UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC 20549
 
 
 FORM
10-Q
 
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended September 30,
2008
 
 o
              TRANSITION
      REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period from ________ to  ________
 
 
 Commission
file number: 000-53350
 
 
 AXIS
TECHNOLOGIES GROUP, INC.
 (Exact
name of registrant as specified in its charter)
 
 
 DELAWARE
                26-1326434(State
      or other jurisdiction of incorporation or organization)
                (IRS
      Employer Identification No.)
 
 
 2055
So. Folsom Street, Lincoln, NE 68522
 (Address
of principal executive offices)
 
 (402)
476-6006
 (Issuer’s
telephone number)
 
 
 Indicate
by check mark whether the registrant: (i) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days.
 Yes  x  No  o
 
 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.
 
 Large
      accelerated filer  o
                        Accelerated
      filer  oNon-accelerated
      filer  o
                        Smaller
      Reporting Company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  oNo  x
 
 62,517,767
shares of $0.001 par value common stock outstanding as of November 4,
2008.
  
 
  Axis Technologies Group Inc.
 
 FORM
10-Q
 For
The Quarter Ended September 30, 2008
 
 
 INDEX
 
 
 PART I - FINANCIAL
    INFORMATIONITEM 1.
                                                            
                                                            FINANCIAL
      STATEMENTSITEM 2.
                                                            
                                                            MANAGEMENT'S DISCUSSIONANDANALYSIS OF FINANCIAL CONDITIONANDRESULTS
      OF OPERATIONSITEM 4.
                                                            
                                                            CONTROLSANDPROCEDURESPART II - OTHER
  INFORMATIONITEM 6.
                                                            
                                                            EXHIBITSSIGNATURES
  Index
  PART I – FINANCIAL
INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
  Axis
Technologies Group, Inc.
 Consolidated
Balance Sheets
 
 
 ASSETSSeptember
      30,
                        
                        
                        December
      31,2008
                        
                        
                        2007(Unaudited)
                        
                        
                        (Audited)CURRENT
      ASSETSCash
                        
                        $
                        85,593
                        
                        
                        $
                        14,528Accounts
      receivable
                        
                        
                        138,227
                        
                        
                        
                        39,316Inventory
                        
                        
                        490,881
                        
                        
                        
                        327,559Inventory
      deposit
                        
                        
                        58,497
                        
                        
                        
                        74,000Prepaid
      expenses
                        
                        
                        6,841
                        
                        
                        
                        2,629Total
      Current Assets
                        
                        
                        780,039
                        
                        
                        
                        458,032PROPERTY
      AND EQUIPMENTProperty
      and equipment
                        
                        
                        18,187
                        
                        
                        
                        17,093Less:
      accumulated depreciation
                        
                        
                        (12,310
                        )
                        
                        
                        (9,933
                        )Net
      Property and Equipment
                        
                        
                        5,877
                        
                        
                        
                        7,160OTHER
      ASSETSPatents,
      net of accumulated amortization of $2,414 and $1,775,
      respectively
                        
                        
                        14,623
                        
                        
                        
                        15,262Deferred
      financing costs, net
                        
                        
                        231,815
                        
                        
                        
                        -Total
      Other Assets
                        
                        
                        246,438
                        
                        
                        
                        15,262TOTAL
      ASSETS
                        
                        $
                        1,032,354
                        
                        
                        $
                        480,454
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  
  Axis
Technologies Group, Inc.
 Consolidated
Balance Sheets
 
 
 LIABILITIES
      AND STOCKHOLDERS' DEFICITSeptember
      30,
                        
                        
                        December
      31,2008
                        
                        
                        2007(Unaudited)
                        
                        
                        (Audited)CURRENT
      LIABILITIESAccounts
      payable
                        
                        $
                        128,964
                        
                        
                        $
                        49,003Accrued
      expenses
                        
                        
                        85,507
                        
                        
                        
                        70,338Note
      payable - bank
                        
                        
                        -
                        
                        
                        
                        195,074Convertible
      note payable, net of discount
                        
                        
                        375,375
                        
                        
                        
                        -Accrued
      salary - officers/stockholders
                        
                        
                        491,316
                        
                        
                        
                        443,706Total
      Current Liabilities
                        
                        
                        1,081,162
                        
                        
                        
                        758,121STOCKHOLDERS'
      DEFICITCommon
      stock, $0.001 par value, 500,000,000 shares authorized, 62,267,767 and
      62,037,767 shares issued and outstanding, respectively
                        
                        
                        62,268
                        
                        
                        
                        62,038Additional
      paid-in capital
                        
                        
                        3,199,138
                        
                        
                        
                        1,908,239Stock
      issuable
                        
                        
                        66,600
                        
                        
                        
                        -Accumulated
      deficit
                        
                        
                        (3,376,814
                        )
                        
                        
                        (2,247,944
                        )Total
      Stockholders' Deficit
                        
                        
                        (48,808
                        )
                        
                        
                        (277,667
                        )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                        
                        $
                        1,032,354
                        
                        
                        $
                        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
                      
                      
                      For
      the Nine Months EndedSeptember
      30,
                      
                      
                      September
      30,
                      
                      
                      September
      30,
                      
                      
                      September
      30,2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007Sales,
      net
                      
                      $
                      183,769
                      
                      
                      $
                      50,011
                      
                      
                      $
                      469,561
                      
                      
                      $
                      92,489Cost
      of goods sold
                      
                      
                      129,737
                      
                      
                      
                      32,751
                      
                      
                      
                      376,478
                      
                      
                      
                      81,053Gross
      profit
                      
                      
                      54,032
                      
                      
                      
                      17,260
                      
                      
                      
                      93,083
                      
                      
                      
                      11,436Operating
      expenses
                      
                      
                      333,292
                      
                      
                      
                      136,315
                      
                      
                      
                      697,640
                      
                      
                      
                      587,993Loss
      from operations
                      
                      
                      (279,260
                      )
                      
                      
                      (119,055
                      )
                      
                      
                      (604,557
                      )
                      
                      
                      (576,557
                      )Other
      income (expense):Interest
      income
                      
                      
                      1,508
                      
                      
                      
                      226
                      
                      
                      
                      3,961
                      
                      
                      
                      2,273Interest
      expense
                      
                      
                      (312,576
                      )
                      
                      
                      (3,553
                      )
                      
                      
                      (528,274
                      )
                      
                      
                      (15,654
                      )Total
      other income (expense)
                      
                      
                      (311,068
                      )
                      
                      
                      (3,327
                      )
                      
                      
                      (524,313
                      )
                      
                      
                      (13,381
                      )Net
      loss before income taxes
                      
                      
                      (590,328
                      )
                      
                      
                      (122,382
                      )
                      
                      
                      (1,128,870
                      )
                      
                      
                      (589,938
                      )Income
      tax provision
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      $
                      (590,328
                      )
                      
                      $
                      (122,382
                      )
                      
                      $
                      (1,128,870
                      )
                      
                      $
                      (589,938
                      )Net
      loss per common share (basic and diluted)
                      
                      $
                      (0.009
                      )
                      
                      $
                      (0.002
                      )
                      
                      $
                      (0.018
                      )
                      
                      $
                      (0.010
                      )Weighted
      average shares outstanding:Basic
      and diluted
                      
                      
                      62,267,767
                      
                      
                      
                      61,777,792
                      
                      
                      
                      62,212,366
                      
                      
                      
                      61,607,124
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  
  Axis
Technologies Group, Inc.
 Consolidated
Statements of Cash Flows
 (Unaudited)
 
 
 For
      the Nine Months EndedSeptember
      30,
                            
                            
                            September
      30,2008
                            
                            
                            2007Cash flows from operating
      activities:Net
      loss
                            
                            $
                            (1,128,870
                            )
                            
                            $
                            (589,938
                            )Adjustments
      to reconcile net (loss) to net cash (used in) operations:Depreciation
      and amortization
                            
                            
                            3,016
                            
                            
                            
                            2,592Share
      based compensation
                            
                            
                            7,029
                            
                            
                            
                            -Issuance
      of common stock for services
                            
                            
                            18,600
                            
                            
                            
                            -Amortization
      of original issue discount
                            
                            
                            37,537
                            
                            
                            
                            -Amortization
      of debt issuance costs
                            
                            
                            85,857
                            
                            
                            
                            -Non-cash
      interest expense related to issuance of warrants and and beneficial
      conversion feature
                            
                            
                            337,838
                            
                            
                            
                            -Changes
      in operating assets and liabilities:(Increase)
      in accounts receivable
                            
                            
                            (98,911
                            )
                            
                            
                            (28,843
                            )(Increase)
      in inventory and inventory deposits
                            
                            
                            (147,819
                            )
                            
                            
                            (61,881
                            )(Increase)
      decrease in prepaid expenses
                            
                            
                            (4,212
                            )
                            
                            
                            27,880Increase
      in accounts payable
                            
                            
                            79,961
                            
                            
                            
                            14,616Increase
      in accrued salary - officers/stockholders
                            
                            
                            47,610
                            
                            
                            
                            7,052Increase
      in accrued expenses
                            
                            
                            15,169
                            
                            
                            
                            51,504Net
      cash (used in) operating activities
                            
                            
                            (747,195
                            )
                            
                            
                            (577,018
                            )Cash flows from investing
      activities:Purchase
      of property and equipment
                            
                            
                            (1,094
                            )
                            
                            
                            (909
                            )Net
      cash (used in) investing activities
                            
                            
                            (1,094
                            )
                            
                            
                            (909
                            )Cash flows from financing
      activities:Payments
      on note payable - bank
                            
                            
                            (195,074
                            )
                            
                            
                            (51,990
                            )Cash
      proceeds from convertible note payable, net of original issue discount of
      $138,889 and transaction fees of $32,000
                            
                            
                            1,218,000
                            
                            
                            
                            -Debt
      issuance costs
                            
                            
                            (203,572
                            )
                            
                            
                            -Proceeds
      from issuance of common stock, net of transaction costs of
      $64,216
                            
                            
                            -
                            
                            
                            
                            435,135Net
      cash provided by financing activities
                            
                            
                            819,354
                            
                            
                            
                            383,145Net
      increase (decrease) in cash and cash equivalents
                            
                            
                            71,065
                            
                            
                            
                            (194,782
                            )Cash
      and cash equivalents at beginning of period
                            
                            
                            14,528
                            
                            
                            
                            196,250Cash
      and cash equivalents at end of period
                            
                            $
                            85,593
                            
                            
                            $
                            1,468Supplemental
      cash and non-cash flow informationCash
      paid for interest
                            
                            $
                            42,084
                            
                            
                            $
                            13,080Deferred
      financing costs paid with the issuance of common stock
                            
                            $
                            82,100
                            
                            
                            $
                            -Non-cash
      convertible debt discount for warrant and beneficial conversion
      feature
                            
                            $
                            1,250,000
                            
                            
                            $
                            -
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 Axis
Technologies Group, Inc.
 Notes
to Consolidated Financial Statements
 For
the Nine Months Ended September 30, 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 United 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 audited 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
 
 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.  All inter-company transactions and balances
have been eliminated in the consolidation.
  Index
  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.
 
 Customer Concentrations and
Accounts Receivable:  The accounts receivable arise in the
normal course of business of providing products 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.
 
 As of and
for the nine months ended September 30, 2008, one customer accounted for 56% of
sales and 76% of outstanding accounts receivable. As of and for the nine months
ended September 30, 2007, two customers accounted for 22% of sales and 46% of
outstanding accounts receivable.
 
 Accounts
are written-off as they are deemed uncollectible based upon a periodic review of
the accounts.  As of September 30, 2008 and December 31, 2007,
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.
 
 Revenue
Recognition:  The Company recognizes revenue when persuasive
evidence of an arrangement exists, transfer of title has occurred, 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 September 30, 2008 and
December 31, 2007.
 
 Deferred Financing
Costs:  Costs related to the convertible debt instrument issued
by the Company on April 25, 2008 are being amortized using the effective
interest method over the term of the debt instrument to April 2010 (see Note
6).
 
 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 September 30, 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.
  Index
  Effect of Recently Issued
Accounting Standards: In March 2008, the FASB issued SFAS No. 161,
“Disclosures about Derivative Instruments and Hedging Activities – an amendment
to FASB Statement No. 133”.  SFAS No. 161 is intended to improve
financial standards for derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. Entities are required to provide enhanced disclosures about: (a) how and
why an entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations; and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows. It
is effective for financial statements issued for fiscal years beginning after
November 15, 2008, with early adoption encouraged. The Company is currently
evaluating the impact of SFAS No. 161 on its financial statements, and the
adoption of this statement is not expected to have a material effect on the
Company’s financial statements.
 
 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 April
2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of
the Useful Life of Intangible Assets. This guidance addresses the determination
of the useful life of intangible assets which have legal, regulatory or
contractual provisions that potentially limit a company’s use of an asset. Under
the new guidance, a company should consider its own historical experience in
renewing or extending similar arrangements. We are required to apply the new
guidance to intangible assets acquired after December 31, 2008.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51”. SFAS No. 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption of this statement is not
expected to have a material effect on the Company's future reported 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.
 
 In June
2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.
This guidance states that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents are participating
securities and should be included in the computation of earnings per share using
the two-class method outlined in SFAS No. 128, Earnings per Share. The
two-class method is an earnings allocation formula that determines earnings per
share for each class of common stock and participating security according to
dividends declared and participation rights in undistributed earnings. The terms
of our restricted stock unit and restricted stock awards do provide a
nonforfeitable right to receive dividend equivalent payments on unvested awards.
As such, these awards are considered participating securities under the new
guidance. Effective January 1, 2009, we will begin reporting earnings per
share under the two-class method and will restate all historical earnings per
share data. We are currently evaluating the impact of this new guidance on our
reported earnings per share.
  Index
  NOTE
3:
 LIQUIDITY/GOING
CONCERN
 
 The
Company has incurred significant operating losses during its periods of
operation. At September 30, 2008, the Company reports a negative working capital
position of $301,123, an accumulated deficit of $3,376,814 and a stockholders’
deficit of $48,808. It is management's opinion that these facts raise some doubt
about the Company's ability to continue as a going concern without additional
debt or equity financing.
 
 On April
25, 2008, the Company issued a convertible debt instrument generating net cash
proceeds of $1,218,000 (see Note 6) for working capital purposes and to pay off
the Company’s bank note which was due on June 10, 2008.  Additionally,
in order to meet its working capital needs through the next twelve months, the
Company plans to seek outside debt financing to support the planned increase in
revenues via new channels and products over the next year.
 
 
 NOTE
4:
 ACCRUED
SALARY - OFFICERS/STOCKHOLDERS
 
 Certain
officers/stockholders of the Company have elected to forego a certain portion of
their salary due to having limited operating funds in the past and for the
foreseeable future. These amounts are due and mostly payable to these
officers/stockholders as excess operating cash flows become available in the
future. The increase in 2008 was due to a deferral of a portion of their current
year salaries for the nine months ended September 30, 2008 totaling $59,021,
offset by partial repayment of prior years’ salaries of $9,825 and repayment of
unreimbursed business expenses due to the officers totaling $1,586. The total
balance owed as of September 30, 2008 and December 31, 2007 is $491,316 and
$443,706, respectively.
 
 
 NOTE
5:
 NOTE
PAYABLE
 
 Note
payable to bank at September 30, 2008 and December 31, 2007 consisted of the
following:
 
 September
      30,
                    
                    
                    December
      31,2008
                    
                    
                    2007Bank: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.
                    
                    $
                    -
                    
                    
                    $
                    195,074
 
 
 NOTE
6:
 CONVERTIBLE
NOTE PAYABLE
 
 On April
25, 2008, the Company entered into a debt instrument security agreement with
Gemini Master Fund 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 face amount of the Note of $1,388,889 was reduced by an
original issue discount of $138,889 and other issuance costs of $32,000 to
arrive at net proceeds of $1,218,000. In connection with the Note, the Company
also incurred additional financing costs of $203,572 which were paid out of the
net proceeds to third-party agents and issued 50,000 shares of common stock
valued at $0.31 per share.  The Company is obligated to issue to the
placement agents for this transaction an additional 180,000 shares valued at
$0.37 per share totaling $66,600. The share price of which was based on the five
day average closing price of the Company’s common stock prior to the closing
date of the Note.  The Note has a maturity date of April 25, 2010, and
is secured by all assets of the Company.  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 in twelve monthly installments
beginning May 1, 2009. 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.
  Index
  Under the
terms of the Note and as additional consideration for the loan, 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”) which was
deemed to have a fair market value of $861,778. The Company used the
Black-Scholes-Merton pricing model as a method for determining the estimated
fair value of the warrants issued. The following assumptions were used to
estimate the fair market value of the warrant: risk free interest rate of 3.2%;
expected life of 2 years; no expected dividends; and volatility of
147%.  The expected life of the Warrant was determined to be the
full-term of the warrant. The risk-free interest rate is based on the Federal
Reserve Board’s constant maturities of U.S. Treasury bond obligations with terms
comparable to the expected life of the warrants valued. The Company’s volatility
is based on the historical volatility of the Company’s stock. The expense for
the warrants was recorded as a discount to the Note and will be recognized over
the term of the Note using the effective interest method. 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 in which the holder will be entitled to
the number of shares equal to the difference between the volume weighted average
price and the exercise price of the Warrant multiplied by the number of shares
issuable upon exercise of the Warrant divided by the volume weighted average
price. 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.
 
 The
Company may be obligated to issue additional five-year warrants at an exercise
price of $0.26 per share to a placement agent if all or a portion of the
underlying Warrants attached to the Note are converted by the holder. For every
100 warrants exercised by the holder, the placement agent will receive 7
warrants up to a maximum of 373,932 warrants. The fair value for these
conditional warrants will be recorded by the Company if and when the original
warrants are exercised by the holder.
 
 The
application of the provisions of EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,” and EITF 00-27, “Application of Issue 98-5 to Certain
Convertible Instruments” resulted in the proceeds of the loan being allocated
based on the relative fair value of the loan and warrants as of the commitment
date. Then the Company calculated the intrinsic value of the beneficial
conversion feature embedded in the Note. As the amount of the beneficial
conversion feature exceeded the fair value allocated to the loan, the amount of
the beneficial conversion feature to be recorded was limited to the proceeds
allocated to the loan. Accordingly, the beneficial conversion feature was
calculated to be $388,222 and was recorded as an additional discount on the Note
and will be recognized over the term of the Note using the effective interest
method following the guidance in EITF 00-27, Issue 6.
 
 The
following table summarizes the convertible note balance as of September 30,
2008:
 
 Original
      gross proceeds
                      
                      $
                      1,388,889Less:
      original issue discount at time of issuance of notes
                      
                      
                      (138,889
                      )Net
      proceeds prior to paying transaction costs
                      
                      
                      1,250,000Less:
      value assigned to beneficial conversion feature and
    warrants
                      
                      
                      (1,250,000
                      )Add:
      amortization of original issue discount, beneficial conversion feature and
      warrants
                      
                      
                      375,375Less:
      principal payments
                      
                      
                      -Balance
      at September 30, 2008
                      
                      $
                      375,375
  Index
  The
effective interest rate of the Note was 130% as of September 30,
2008.
 
 The
following table summarizes the current maturities of this Note as of September
30, 2008:
 
 2009
                    
                    $
                    578,7042010
                    
                    
                    810,185$
                    1,388,889
 
 
 NOTE
7:
 STOCKHOLDERS'
EQUITY (DEFICIT)
 
 On March
7, 2008, the Company issued 60,000 shares of common stock at an estimated fair
value of $0.31 per share valued in total at $18,600 as compensation for public
and investor relations for the period from April 1, 2007 to March 31,
2008.  The fair value of these shares was determined based upon the
quoted market price of the stock as of the date of the shares were declared
reduced by a lack of marketability discount.
 
 On March
7, 2008, the Company issued 50,000 shares of common stock at an estimated fair
value of $0.31 per share valued in total at $15,500 as advance compensation for
services being rendered in connection with the convertible debt issuance on
April 25, 2008 (see Note 6).  The fair value of these shares was
determined based upon the quoted market price of the stock as of the date of the
shares were declared reduced by a lack of marketability discount.
 
 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 to an agent, 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.
 
 Stock
Issuable:
 
 In
connection with the convertible note payable (Note 6), the Company is obligated
to issue to the placement agents for this transaction an additional 180,000
shares of common stock valued at $0.37 per share for a total cost of $66,600. As
of November 19, 2008, these shares have not been issued.
  Index
  Restricted
Stock:
 
 During
the nine month period ended September 30, 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 ($0.31) was determined
based upon the quoted market price of the stock as of the award date reduced by
a lack of marketability discount and will be amortized ratably over the vesting
period.
 
 The
Company recorded $3,123 and $7,029 of compensation expense in the consolidated
statements of operations related to vested shares (restricted stock) for the
three and nine month periods ended September 30, 2008,
respectively.
 
 A summary
of the status of non-vested restricted shares and changes and remaining unearned
compensation as of September 30, 2008 is set forth below:
 
 Restricted
                        
                        
                        Weighted
      Average
                        
                        
                        Unrecognized
                        
                        
                        Weighted
      Average Remaining Recognition PeriodShares
                        
                        
                        Fair Value
                        
                        
                        Compensation
                        
                        
                        (Months)Outstanding,
      December 31, 2007
                        
                        
                        -
                        
                        
                        
                        
                        
                        $
                        -Granted
                        
                        
                        60,000
                        
                        
                        $
                        0.31
                        
                        
                        
                        18,600Vested
                        
                        
                        (22,665
                        )
                        
                        
                        0.31
                        
                        
                        
                        (7,029
                        )Outstanding,
      September 30, 2008
                        
                        
                        37,335
                        
                        
                        $
                        0.31
                        
                        
                        $
                        11,571
                        
                        
                        14.2
 
 
 ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 The
following discussion should be read in conjunction with the financial statements
and related notes that appear elsewhere in this 10-Q filing. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth under Part I, Item 1A.  “Risk Factors” in our Form 10 for the
year ended December 31, 2007.
 
 OVERVIEW
 
 Axis
Technologies Group, Inc. is 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.
  Index
  We have
under development a high-output T5HO ballast that capitalizes on the features of
our current T8 Axis Ballast.  When development is complete, this
product will be 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.
 
 Also
under development is our next generation ballast, which is a wirelessly
addressable, load shedding ballast, and 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 agreements with sales representatives and arrangements with 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.
  Index
  Critical
Accounting Policies:
 
 Our
discussion and analysis of the financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. These estimates and assumptions provide a basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, and these differences may
be material.
 
 We
consider the following accounting policies to be those most important to the
portrayal of our results of operations and financial condition:
 
 Revenue
Recognition:  The Company recognizes revenue when persuasive
evidence of an arrangement exists, transfer of title has occurred, the selling
price is fixed or determinable, collectability is reasonably assured and
delivery has occurred per the contract terms.
 
 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 September 30, 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.
 
 RESULTS
OF OPERATIONS
 
 Three Month Period from July
1, 2008 to September 30, 2008:
 Consolidated
net sales for the three months ended September 30, 2008 and 2007 totaled
$183,769 and $50,011, respectively, for an increase of $133,758. This increase
is due to increased sales volume to a supplier working with utility companies
and their rebate programs.  Cost of goods sold for the three months
ended September 30, 2008 and 2007 was $129,737 and $32,751,
respectively.  The increase is primarily due to our increase in sales
volume. After deducting costs of goods sold, including warehouse salaries and
allocated overhead, we finished the three months ended September 30, 2008 with
$54,032 in gross profit, compared to a gross profit of $17,260 for the three
months ended September 30, 2007. The gross profit percentage at September 30,
2008 was 29%, compared to 35% at September 30, 2007. This decline can be
attributed to the fact that our increased sales volume in 2008 was to a
distributor at a negotiated, discounted price. These sales were made with the
intent of increasing market awareness for our product.
 
 For the
three months ended September 30, 2008, operating expenses totaled $333,292
compared to $136,315 for the three months ended September 30, 2007, primarily
due to higher salaries paid to officers and additional professional fees
incurred in connection with the filing of our Form 10.
  Index
  For the
three months ended September 30, 2008, interest expense was $312,576 compared to
$3,553 for the three months ended September 30, 2007.  This increase
of $309,023 was the result of the Company issuing a convertible note payable
that had significant transaction costs that are being amortized and a debt
discount related to the warrants issued and a beneficial conversion feature that
are being amortized over the term of the debt to interest
expense.  The details of this note are listed below.
 
 For the
three months ended September 30, 2008, the net loss was $590,328 compared to a
net loss of $122,382 for the three months ended September 30, 2007.
 
 Nine Month Period from
January 1, 2008 to September 30, 2008:
 Consolidated
net sales for the nine months ended September 30, 2008 and 2007 totaled $469,561
and $92,489, respectively, for an increase of $377,072. This increase is due to
increased sales volume to a supplier working with utility companies and their
rebate programs.  Cost of goods sold for the nine months ended
September 30, 2008 and 2007 was $376,478 and $81,053, respectively. The increase
is primarily due to our increase in sales volume. After deducting costs of goods
sold, including warehouse salaries and allocated overhead, we finished the nine
months ended September 30, 2008 with $93,083 in gross profit, compared to a
gross profit of $11,436 for the nine months ended September 30, 2007. The gross
profit percentage at September 30, 2008 was 20%, compared to 12% at September
30, 2007. Our increased sales volume has allowed us to improve our gross margins
by covering relatively fixed and unchanged overhead costs.
 
 For the
nine months ended September 30, 2008, operating expenses totaled $697,640
compared to $587,993 for the nine months ended September 30, 2007. This increase
is primarily due to additional professional fees incurred in connection with our
Form 10 filing and increased officer salaries.
 
 For the
nine months ended September 30, 2008, interest expense was $528,274 compared to
$15,654 for the nine months ended September 30, 2007. This increase of $512,620
was the result of the Company issuing a convertible note payable that had
significant transaction costs that are being amortized and a debt discount
related to the warrants issued and a beneficial conversion feature that are
being amortized over the term of the debt to interest expense. The details of
this note are listed below.
 
 For the
nine months ended September 30, 2008, the net loss was $1,128,870 compared to a
net loss of $589,938 for the nine months ended September 30, 2007.
 
 ASSETS
AND EMPLOYEES; RESEARCH AND DEVELOPMENT
 
 At
September 30, 2008 our ballast inventory represents 48% of our assets. All of
our 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.
  Index
  LIQUIDITY
AND CAPITAL RESOURCES; ANTICIPATED FINANCING NEEDS
 
 Cash of
$747,195 was used in operating activities during the nine months ended September
30, 2008, compared to $577,018 in cash used for the nine months ended September
30, 2007.  Cash provided by operations, for the nine months ended
September 30, 2008, included a net loss of $1,128,870,which included $489,877 of
non-cash expenses for stock issued for services, depreciation, amortization,
share-based compensation, and interest expense related to the issuance of
warrants and beneficial conversion charges.  Changes in operating
assets and liabilities contributing to the use of cash primarily included
increases in accounts receivable and prepaid expenses of $103,123, increases in
inventory and inventory deposits of $147,819, while an increase in accounts
payable, accrued salary to officers/stockholders, and other accrued expenses of
$142,740 offset the loss from operations. Cash used in operations for the nine
months ended September 30, 2007 included a net loss of $589,938 in addition to
an overall net increase in operating assets and liabilities which totaled
$12,920.
 
 Cash
flows used in investing activities for the nine months ended September 30, 2008
totaled $1,094, compared to $909 used for the nine months ended September 30,
2007.
 
 Cash of
$819,354 was provided by financing activities during the nine months ended
September 30, 2008, compared to $383,145 in cash received for the nine months
ended September 30, 2007. Cash flows from financing activities for the nine
months ended September 30, 2008 included debt issuance costs incurred of
$203,572 and payments on the bank note of $195,074, offset by cash proceeds from
debt issuance of $1,218,000. Cash flows from financing activities for the nine
months ended September 30, 2007 included the issuance of common stock for
$435,135 offset by payments on the bank note of $51,990.
 
 The
Company’s cash balance as of September 30, 2008 is $85,593.
 
 On April
25, 2008, the Company issued a convertible debt instrument generating net cash
proceeds of $1,218,000 for working capital purposes and to pay off the Company’s
bank note which was due on June 10, 2008. The convertible note payable is a 10%
Senior Secured Convertible Promissory Note in the principal amount of
$1,388,889. The face amount of the note of $1,388,889 was reduced by an original
issue discount of $138,889 and other issuance costs of $32,000 to arrive at net
proceeds of $1,218,000. The note has a maturity date of April 25, 2010 and is
secured by all assets of the Company. 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 in twelve monthly installments beginning May 1,
2009. 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.
 
 Under the
terms of the note and as additional consideration for the loan, the Company
issued 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 which was deemed to have a fair
market value of $861,778.  The Company calculated the intrinsic value
of the beneficial conversion feature embedded in the note.  As the
amount of the beneficial conversion feature exceeded the fair value allocated to
the note, the amount of the beneficial conversion feature to be recorded was
limited to the proceeds allocated to the note. Accordingly, the beneficial
conversion feature was calculated to be $388,222 and was recorded as an
additional discount on the Note.
 
 Non-cash
interest expense for the nine months ended September 30, 2008 included $461,233
attributable to the amortization of the beneficial conversion feature and the
amortization of debt issuance costs and warrant discounts.
 
 In
addition to the net proceeds of $1,218,000 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.
  Index
  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.
 
 
 ITEM
3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
 
 Not
applicable.
  
 ITEM 4. CONTROLS AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 An
evaluation of the effectiveness of our “disclosure controls and procedures” (as
such term is defined in Rules 13(a)-15(e) of the Securities Exchange Act of
1934) was carried out by the Company under the supervision and with the
participation of our Chief Executive Officer and Chief Accounting
Officer.
 
 Based on
that evaluation, our Chief Executive Officer and Chief Accounting Officer have
concluded that these disclosure controls and procedures were not effective due
to a lack of segregation of duties in our accounting and financial functions,
including financial reporting and our quarterly close process. Due to our lack
of sufficient capital, management has concluded that with certain oversight
controls that are in place, the risks associated with the lack of segregation of
duties are not sufficient to justify the costs of potential benefits to be
gained by adding additional employees at this time. Management intends to
periodically reevaluate this situation. If we secure sufficient capital, we
expect to examine the possibility of increasing staffing to mitigate the current
lack of segregation of duties within the accounting and financial functions.
Notwithstanding the material weaknesses that continue to exist as of September
30, 2008, our Chief Executive Officer and Chief Accounting Officer have
concluded that the financial statements included in this Form 10-Q present
fairly, in all material respects, the financial position, results of operations,
and cash flows of the Company as required for interim financial
statements.
 
 Changes
in internal controls
 
 There has
been no change in our internal control over financial reporting during the
quarter ended September 30, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
 
 Limitations
on the Effectiveness of Internal Controls
 
 Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. An internal control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.
  Index
  PART
II – OTHER INFORMATION
 
 Pursuant
to the Instructions on Part II of the Form 10-Q, Items 2, 3, 4, and 5 are
omitted as they are not applicable.
  
 ITEM
1. LEGAL PROCEEDINGS
 
 Not
applicable.
 
 
 ITEM
1A. RISK FACTORS
 
 The most
significant risk factors applicable to the Company are described in Part I, Item
1A “Risk Factors” of our Form 10. There have been no material changes from the
risk factors previously disclosed in our Form 10.
  
 ITEM
6. EXHIBITS
 
 Exhibit
      Number
                
                Description
      of Exhibit31.1
                
                Rule
      13a-14(a) Certification of Chief Executive Officer31.2
                
                Rule
      13a-14(a) Certification of Chief Accounting Officer and Principal
      Financial Officer32.1
                
                Section
      1350 Certification of Chief Executive Officer32.2
                
                Section
      1350 Certification of Chief Accounting Officer and Principal Financial
      Officer
  Index
  SIGNATURES
  In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
 Axis
Technologies Group, Inc.
 
 Date:  November 18, 2008
 
 
 By:
                /s/ Kipton HirschbachKipton
      HirschbachChief
      Executive OfficerBy:
                /s/ James EricksonJames
      EricksonChief
      Accounting Officer andPrincipal
      Financial Officer