount was borrowed as of December 31, 2014. As at March 31, 2016, the amount outstanding under this line of credit was $73,068 with accrued interest of $11,541. In addition to the line of credit the third party advanced $74,967 to the Company’s trust account in connection with the Share Exchange Agreement described in Note 1. This latter amount was repaid in April, 2015.

 

(b)

On October 16, 2015, the Company closed a financing transaction pursuant to Securities Purchase Agreements dated October 5, 2015 (the “Securities Purchase Agreements”) and Convertible Promissory Notes dated October 5, 2015 (the “Notes”), each entered into by the Company and two investors (the “Purchasers”). Pursuant to the Securities Purchase Agreements, as described below, the principal amount of the Notes is $612,250, and the purchase price of the Notes is $581,000. The terms of the Notes are as follows:   The Notes, dated October 5, 2015, (the “Issue Date”), earn interest at an annual rate equal to 10% and provide for a maturity date of October 5, 2016. The funding calls for $256,000 at the time of closing of the Securities Purchase Agreements and Notes, $50,000 upon the filing of a registration statement with the Securities and Exchange Commission (the “SEC”), $50,000 upon receipt of the first round of comments from the SEC regarding the registrations statement, $125,000 upon the effectiveness of the registration statement, and at the Company’s option, $100,000 thirty (30) days after the registration statement becomes effective. As part of the Securities Purchase Agreements, the Company entered into a Registration Rights Agreement (‘RRA”) with the Purchasers. Pursuant to the RRA, the Company shall use its best efforts to file a registration statement on Form S-1 (the “Registration Statement) with the SEC, registering the shares of common stock which may be issued to the Purchasers pursuant to the Securities Purchase Agreements. The Company must use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC. As at May 10, 2016  the registration was not yet effective.   Any amount of principal or interest not paid when due on the Notes will bear interest at an annual rate of 24% applied from the due date until the date of payment. The Notes carry an original issue discount (“OID”) of $28,750. The Company agrees to pay the Purchasers $8,500 to cover certain fees incurred in connection with the Securities Purchase Agreements and Notes. The amount for fees is included in the initial principal amount of the Notes and the original issue discount is applied pro rata in accordance with the funded tranches.   The notes are convertible at a conversion price equal to the lower of: 1) 60% multiplied by the lowest average trading price for the Company’s common stock during the twenty (20) day trading period ending on the latest complete trading day prior to the date of conversion; or 2) the closing price at October 5, 2015. While the Purchasers’ conversion rights exist, the Company will reserve a sufficient number of shares from its authorized and unissued shares of common stock to provide for the issuance of common stock upon the full conversion of the Notes. The Company does not currently have enough shares authorized to meet this requirement.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

10.	Loans Payable and Conversion Features - continued

 

In the event the Company redeems the Notes prior to maturity, the Company is required to pay off all principal balance, interest and any other amounts owing multiplied by 125%. In the event of default, the amount of principal and accrued interest will be due immediately, multiplied by 130%. The Securities Purchase Agreements restricts the ability of the Purchasers to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

 

As a result of the variability in the amount of shares of common stock to be issued in accordance with variable pricing terms or conversion price protection clauses, the Company has recorded the conversion features as liabilities at fair value. The Company has determined that the convertible notes are valued at amortized cost, the conversion features are Level 2 fair value measurement and the binominal lattice pricing model was used to calculate the fair value as of December 31, 2015, March 31 2016, and the commitment dates.

 

The following is a summary of the convertible promissory notes at commitment dates: 

 

			Convertible  Loans
	Gross notes		$	374,893
	Less: original issue discount			(16,393	)
	Less: fees			(36,500	)
	Net proceeds			322,000
	Conversion features			(313,632	)
	Debt		$	8,368

 

	Key inputs to determine the fair value at commitment dates:
	Stock Price	$	0.015-0.0249
	Exercise Price	$	0.0115-0.0173
	Time to expiration – days			280-356
	Risk-free interest rate			0.48% - 0.53	%
	Estimated volatility			150	%
	Dividend			-

  

11.	Deferred Revenue

 

In April 2013, Papernuts entered into an exclusive distribution agreement providing the rights to commercialize and distribute Papernuts’ converter machines in the Ottawa and Hull-Gatineau regions of Canada.

 

Of the $44,035 (CDN$55,000) up-front licensing fee received, $2,004 (CDN $2,750) has been recognized as revenue during the period ended March 31, 2016 (2015 - $2,216 or CDN $2,750) and $17,646 (CDN $22,917) has been recorded as deferred revenue as at March 31, 2016 (December 31, 2015 - $18,545 or CDN $25,667). The balance of deferred revenue will be amortized into contract revenue over the remaining period of Papernuts obligations under the agreement of approximately 2 years.

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

12.	Stockholder’s Equity

 

The Company’s authorized capital consists of 200,000,000 shares of common stock with a par value of $0.00001 per share, 5,000,000 shares of Series A Preferred stock with a par value of $0.00001 per share and 5,000,000 shares of Preferred B stock with a par value of $0.00001 per share.

 

			Number of				Par
	Capital stock		Shares				Value
	Common Shares:
	Common Shares as at March 31, 2016 and December 31, 2015			67,397,975			$	674
	Series A Preferred Shares
	Series A Preferred shares as at March 31, 2016 and December 31, 2015			2,666,668			$	27
	Series B Preferred Shares
	Series B Preferred shares as at March 31, 2016 and December 31, 2015			1,000,002			$	10

 

 

Axiom Corp. and Subsidiary

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

For the three months ended March 31, 2016 and 2015

(Expressed in United States Dollars)

 

12.	Stockholder’s Equity - continued

 

a)

In March, 2015 the Company completed agreements with three directors of Papernuts for the cancellation of 40,000,000 Common Shares of the Company in exchange for a combination of newly issued multi-voting Series A Preferred Shares and multiple-voting Series B Preferred Shares.

 

As per the agreements, the 40,000,000 common shares were converted into 2,666,668 multiple-voting Series A Preferred Shares and 1,000,002 multiple-voting Series B Preferred Shares. 

 

Series A Preferred Shares are convertible into Common Shares at the option of the holder at a ratio of 1:10, meaning each Preferred A Share can convert into ten (10) Common Shares of the Company. In addition, holders of each Series A Preferred Share shall have the right to one (1) vote for each Common Share into which such Series A Preferred Share could be converted. Assuming the exercise of all convertible securities including warrants, the Series A Preferred Shares represent 7.7% of the total voting power of the Company’s shareholders.

 

Series B Preferred Shares are convertible into Common Shares at the option of the holder at a ratio of 1:10, meaning each Preferred B Share can convert into ten (10) Common Shares of the Company. In addition, holders of each Series B Preferred Share shall have the right to twenty-five (25) votes for each Common Share into which such Series B Preferred Share could be converted. Assuming the exercise of all convertible securities including warrants, the Series B Preferred Shares represent 71.7% of the total voting power of the Company’s shareholders.

 

The Series A and Series B Preferred Shares are non-redeemable and have a par value of $0.00001 per share.

 

b)

Pursuant to the Share Exchange Agreement, the Company also issued warrants to purchase an aggregate of 5,650,000 shares of the Company’s common stock at exercise prices ranging from $0.056 to $0.075 per share to replace warrants previously held by Papernuts warrant holders (the “Warrants”). The Warrants are currently exercisable and may be exercised for a period of 24 months from the date of issuance, February 26, 2015. The Warrants were initially valued at $148,125 using the Black-Scholes pricing model assuming no expected dividends, a volatility of 100%, expected life of two years and a risk-free rate of 0.43%, the value of which is included in additional paid in capital. As at March 31, 2016 there were 5,650,000 warrants outstanding.

 

c)

In March, 2015 the Company received $270,000 from a private investor in a private sale in exchange for 900,000 shares of the Company’s common stock.

 

13.	Contingency

 

In the first quarter of 2015 the Company became aware of a potential claim from an individual stating that he was owed $118,427 (CDN$150,000) worth of Papernuts common shares. No action has been commenced as of the date of this report. Management is of the opinion that this potential claim is without merit. Accordingly, no provision has been made in these interim condensed consolidated financial statements.

 

14.	Subsequent Events

 

On May 2, 2016 the Company cancelled 2,000,000 Series A Preferred Shares, previously issued to directors of the Company and issued 2,000,000 Series A Preferred Shares to directors, officers, staff and vendors. Of the total Series A Preferred Shares issued, 1,125,000 were issued to officers and directors.

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited consolidated financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "US$" refer to United States dollars and all references to "common stock" refer to the common shares in our capital stock.

 

 

As used in this annual eport, the terms “we”, “us”, “our”, “Axiom” and “our company” mean Axiom Corp. and our 95.6% majority-owned subsidiary, Papernuts Corporation (“Papernuts Canada”), a corporation established under the laws of the province of Ontario, Canada, unless otherwise indicated.

 

Overview

 

The Company, through our subsidiary Papernuts Canada, provides an alternative packaging solution to plastic and corn based loose fill material. We are taking a new approach to the loose-fill packaging industry currently dominated by the polystyrene plastic “peanut” styrofoam fillers, bubble wrap, air pillows, crumpled paper, foam-in-place and corn starch peanut products.  The waste and inconvenience of dealing with plastic material is a problem for many end users.  It commonly needs to be separated from organic or recyclable waste for proper disposal and lasts for thousands of years in landfills.  Plastic and corn-based fillers typically do a poor job of protecting items as they are smooth and can be easily compressed allowing items to migrate and damage to occur.  Our product “Papernuts” is re-usable whereas most plastic products are not.  

 

Using 100% recycled paper and our Papernuts machine, Papernuts interlocks with each other forming a protective matrix around packaged items. The trend towards environmentally friendly packaging solutions is gaining momentum with companies such as Wal-Mart and other industry leaders, adopting new standards for responsible packaging by way of the “Sustainable Packaging Scorecard.” (http://news.walmart.com/news-archive/2006/11/01/wal-mart-unveils-packaging-scorecard-to-suppliers).

 

The main objection to polystyrene “foam peanuts” and corn fillers, besides their typical higher cost and larger carbon footprint, is that they are not made on site but manufactured in a centrally located installation forcing the finished product to be transported with a substantial shipping cost to the purchaser. Papernuts is now purchased as a finished product but for high volume users we also have the ability to supply compact Papernuts “Factories” or machines that require only 10 square feet of floor space. Thus, providing the ability to manufacture product protection on site, which reduces the shipping and storage costs associated with competitive products.

 

We are currently selling the finished Papernuts product to customers and are actively pursuing the needs of high volume end-users. 

 

Located in a St. Catharines’, Ontario industrial complex, our location serves as corporate office, production facility and storage. The staff is made up of a team of experienced individuals including, management, sales and marketing personnel.

 

Recent Events

 

Share Exchange Transaction

 

On February 23, 2015, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Papernuts Corporation, a corporation established under the laws of the Province of Ontario, Canada (“Papernuts Canada”), the shareholders of Papernuts Canada (the “Papernuts Canada Shareholders”), and Kranti Kumar Kotni, the controlling stockholder of the Company (the “Controlling Stockholder”). Pursuant to the Share Exchange Agreement, the Company agreed to acquire up to 1,220,165 shares, which represents 100% shares of common stock of Papernuts Canada, from the Papernuts Canada Shareholders (the “Papernuts Canada Shares”) in exchange for up to Fifty Two Million (52,000,000) restricted shares of the Company’s common stock (the “Company Shares”).

 

 

On February 26, 2015, the Company closed on the Share Exchange Agreement, with 95.6% of the Papernuts Canada Shareholders exchanging a total of 1,166,540 Papernuts Canada Shares (the “Papernuts Exchanged Shares”) for a total of 49,714,642 Company Shares (the “Company Exchanged Shares”). Each Papernuts Exchanged Shares was converted into the number of Papernuts Exchanged Shares at an exchange ratio of 42.617187019 (the “Exchange Ratio”), rounded, if necessary, up to the nearest whole share (the “Share Exchange”). After the Share Exchange, Papernuts Canada becomes a majority-owned subsidiary of the Company.

 

Pursuant to the Share Exchange Agreement, the Company also issued warrants to purchase an aggregate of 5,650,000 shares of the Company’s common stock at exercise prices ranging from $0.056 to $0.075 per share to replace warrants previously held by Papernuts Canada warrant holders (the “Warrants”). The Warrants are currently exercisable and may be exercised for a period of 24 months from the date of issuance, February 26, 2015.

 

The Share Exchange Agreement contains customary representations and warranties.

 

Additionally, as required by the Share Exchange Agreement, the Company and Mr. Kotni entered into a Share Transfer & Assignment Agreement dated February 26, 2015, pursuant to which the Company, following the Closing of the Share Exchange Agreement, transferred to Mr. Kotni all of the issued and outstanding shares of the Company’s formerly wholly-owned subsidiary, Acton Holdings Limited, a Kenyan company. Mr. Kotni assumes all the liabilities of Acton Holdings Limited.

 

As a result of the Share Exchange Agreement, (i) we have discontinued all prior operations, and our principal business has become the business of Papernuts Canada, and (ii) Papernuts became a majority owned subsidiary of the Company. As the Papernuts Canada Shareholders obtained the majority of the outstanding shares of the Company through the acquisition, the acquisition is accounted for as a reverse merger or recapitalization of the Company. As such, Papernuts Canada is considered the acquirer for accounting purposes.

 

Financing

 

On October 16, 2015, the Company closed a financing transaction pursuant to Securities Purchase Agreements, dated October 5, 2015 (the “Securities Purchase Agreements”) and Convertible Promissory Notes, dated October 5, 2015 (the “Notes”), each entered into by the Company and two investors (the “Purchasers”). Pursuant to the Securities Purchase Agreements, as described below, the principal amount of the Notes is $612,250, and the purchase price of the Notes is $575,000. The conversion price is equal to 60% multiplied by the lowest average trading price for the Company’s common stock during the twenty (20) day trading period ending on the latest complete trading day prior to the date of conversion. While the Purchasers’ conversion rights exist, the Company will reserve a sufficient number of shares from its authorized and unissued shares of common stock to provide for the issuance of common stock upon the full conversion of the Notes.

 

Results of Operations

 

The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the three months ended March 31, 2016 and 2014 which are included herein.

Our operating results for three months ended March 31, 2016 and 2015 are summarized as follows:

		2016				2015
Revenue		$	24,983			$	11,301
Cost of revenue			(11,237	)			(7,297	)
Total operating expense			159,631				386,995
Net loss		$	(250,710	)		$	(384,391	)

 

  

Revenue for the three months ended March 31, 2016 was $24,983 (2015 - $11,301) and cost of revenue was $11,237 (2015 - $7,297) for gross profit of $13,746 and $4,004. Revenue is expected to increase when the newly designed retail machines are available for sale. Management expects this to be in the second quarter of 2016.

 

The Company believes that all expired patents can be extended based on noticeable improvements to the machine/apparatus as well as the finished product itself. The Company has filed provisional patents on these new machines and the associated intellectual property. The Company has introduced an entirely new generation of PaperNuts machines that was designed to service a variety of large retail channels/outlets across North America and ultimately abroad as the business grows. We expect to file provisional patents on the retail machine in 2016.  

 

Expenditures during the three months ended March 31, 2016 totaled $159,631 (2015– $386,995) which include the below items:

 

The Company incurred advertising and promotion expenses of $124 (2015 - $1,333) in connection with promotional activity during the period.

 

The Company incurred interest and financing expenses of $13,521 (2015 – $3,591) in connection with its loans outstanding and note payable. The future expense will increase or decrease as further loans are advanced or repaid.

 

The Company incurred office and general expenses of $13,801 (2015 - $8,127).

 

The Company incurred rent expenses of $2,960 (2015 - $3,273) which was consistent with the prior period. Rent expense is expected to be consistent in the short-term.

 

The Company incurred salaries and consulting fees expenses of $86,110 (2015 - $156,263). Fees were higher than expected in the first quarter of 2015 as a result of the share exchange transaction. These costs are expected to be consistent with the current period in the short-term.

 

The Company incurred travel expenses of $1,070 (2015 - $5,160).

 

The Company had a depreciation and amortization expense of $3,245 (2015- $5,087) in connection with its existing capital and intangible assets. As the Company adds further equipment, the expense will increase.

 

The Company incurred research and development costs of $14,685 (2015 – $683). The research and development costs relates to the design and development of the Company’s latest PaperNuts converter.

 

The Company incurred professional fees of $24,116 (2015- $55,353) which include audit and review fees as well as legal counsel. The decrease relates to additional costs associated with the share exchange transaction described above.

 

The Company recorded stock-based compensation expense of $Nil (2015 - $148,125) relating to warrants issued by the Company during the period. The warrants were valued using the Black-Scholes pricing model.

 

The Company recorded a loss on foreign exchange of $26,320 (2015 – loss of $1,400) in connection with the fluctuating exchange rate.

 

The Company also recorded a valuation loss of $78,505 (2015 - $Nil) in connection with convertible loans issued in the fourth quarter of 2015.

 

 

The Company had net loss and comprehensive loss of $250,710 (2015 - $384,391). The decreased loss year over year relates to the additional staff costs in the prior period, as well as additional professional fees in connection with the share exchange transaction.

 

Liquidity and Capital Resources

		At				At
		March 31,				December 31,
Working Capital		2016				2015
Current Assets		$	43,958			$	95,130
Current Liabilities		$	1,092,212			$	894,499
Working Capital Deficiency		$	(1,048,254	)		$	(799,369	)

 

		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2016				2016
Cash Flows
Net Cash (Used In) Operating Activities		$	(33,847	)		$	(196,551	)
Net Cash (Used in) Investing Activities			-				(5,000	)
Net Cash from Financing Activities			-				330,367
(Decrease) increase in Cash		$	(33,847	)		$	128,816

 

The Company had working capital deficit of approximately $1,048,254 as at March 31, 2016 (December 31, 2015 - $799,369). The Company has some revenue but additional funding will be required for working capital and further expansion of the business. Management believes that it will have sufficient capital to fund its operations for the next twelve months. Our financial statements for the three months ended March 31, 2016 have been prepared on a going concern basis and do not include any adjustments that might result from the outcome of this uncertainty. Although we have been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to our Company.

 

We anticipate that we will meet our ongoing cash requirements through equity or debt financing as well as product sales. We estimate that our expenses over the next 12 months will be approximately $730,000 which consists of salaries and management fees of $345,000, professional fees of $125,000, research and development expenses of $175,000, administrative expenses of $60,000 and interest of $25,000. We further anticipate fixed asset purchases of approximately $200,000 over the next twelve months. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources.

 

In addition to product sales, we intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing by way of private placements. We decided to become a reporting company to be better equipped to raise capital by providing transparency to the public about our operations and development. There is no assurance that we will be successful in completing any such financings on terms that will be acceptable to us.

 

If we are not able to raise the funds necessary to implement our business plan as anticipated, we will scale back our business development in line with available capital. Our main priority will be to retain our reporting status with the Securities and Exchange Commission which means that we will first ensure that we have sufficient capital to cover our legal and accounting expenses. Once these costs are accounted for, in accordance with how much financing we are able to secure, we will focus on developing our marketing our products, and paying consulting and management fees. We will likely not expend funds on the remainder of our planned activities unless we have the required capital.

 

Management is unaware of any demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way.

 

 

Investing Activities

 

We used $Nil in investing activities during the three months ended March 31, 2016 (2015 - $5,000).

 

Financing Activities

 

We received $Nil in related party loans and advances during the three months ended March 31, 2016 (2015 - $60,367). In March, 2015 the Company received $270,000 from a private investor in a private sale in exchange for 900,000 shares of the Company’s common stock.

  

Contractual Obligations

 

As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that our company will continue as a going concern. As shown in the accompanying financial statements, our company incurred a net loss of $250,710 for the three months ended March 31, 2016. These factors raise substantial doubt about our company’s ability to continue as a going concern.

 

The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that our company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock and through additional loans.

 

The ability of our company to continue as a going concern is dependent upon our company’s ability to attain a satisfactory level of profitability and obtain suitable and adequate financing. There can be no assurance that management’s plan will be successful.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations is based upon the accompanying consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America and are expressed in United States Dollars. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of our company and our 95.6% owned subsidiary, Papernuts Canada. All significant intercompany balances and transactions have been eliminated upon consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Significant estimates include the useful life of its equipment and intangible assets and the valuation of equipment and intangible assets.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. At March 31, 2016 and December 31, 2015, the Company had a cash balance of $14,270 and $48,116 respectively.

 

 

Financial Instruments

 

The Company’s financial instruments include cash, accounts receivables, bank overdraft, accounts payable and accrued liabilities and loans payable to related parties. The carrying value of these instruments approximates their fair values due to their short-term nature. Cash and accounts receivables are classified as loans and receivables, bank overdraft, accounts payable and accrued liabilities and loans payable to related parties are classified as other financial liabilities, all of which are measured at amortized cost. It is the opinion of Management that the Company is not exposed to significant interest, currency or credit risks arising from its financial instruments.

 

The Company has issued convertible loans that are convertible into common stock, at the option of the holder, at conversion prices based on the trading price per share over a period of time. As a result of the variability in the amount of common stock to be issued, the conversion features are reflected at fair value. The instrument is bifurcated into a debt and derivative liability piece. The debt piece is accreted to face value over the life of debt. The derivative liability piece is measured using a binomial lattice valuation methodology and is included in the consolidated balance sheets under the caption “loans payable and conversion features”. Any unrealized and realized gains and losses related to the convertible loans are measured based on the changes in the fair values of the derivative liability. Such gains and losses and accretion costs are recorded as a valuation adjustment of convertible loans payable on the consolidated statements of operations and comprehensive loss.

 

Earnings (Loss) Per Share

 

Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. In periods that the Company reports a net loss, loss per share is not presented on a diluted basis, as the result would be anti-dilutive.

 

Foreign Currency Translation

 

Our company’s planned operations will be in the United States and Canada, which results in exposure to market risks from changes in foreign currency exchange rates. The financial risk is the risk to our company’s operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, our company does not use derivative instruments to reduce our exposure to foreign currency risk. Our company's functional currency for operations worldwide is the U.S. dollar. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period. Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results of operations.

 

Income Taxes

 

Our company accounts for income taxes using the asset and liability method which provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. Our company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

Recent Accounting Pronouncements

 

Our Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

As a "smaller reporting company", we are not required to provide the information required by this Item.

 

None.

 

Item 4.

Controls and Procedures

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.

 

As of the end of our quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief financial officer (our principal executive officer, principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

 

Changes in Internal Control over Financial Reporting

 

During the period covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting

 

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Other than stated below, we know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

In the first quarter of 2015 Papernuts became aware of a potential claim from an individual stating that he was owed $150,000 worth of common shares. No action has been commenced as of the date of this report. Management is of the opinion that this potential claim is without merit. Accordingly, no provision has been made in the financial statements.

 

Item 1A.

Risk Factors

 

As a “smaller reporting company”, we are not required to provide the information required by this Item.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

 

Item 6.

Exhibits

Exhibit Number		Description
31.1*		Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+		Certification of Principal Executive Officer of the Registrant pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+		Certification of Principal Financial Officer of the Registrant pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(101)*		Interactive Data File
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

 

*	Filed herewith.
+	In accordance with SEC Release 33-8238, Exhibit 32.1 is 32.2 are being furnished and not filed

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		AXIOM CORP.
		(Registrant)
Dated: May 16, 2016		/s/ Tyler Pearson
		Tyler Pearson
		Chief Executive Officer, Principal Executive Officer and Director
Dated: May 16, 2016		/s/ Andrew Hilton
		Andrew Hilton
		Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer

 

 

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