U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2002
Commission File Number: 0000912057-02-022970
Axtion Foods, Inc.
----------------------------
(Exact name of small business issuer as specified in its charter)
California
--------
(State or other jurisdiction of incorporation or organization)
98-0336674
----------
(IRS Employer Identification No.)
4025 Camino Del Rio South
Suite 300
San Diego, California
760-436-3124
www.axtionfoods.com.
----------------
(Address of principal executive offices)
None
------------------------
(Former name or former address, if changed since last report)
92108
-----
(Zip Code)
619-542-7719
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days: Yes
__X__ No ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of September 30, 2002 was 26,982,000 common shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The un-audited financial statements for the three-month period ended
September 30, 2002 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or our behalf. We disclaim any obligation to update forward
looking statements.
History
Axtion Foods, Inc. was incorporated under the laws of the State of
California on April 20, 2000.
We are a development stage company. We are engaged in the development,
manufacturing and distribution of health bars and health drinks. As of the date
of this prospectus we have completed the development of a health bar, called the
"Axtion Bar," but we have not yet completed the development of the health drink.
We intend to market our products in three principal categories: sports
nutrition; diet; and healthy snacks. Axtion plans to sell its products to mass
volume retailers, health food stores and a combination of other channels,
including health clubs and gyms, international markets and private label
manufacturing and independent distributors. We plan to establish our
distribution channels throughout the United States and Canada. We are currently
developing only two products for which we have purchased the formulas.
Our administrative office is located at 4025 Camino Del Rio South, Suite
300, San Diego, California. Our telephone number is 760-436-3124. Our Internet
address is www.axtionfoods.com.
Business
Axtion currently has two products, a health bar which is fully
developed, and a health drink, which is not yet fully developed. The health bar
is called the "Axtion Bar" and comes in two flavors, nutty chocolate and peanut
butter. Our health drink will be named the "Hammerhead XT." These products are
designed to naturally and gently increases your body's metabolism by activating
and then accelerating your body's fat-burning processes. The formulas are also
designed to provide you with a noticeable increase in sustained energy
throughout the day yet remain calm and relaxed at the same time.
The formulas contain a blend of herbs, plant extracts, and nutrients,
including a natural extract of Zhi shi, a herbal extract which management
believes enables your body to burn fat and increase energy in a safe and
effective way without all of the negative effects of other thermogenic formulas.
Other ingredients contained in this formula are also designed to work to help
suppress your appetite, regulate blood sugar levels, support the body's
detoxification processes, and elevate your moods naturally. These ingredients
include Zhi Shi extract, kola nut extract, white willow bark, Siberian Ginseng,
kelp, pantothenic acid, also known as vitamin B5, chromium, and
artichoke/sarsaparilla extract.
The development of the products involves turning the formulas into
actual products. For instance, with respect to the Axtion Bar, an initial batch
was prepared. This initial batch was then taste tested by management, our
principal shareholders and Dr. Cochran. Following that, a trial run of about
3,000 to 4,000 bars in each flavor was produced. These bars are then used to
calculate the average weight and size of the bar so that packaging can be cut
that fits the bar. At the same time, we hired a graphic artist to design a bar
wrapper that has been approved by management and can now been seen on our web
site at www.axtionfoods.com. Axtion has been in production since approximately
March 1, 2002.
The Axtion Bar, including the initial batches, is being produced by a
California licensed nutritional manufacturing company located in Berkely,
California. The bars are manufactured and produced by Berkeley Nutritional
Manufacturing, also known as Protein Research Associates. Axtion does not have a
formal contract with this company. Instead, the manufacturer takes purchase
orders. The manufacturer is licensed by the state of California to manufacture
food by the issuance of a "Processed Food Registration." The FDA does not
license manufacturing per se; instead it issues guidelines that are enforced
with occasional inspections. You can obtain more information about this company
by visiting their web site at http://www.proteinresearch.com/. This facility
guarantees its customers the highest quality possible. That commitment is backed
by a five million dollar product liability insurance policy. The manufacturer
charges us on a per order basis and offers the ability to take products from
concept to market and quality is factored in from the start.
The manufacturer's comprehensive packaging capability ensures product
integrity which allows Axtion to avoid potential errors from using secondary
packages. In addition, the complete "in-house" approach enables us to avoid
exposure to product damage and to reduce freight costs. The manufacturing
process includes a number of quality-in-process checks. The equipment is
stainless steel, and cleaned with U.S. Food and Drug Administration approved
detergents. All wash down is done with approved hoses that release 160 degree
Fahrenheit water. The blending areas have fiberglass coated walls for
sanitation, high flow exhaust systems and floor drains to ensure clean, sanitary
conditions. The wrapping rooms are supplied with a filtered conditioned air
supply and are totally enclosed to prevent cross contamination.
The health drink, the Hammerhead XT, will be developed from the formula
we acquired in the same way. All production will take place at California
licensed cannery in Edison, California. Following initial development, the
Guimarra Vineyard Corporation will bottle the health drink. Axtion does not have
a contract with this company. Instead, Axtion will issue purchase orders for
certain numbers of drinks which will then be bottled by this company. Axtion
will not begin producing the health drink until after it has sold at least five
production lots of our health bar because of the expense associated with
producing the health drink. Management calculates that Axtion will make a net
profit after all packaging and manufacturing costs of $.75 with the exception of
bars that we may sell at a discount for promotional purposes. Thus, the sale of
250,000 bars will net sufficient profit to pay for the first run of 150,000 cans
of the Hammerhead XT without the necessity of raising additional capital. The
drink development is taking place in conjunction with a professional health food
developer who is paid on a per order basis. This developer will produce our
health drink that will be shelf stable and exhibit the following
characteristics: chemically stable low acid formula, 2 year shelf life, lower
sugar, carbohydrate, and calorie content, excellent mouth feel, delicious flavor
and "last" on the palate including "lite" formulas with reduced calories.
Since all development and manufacturing work is performed by third
parties at their processing plants, Axtion currently rents an administrative
office for administrative purposes. Once large scale production of the Axtion
Bar begins, it may rent a distribution space of approximately 500 square feet
for the purpose of coordinating and shipping orders for our Internet web site.
Axtion anticipates that the rent for such a space would be no more than $250 to
$500.00 per month. Large deliveries to independent contractor sales people or
third party distributors will be shipped directly from the manufacturing
facility.
Axtion depends upon third party food processor and cannery
sub-contractors licensed by the California Department of Health Services, Food
and Drug Branch, for the manufacture and packaging of its products. These
licensees are required to observe all provisions governing the manufacturing,
packaging, storage and shipping of foods and beverages contained in the Sherman
Food, Drug Cosmetic Act embodied in the California Health And Safety Code,
Sections 109875 through 112855 and state regulations promulgated under these
laws. These laws, among other things, make it a crime to manufacture food and
beverage products without a license or to manufacture food and beverage products
that do not conform to regulatory requirements. The California law also
incorporates by reference all standards and manufacturing requirements set forth
in the Federal Food, Drug And Cosmetic Act.
California licensees, including subcontractors engaged by Axtion, are subject to
periodic inspection by state officials for compliance with all federal and state
standards for the manufacturing, labeling, storage and shipping of foods and
beverages. In addition, local county health departments are authorized by these
California laws to assist with inspection and enforcement of California and
Federal food and beverage processing and canning standards. Licensees are
subject to penalties for noncompliance with these standards that can include
license revocation or probation, criminal charges, seizure, embargo, recall and
injunctions.
There is no established industry practice for companies such as Axtion that
purchase foods and beverages manufactured by licensed subcontractors to inspect
the subcontractors for compliance with California and Federal regulatory
requirements. Further, Axtion does not have sufficient resources or expertise to
conduct such inspections, and must instead rely upon state and county health
officials for enforcement. Under the Uniform Commercial Code, however, which has
been adopted in California, Axtion does have the right to reject nonconforming
products and demand reimbursement. Axtion does not believe that it would share
administrative, civil or criminal liability for noncompliance with California
and Federal law by its subcontractors unless Axtion was aware of the
noncompliance or otherwise did not cooperate with state and county officials if
regulatory enforcement proceedings of any kind were commenced. Penalties for
noncompliance by Axtion with California or Federal regulatory requirements could
result in, among other things, injunctions, product withdrawals, recalls,
seizures, civil monetary judgments, fines and criminal prosecutions.
The Issuser's products are manufactured in accordance with specifications and
packaging in wrappers and cans designed by Axtion but purchased from third
parties. Management believes that the raw materials required for our products
are available in abundance. Management also believes that it has sufficient
capital to fund several bulk productions of our products and then commence and
continue marketing and sales operations for the next twelve months. The issuser
has an exclusive contract in place which protects its right to market and sell
its health bars and drinks indefinitely. If for any reason these products are
not acceptable in the market place, Axtion does not know whether it could obtain
substitute products or whether obtaining substitute products would be cost
prohibitive. There can be no assurance that market place rejection of the health
bar and drink would not have a material adverse effect on our operations.
COMPETITION
The nutritional health food industry consists of six principal types of
suppliers: independent health food suppliers, who focus primarily on vitamins
and nutritional supplements; mass volume retail suppliers, who sell nutritional
products that have mass appeal; gym and health club product companies; direct
sale and mail order marketers; private label manufacturers; and major
pharmaceutical companies. The majority of competitors in the nutritional
supplement industry are small marketing operations focused on one or two of
these distribution channels.
The company does not compete with any one competitor in all of its
distribution channels. The company's primary competitors in the independent and
natural health food market include Nature's Way, Nutraceuticals, Solgar,
Twinlab, Rexall Sundown and EAS. In the mass volume retail market, competitors
include Amerifit, Richardson Labs, Slim-Fast, Thompson Medical and Cybergenics.
Gyms and health club suppliers include Costello's and Nature's Best. In the
direct sale and mail order markets, competitors include Amrion, Amway, Nu-Skin,
Usana and in the private label manufacturing market, competitors include GNP,
Pharmavite, Leiner, Tishcon and Northridge Labs. In addition, large
pharmaceutical companies and packaged food and beverage companies compete with
us on a limited basis. Increased competition from such companies could have a
material adverse effect on Axtion as they have greater financial and other
resources available to them and possess extensive manufacturing, distribution
and marketing capabilities far greater than ours.
EMPLOYEES
We have no full time employees. Our President has agreed to allocate a
portion of her time to our business activities, without compensation. This
officer anticipates that our business plan can be implemented by his devoting
minimal time per month to our business affairs and, consequently, conflicts of
interest may arise with respect to the limited time commitment by such officer.
TRADEMARKS
We do not utilize any trademarks or patent rights in our business.
GOVERNMENT REGULATIONS
The advertising, promotion, distribution and sale of our products are
subject to regulation by numerous governmental agencies, the most active of
which is the U.S. Food and Drug Administration, which regulates our products
under the Federal Food, Drug and Cosmetic Act and regulations promulgated there
under. Axtion's products are also subject to regulation by, among other
regulatory agencies, the Consumer Product Safety Commission, the U.S. Department
of Agriculture and the Environmental Protection Agency. Advertising of our
products is subject to regulation by the U.S. Federal Trade Commission, which
regulates our advertising under the Federal Trade Commission Act. The
manufacture, labeling and advertising of our products are also regulated by
various state and local agencies as well as each foreign country to which the
Company distributes its products.
The Dietary Supplement Health and Education Act of 1994 revised the
provisions of the FDCA concerning the regulation of dietary supplements. In the
judgment of the Company, the DSHEA is favorable to the dietary supplement
industry. The legislation for the first time defined "dietary supplement." The
term "dietary supplement" is defined as a product intended to supplement the
diet that contains one or more of certain dietary ingredients, such as a
vitamin, a mineral, an herb or botanical, an amino acid, a dietary substance for
use by man to supplement the diet by increasing the total dietary intake, or a
concentrate, metabolite, constituent, extract, or combination of the preceding
ingredients. The products marketed by the Company are regulated as dietary
supplements under the FDCA.
Under the current provisions of the FDCA there are four categories of
claims that pertain to the regulation of dietary supplements. Health claims are
claims that describe the relationship between a nutrient or dietary ingredient
and a disease or health related condition and can be made on the labeling of
dietary supplements if supported by significant scientific agreement and
authorized by the FDA in advance via notice and comment rulemaking. Nutrient
content claims describe the nutritional value of the product and may be made if
defined by the FDA through notice and comment rulemaking and if one serving of
the product meets the definition. Health claims may also be made if a scientific
body of the U.S. government with official responsibility for the public health
has made an authoritative statement regarding the claim, the claim accurately
reflects that statement and the manufacturer, among other things, provides the
FDA with notice of and the basis for the claim at least 120 days before the
introduction of the supplement with a label containing the health claim into
interstate commerce. For health claims that the FDA has approved, no prior
notification is required.
Statements of nutritional support or product performance, which are
permitted on labeling of dietary supplements without FDA pre-approval, are
defined to include statements that: (i) claim a benefit related to a classical
nutrient deficiency disease and discloses the prevalence of such disease in the
United States; (ii) describe the role of a nutrient or dietary ingredient
intended to affect the structure or function in humans; (iii) characterize the
documented mechanism by which a dietary ingredient acts to maintain such
structure or function; or (iv) describe general well-being from consumption of a
nutrient or dietary ingredient. In order to make a nutritional support claim the
marketer must possess substantiation to demonstrate that the claim is not false
or misleading and if the claim is for a dietary ingredient that does not provide
traditional nutritional value, prominent disclosure of the lack of FDA review of
the relevant statement and notification to the FDA of the claim is equired. Drug
claims are representations that a product is intended to diagnose, mitigate,
treat, cure or prevent a disease. Drug claims are prohibited from use in the
labeling of dietary supplements.
Claims made for our dietary supplement products may include statements of
nutritional support and health and nutrient content claims when authorized by
the FDA or otherwise allowed by law. The FDA's interpretation of what
constitutes an acceptable statement of nutritional support may change in the
future thereby requiring that the Company revise its labeling. The FDA recently
issued a proposed rule on what constitutes permitted structure/function claims
as distinguished from prohibited disease claims. Although we believe our product
claims comply with the law, depending on the content of the final regulation, we
may need to revise its labeling. In addition, a dietary supplement that contains
a new dietary ingredient (i.e., one not on the market before October 15, 1994)
must have a history of use or other evidence of safety establishing that it is
reasonably expected to be safe. The manufacturer must notify the FDA at least 75
days before marketing products containing new dietary ingredients and provide
the FDA the information upon which the manufacturer based its conclusion that
the product has a reasonable expectation of safety.
The FDA has also announced that it is considering promulgating new GMPs
specific to dietary supplements. Such GMPs, if promulgated, may be significantly
more rigorous than currently applicable GMP requirements and contain quality
assurance requirements similar to GMP requirements for drug products. Therefore,
the Company may be required to expend additional capital and resources on
manufacturing in the future in order to comply with the law.
The failure of Axtion to comply with applicable FDA regulatory
requirements could result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines and criminal prosecutions. The
company's advertising of its dietary supplement products is subject to
regulation by the FTC under the FTCA. Section 5 of the FTCA prohibits unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce. Section 12 of the FTCA provides that the dissemination or the causing
to be disseminated of any false advertisement pertaining to drugs or foods,
which would include dietary supplements, is an unfair or deceptive act or
practice. Under the FTC's Substantiation Doctrine, an advertiser is required to
have a "reasonable basis" for all objective product claims before the claims are
made. Failure to adequately substantiate claims may be considered either
deceptive or unfair practices. Pursuant to this FTC requirement the Company is
required to have adequate substantiation for all material advertising claims
made for its products.
On November 18, 1998, the FTC issued "Dietary Supplements: An Advertising
Guide for Industry." This guide provides marketers of dietary supplements with
guidelines on applying FTC law to dietary supplement advertising. It includes
examples of the principles that should be used when interpreting and
substantiating dietary supplement advertising. Although the guide provides
additional explanation, it does not substantively change the FTC's existing
policy that all supplement marketers have an obligation to ensure that claims
are presented truthfully and to verify the adequacy of the support behind such
claims.
The FTC has a variety of processes and remedies available to it for
enforcement, both administratively and judicially, including compulsory process,
cease and desist orders and injunctions. FTC enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. A violation of such orders could have a
material adverse effect on our business, financial condition and results of
operations.
Advertising and labeling for dietary supplements and conventional foods
are also regulated by state and local authorities. There can be no assurance
that state and local authorities will not commence regulatory action which could
restrict the permissible scope of our product claims.
Governmental regulations in foreign countries where we may commence or
expand sales may prevent or delay entry into the market or prevent or delay the
introduction, or require the reformulation, of certain of our products.
Compliance with such foreign governmental regulations is generally the
responsibility of our distributors for those countries. These distributors are
independent contractors over whom we have limited control.
We also may be subject to additional laws or regulations by the FDA or
other federal, state or foreign regulatory authorities, the repeal of laws or
regulations which the Company considers favorable, such as the Dietary
Supplement Health and Education Act of 1994, or more stringent interpretations
of current laws or regulations, from time to time in the future. The Company is
unable to predict the nature of such future laws, regulations, interpretations
or applications, nor can it predict what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on its
business in the future. They could, however, require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not able to be reformulated, imposition of additional record keeping
requirements, expanded documentation of the properties of certain products,
expanded or different labeling and scientific substantiation. Any or all of such
requirements could have a material adverse affect on our business, financial
condition and results of operations.
Axtion plans to sell its products to mass volume retailers, health food
stores and a combination of other channels, including health clubs and gyms,
international markets and private label manufacturing and independent
distributors. We plan to establish our distribution channels throughout the
United States and Canada. We are currently developing only two products for
which we have purchased the formulas. We commenced business operations as a
nutritional foods distributor on July 1, 2001.
Prior to July 1, 2001 the company had no business operations. To date, we
have not completed the development of our proposed web site we have just
commenced revenue producing operations. Our activities to date have consisted of
acquiring the formulas for a health bar and drink from the inventor, developing
the health bar, developing our web site, conducting a private offering of our
securities and preparing this offering.
We intend to generate revenue through the sale of our products to mass
volume retailers, health food stores and a combination of other channels,
including health clubs and gyms, international markets and private label
manufacturing and independent distributors as well as on our website.
Our auditors have issued a going concern opinion. This means that our
auditors believe there is substantial doubt that we can continue as an on-going
business for the next twelve months unless we obtain additional capital to pay
our bills. This is because as of the date of the audit we had not generated any
revenues and no revenues were anticipated until we began selling our products.
We have financed our activities to date through the sale of securities. At
inception, prior to any stock splits, our founding shareholder loaned the
company $5,000 and received 5,000,000 shares of common stock in lieu of
interest. From August 3, 2001 through October 15, 2001, we conducted a private
placement sale of common stock for gross proceeds of $157,000. As of March 31,
2002, we had incurred operating losses of $32,514 since inception.
We have acquired the formulas for a health bar and health drink. These
forumlas must be developed into actual products by us. The process is analogous
to creating cookies from a recipe. The ingredients are assembled in their
recommended amounts and then made into trial batches. Development consists of
creating test products to be evaluated for taste and measured for size and
weight to assure conformance with our wrapper design. As of the date of this
prospectus, we have paid an artist $1,000 for the wrapper design, an example of
which can be viewed on our web site at www.axtionfoods.com.
We have conducted a successful initial test production run of 3,500 nutty
chocolate flavor Axtion Bars for which we paid $3,500. Our manufacturer now
requires us to purchase the bars in lots of 50,000. We have placed our order for
the first lot of 50,000 bars which will be delivered on approximately April 20,
2002. Our total cost per bar for a 50,000 lot is $.42 per bar, for a total
$21,000. In addition, we are required by our wrapper manufacturer to purchase
bar wrappers in lots of 1,000,000 at a cost of $0.01492 per wrapper, for a total
cost of $14,920 plus a one time charge for the creation of printing plates that
contain the wrapper design. These wrappers have been ordered and will arrive
also arrive on approximately April 20, 2002.
We have sold two purchase orders, one for 10,000 bars and one for 12,500
bars at $.55 per bar plus reimbursement of our costs for wrappers and packaging.
These two purchase orders were placed by national wholesale food distributors
for test marketing purposes. If the test marketing is satisfactory, these
distributors have indicated they will begin placing orders for 100,000 to
500,000 bars at a time. There can be no assurance at this time that we will
actually receive those kinds of purchase orders. We are also in negotiations for
with several other national retail wholesale distributors. We are also engaged
in negotiations to establish independent distributors to whom we will sell the
bars for as much as $1.00 plus wrapping and packaging costs resulting in net
profit to us of $.58 per bar after all costs. Management believes that it can
obtain this price because bars of similar weight will sell for $1.50 to $2.00
retail.
Owing to these events, Management does not anticipate being required to
raise any additional capital. Management believes that if Axtion can be begin to
sell its bars in lots of 100,000 to 500,000 wholesale at a net profit of $0.10
per bar, there will be more than adequate capital to sustain our operations
since Axtion is set up to run with a minimal staff because all manufacturing is
conducted by subcontractors. In addition, if Axtion is able to sell its bars to
independent distributors, there will be a net profit after all costs of $.50 per
bar. These orders, if placed, will produce sufficient capital for Axtion to
operate indefinitely and begin production of its Hammerhead XT drink.
The development costs of Hammerhead XT drinks will total approximately
$1,500.00. A test run of the drink will cost approximately $5,000.00 and the
initial actual production runs will cost somewhere between $75,000.00 to
$78,000.00 for 150,000 8.4 oz cans. We will not conduct an initial production
run of the drink unless we raise additional capital within the next twelve
months or the results of operations from the sale of Axtion Bars are sufficient
to pay the cost of at least one production run of 150,000 cans.
Limited Operating History; Need for Additional Capital
There is no historical financial information about our company upon which
to base an evaluation of our performance. We are a development stage company. We
cannot guarantee we will be successful in our business operations. Our business
is subject to risks inherent in the establishment of a new business enterprise,
including limited capital resources, possible delays in production and possible
cost overruns due to price and cost increases in our products. To become
profitable and competitive, we must establish a market presence through our web
site and through direct marketing of our products.
Results of Operations
From Inception on April 20, 2000
We just recently acquired our first formulas for the manufacturing and
distribution of nutritional products. At this time we have developed a health
bar but we are still working on developing a health drink. We have not yet
commenced meaningful business operations and we have not yet generated any
revenue from the sale of products. As of June 30, 2001, the end of our most
recent fiscal year, we had experienced operating losses of $4,934 since
inception. As of September 30, 2002, we had experienced operating losses of
$112,787 since inception.
Plan of Operations
Our plan of operations over the next 12 months includes the expected
completion of development and thereafter the marketing and distribution of our
first two products, a health bar and a health drink, in addition to the
completion of our initial web site devoted to the sale of our products. We also
intend to develop a network of independent contractors who will market products
developed by us in addition to developing a multi-level marketing network and
establishing contacts with mass volume retailers, health food stores and a
combination of other channels, including health clubs and gyms, international
markets and private label manufacturing. We plan to establish our distribution
channels throughout the United States and Canada.
We are currently developing only two products for which we have purchased
the formulas. We commenced business operations as a nutritional foods
distributor on July 1, 2001. We have received our first orders for Axtion Bars.
We believe that our working capital as of the date of this prospectus will be
sufficient to satisfy our estimated working capital requirements through the
next twelve months. We intend to employ additional people during the year 2002.
Using the funds from our recent private offering of securities, we plan
to implement the following two-phase business strategy within the next twelve
months. The first phase is to develop our health bar and health drink. To date,
we have completed the development of the health bar, which has been named the
"Axtion Bar," and we are in the midst of the development of our health drink,
which will be called the "Hammerhead XT." We also plan to seek out licenses and
formulations for additional health food products.
The second phase of our business plan will be to market products to
potential customers such as retail outlets by establishing a network of
independent contractor distributors. Currently, we do not have any such
distributors in place. We also intend to prepare and design marketing materials,
provide spokespersons to help market the products, and to provide marketing
support through our web site.
In addition, we intend to establish distribution through our website at
www.axtionfoods.com. Initially we will offer only two products on the web site,
the health bar and the health drink for which we have acquired formulas. We
intend, however, to also offer additional sports nutrition products. We
anticipate being able to fully implement our marketing plan within the next
twelve months.
Liquidity and Capital Resources
As of the date of this registration statement, we have yet to generate
any revenues from our business operations. Since our inception, and prior to any
stock splits, our founding shareholder has loaned the company $5,000 in cash and
was issued 5,000,000 shares of common stock in lieu of interest. This money has
been utilized for organizational and start-up costs and as operating capital. As
of June 30, 2001 we had sustained operating losses of $4,934 since inception. As
of September 30, 2002we had sustained operating losses of $112,787 since
inception. From August 3, 2001 until October 15, 2001 we conducted a private
offering of our securities wherein we raised $157,000 in exchange for 1,570,000
shares of common stock.
We commenced business operations as a nutritional foods manufacturer and
distributor on July 1, 2001 and we do not yet have any results from operations.
Prior to July 1, 2001 the company had no business operations. On October 15,
2001 we conducted a four for one forward split of our common stock. Immediately
prior to that date, we had issued 5,000,000 shares to the founder, 1,570,000
shares in connection with our private placement, 50,000 shares to acquire
formulas for products, and 175,500 shares for services, for an aggregate
6,795,500 shares outstanding. At the completion of the four for one forward
split, there were 26,982,000 shares of common stock outstanding.
The money raised in our private offering is being utilized to fund the
development of our first two products, health bar and health drink, to pay for
production of the health bar, in addition to the creation of our web site,
initiating marketing and to pay the expenses of this offering. We believe that
we have sufficient working capital to conduct our operations for the next twelve
months.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures within the 90 days prior to the filing date
of this report. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Company's Chief Financial Officer. Based upon that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors, which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which we (or any of our officers
and directors in their capacities as such) is a party or to which our property
is subject and no such material proceedings is known by our management to be
contemplated.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - 99.1
(b) Reports on Form 8-K - NONE
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AXTION FOODS, INC.
Dated: November 15, 2002 /s/ Julia I. Reynolds
Julia I. Reynolds President
CERTIFICATIONS*
I, Julia I. Reynolds, certify that;
1. I have reviewed this quarterly report on Form10-QSB of Axtion Foods,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 15, 2002
/s/ Julia I. Reynolds
Julia I. Reynolds
Chief Executive Officer
*Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.
Exhibit 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Julia I. Reynolds, Chief Executive Officer and Chief Financial Officer,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-QSB of
Axtion Foods, Inc. for the quarterly period ended September 30, 2002 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the Quarterly Report
on Form 10-QSB fairly presents in all material respects the financial condition
and results of operations of Axtion Foods, Inc..
By:
/s/Julia I. Reynolds
Julia I. Reynolds
Chief Executive Officer &
Chief Financial Officer
Date: November 15, 2002
AXTION FOODS, INC.
(A Development Stage Company)
INTERIM BALANCE SHEET
September 30, 2002 and June 30, 2002
(Stated in US Dollars)
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
30-Sep-02 June 30
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
24-Jun-05 2002
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Current Assets
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Cash $1,996 $ 27,833
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Accounts receivable $13,350 13,350
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Inventory $28,684 28,684
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Prepaid expenses $2,875 2,875
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total current assets $46,905 72,742
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Fixed Assets
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Molds, net 11,487 11,487
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Web site, net 8,312 8,312
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total fixed assets 19,799 19,799
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total Assets $66,704 $ 92,541
- ----------==================================================--------------------------=======================
- ----------==================================================--------------------------=======================
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Liabilities And Stockholders Equity (Deficit)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Current Liabilities
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Note payable $ $
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Accounts payable 21,586 21,586
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Accrued liabilities 4,500 4,500
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Accrued taxes 800 800
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 26,886 26,886
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Long Term Liabilities
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity (Deficit)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Common stock 157,539 157,539
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Accumulated deficit during development stage (112,787) (117,721)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 44,752 39,818
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' (Deficit) $ 66,704 $ 66,704
- ----------===================================================================================================
AXTION FOODS, INC.
(A Development Stage Company)
INTERIM INCOME STATEMENT
September 30, 2002 and June 30, 2002
(Stated in US Dollars)
(Unaudited)
From Inception
For the April 20,2000
Quarter Ended Through
Sept 30, 2002 June 30,2002
-----------------------------------------------------------------------------------------------------
Revenue $ 13,362 $ 13,362
Cost of Sales 4,449 4,449
- -----------------------------------------------------------------------------------------------------------
Gross profit 8,913 8,913
Expenses
Selling and marketing 12,683 12,683
Consulting 14,000 14,000
Legal 25,000 25,000
Research and development 5,000 5,000
General and administrative expenses 65,005 68,612
-----------------------------------------------------------------------------------------------------
Total operating expenses 121,688 125,295
---------------------
-----------------------------------------------------------------------------------------------------
Net Loss from Operations (112,775) (116,382)
Other Expenses
Interest expense 12 539
Income Tax Expense 800
---------------------
-----------------------------------------------------------------------------------------------------
Net Loss $ (112,787) $ (117,721)
=====================================================================================================
AXTION FOODS, INC.
(A Development Stage Company)
INTERIM STATEMENT OF CASH FLOWS
September 30, 2002 and June 30, 2002
(Stated in US Dollars)
(Unaudited)
For the From Inception
Year Ended April 20, 2000
June 30 Through
2002 June 30,2002
------------------- -------------------
Cash Flows From Operating Activities
Net Loss $ (112,787) $ (117,721)
Adjustments to reconcile net income to net cash provided by operating
activities:
Non cash interest 12 539
Depreciation 1,801 1,801
Changes in:
Accounts receivable (13,350) (13,350)
Inventory (28,684) (28,684)
Prepaid expenses (2,875) (2,875)
Accounts payable 21,586 21,586
Accrued liabilities 1,000 4,500
Accrued income tax payable 800
-----------------------
- ----------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (133,297) (133,404)
Cash Flows from Investing Activities
Web site (9,500) (9,500)
Product molds (12,100) (12,100)
-----------------------
- ----------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (21,600) (21,600)
Cash Flows from Financing Activities
Note proceeds (repayments) (5,000) 0
Sale of stock 157,000 157,000
-----------------------
- ----------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 152,000 157,000
Net Increase in Cash (2,897) 1,996
Cash, beginning of the year 4,893 0
-----------------------
- ---------------------------------------------------------------------------------------------------------------
Cash, June 30 $ 1,996 $ 1,996
===============================================================================================================
Supplemental Non Cash Investing and Financing Activities:
Supplemental Information:
Interest paid $ 0
Taxes paid $ 0
AXTION FOODS, INC.
(A Development Stage Company)
FOOTNOTES
September 30, 2002 and June 30, 2002
(Stated in US Dollars)
(Unaudited)
---------
1. Organization and summary of significant accounting policies Organization
Axtion Foods, Inc. formerly Retail Windows, Inc. (the "Company"), a California
corporation, was formed on April 20, 2000. The Company was originally organized
to conduct any business allowed by the California corporation statute. In late
June 2001 the Company adopted a business plan to distribute nutritional foods
and supplements via mail order and the internet. The Company has limited sales
and is not completely operational and, therefore, the Company is considered to
be in the development stage.
Accounting Method
The Company records income and expenses on the accrual method.
Fiscal Year End
---------------
The Company's year end is June 30.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
The Company reports certain expenses differently for financial and tax
reporting purposes and, accordingly, provides for the related deferred
taxes. Income taxes are accounted for under the liability method in
accordance with SFAS 109, Accounting for Income Taxes.
Cash and Cash Equivalents
The Company considers all liquid investments with the maturity of three
months or less from the date of purchase that are readily convertible
into cash to be cash equivalents.
Research and Development Costs
Costs and expenses that can be clearly identified as research and
development are charged to expense as incurred in accordance with SFAS
2, Accounting for Research and Development Costs. The Company has
incurred $5,000 in research and development costs for the period
reported.
Advertising Costs
Advertising costs will be expensed as incurred. There was no
advertising expense incurred for the period from inception through June
30, 2002.
Basic and Diluted Net Loss Per Share
Net loss per share is calculated in accordance with SFAS 128, Earnings
Per Share for the period presented. Basic net loss per share is based
upon the weighted average number of common shares outstanding.
The Company has no potentially dilative securities, options, warrants
or other rights outstanding. Therefore, basic and diluted net loss per
share is the same.
Comprehensive Income
The Company has adopted SFAS 130, Reporting Comprehensive Income, which
establishes standards for reporting comprehensive loss and its
components in the financial statements. To date, the Company's
comprehensive loss equals its net loss.
Reportable Operating Segments
SFAS 131, Segment Information, amends the requirements for companies to
report financial and descriptive information about their reportable
operating segments. Operating segments, as defined in SFAS 131, are
components of an enterprise for which separate financial information is
available and is evaluated regularly by a company in deciding how to
allocate resources and in assessing performance. The financial
information is required to be reported on the basis that is used
internally for evaluating segment performance. The Company currently
operates its business in one operating segment.
New Accounting Pronouncements In December 1999, the Staff of the Securities
and Exchange Commission released Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition, to provide guidance on the recognition, presentation and
disclosure of revenues in financial statements. In June 2000, the SEC staff
amended SAB 101 to provide registrants with additional time to implement SAB
101. The Company has adopt SAB 101.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of
Start-Up Activities. SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs
of start-up activities and
organization costs to be expensed as incurred. As the Company has not
yet begun significant operations, all costs associated with start-up
activities are expensed as incurred.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP 98-1
is effective for financial statements for years beginning after
December 15, 1998. SOP 98-1 provides guidance over accounting for
computer software developed or obtained for internal use including the
requirement to capitalize specific costs and amortization of such
costs. The company has implement SOP 98-1 regarding the Company's web
site.
2. Accounts Receivable
In June the Company recorded its first significant sale of product to
one customer. As of June 30, 2002 the sale, to this one customer, had
not been collected. Therefore, at year-end the Company has trade
receivables of $13,350. Since there is no indication at June 30, 2002
that this receivable is not collectable the Company has not established
an allowance for doubtful accounts.
3. Inventory
Inventory consists of both nutrition bars and wrappers for bars. The
Company values inventory on the first-in first-out, lower of cost or
market method. At June 30, 2002 inventory consisted of the following:
Nutrition Bars $14,510
Wrappers 14,174
------
Total inventory $28,684
=======
4. Fixed Assets
Fixed assets consist of printing plates for nutrition bar wrappers and
costs incurred developing the Company's web site. All fixed assets are
depreciated using the straight-line method over their estimated lives
of five years for the printing plates and two years for the web site.
The following schedule provides costs and accumulated depreciation for
each class of fixed assets:
Plates Web Site
Cost $12,100 $ 9,500
Accumulated depreciation 613 1,188
---------- -----
Net $11,487 $ 8,312
======= =======
5. Shareholders' equity
Preferred stock
The Company has authorized 10,000,000 of no par preferred stock. As of
June 30, 2001 there were no shares issued and outstanding.
Common stock
The Company has authorized 400,000,000 of no par common stock. On June
4, 2000 the Company issued 20,000,000 shares, (post split) of stock to
the original incorporator in lieu of interest, ($539). The interest
represents an annual percentage rate of 10% on the $5,000 loan and the
stock has been valued at the calculated interest, (Note 4).
6. Commitments
The Company has made no material commitments.
7. Related Party
The original incorporator of the Company has advanced $5,000 to the
Company in the form of a note. The note is unsecured and the proceeds
have been used to pay costs and administrative expenses of
organization. The Company issued 20,000,000 shares of stock in lieu of
interest on this loan. The value of the stock was calculated using a
10% annual interest rate $539, (Note 3).
The original incorporator has made contributions of time to the Company
without compensation for his efforts organizing the Company. The
Company estimates the market value of the time and services contributed
for administrative matters to be immaterial at June 30, 2001. In the
future, this individual intends to contribute time and services to the
Company without compensation. The Company intends to record the market
value of these services when the time devoted becomes significant.
8. Provision for Income Taxes
As of June 30, 2002, Axtion Foods, Inc. has a federal net operating
loss carry forward of approximately $89,600. The net operating loss
carry forward will expire in 2016 if not utilized. Utilization of the
net operating loss and tax credit carry forwards may be subject to
substantial annual limitations due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar
state provisions. The annual limitation may result in the expiration of
net operating loss and tax credit carry forwards before utilization.
Because the Company may not receive any benefit for its historical
operating losses, Axtion Foods, Inc. has provided a full valuation
allowance against its deferred tax asset. Significant components of net
deferred tax assets at June 30, 2002 consist of the following:
Net operating loss carry forward.......................... $89,600
-------
Total deferred tax assets....................................... 20,887
Valuation allowance............................................. (20,887)
--------
Net deferred tax assets......................................... $---------
==========
Change in valuation allowance $19,923
9. Going concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction
of its liabilities in the normal course of business. Since inception,
the Company has not been engaged in any significant organizational
activities and has not begun operations. Through June 30, 2002, the
Company had incurred losses of $91,8444. Successful implementation of
the Company's business plan is dependent upon obtaining financing in
order to have the necessary resources to acquire inventory, develop a
web site and develop a market for the Company's product. The Company's
management believes that if the financing is not successful, the
business plan will be seriously inhibited.