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: March 31, 2003
Commission File Number: 0000912057-02-022970
S3I Holdings, Inc.
(formerly Axtoin 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.)
5927 Priestly Drive, Carlsbad, Ca
(Address of principal executive offices)
None
(Former name or former address, if changed since last report)
92110
(Zip Code)
(760) 602-1946
(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 March 31, 2003 was 26,982,000 common shares.
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PART I
ITEM 1. FINANCIAL STATEMENTS.
The un-audited financial statements for the period ended March 31, 2003 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.
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
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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
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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.
Our 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
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marketing and sales operations for the next twelve months. We have 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.
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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
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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
7
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, 2003, we had
incurred operating losses of $150,765 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. 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
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$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 March 31, 2003, we had experienced
operating losses of $155,177 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 have produced over 50,000 energy bars to date, and printed up
1,000,000 bar wrappers printed and we are actively engaged in marketing to
nationwide and regional outlets. The bars are all natural, gluten, caffeine and
ephedra free energy bars that will produce a significant energy boast. To
Axtion's knowledge, no other similar product exists.
Axtion maintains an active website at www.axtionfoods.com. The bars are
currently available on the Internet at www.nextgenproteins.com. On February 12,
2003, Associated Services of Washington., one of Axtion's distributors
established an account for sale of the bars at Bellevue Community College. In
addition, Axtion has developed specialty bars for third parties including the
"High Octane Bar" for a NASCAR distributor.
In addition, here are some of the Southern California stores that were or are
carrying the Axtion bar: Capitol Drugs 8578 Santa Monica, West Hollywood Ca.
96069, Sorkin Productions 14809 Addison St., Sherman Oaks Ca., Paintball Depot,
7973 Mission George Rt. # A, Santee, ca. 92071, Inland Surfshop 6305 El Cajon
9
Blvd., San Diego Ca. 921155, Mission Gorge Liquor 5865 Mission Gorge Rd. San
Diego Ca. 92120, Abbot Liquor Store Ocean Beach Ca., Pacific Beach Surf Shop
Epic Surf Shop Mira Mesa, Ca., Wildside Custom Cycles, Santee, Ca., Milton Surf
shop La Jolla Ca., Bernies Bike Ocean Beach Ca. and Aztec Tan, El Cajon Ca.
Axtion and its distributors are currently making presentations to a number of
large potential outlets and believe the company can close contracts to produce
at least 100,000 bars per month. These distributors have or are approaching the
following companies, among others, on behalf of Axtion: Albertson's
Supermarkets, Associated Groceries, Block Buster Video, Food 4 Less, Food Lyons,
Giant Eagle Supermarkets, GNC Nutrition, Harris Teeter Markets, Hollywood Video,
K-Mart, Kroger Supermarkets, Longs Drug Stores, Pep Boys, Ralph's Supermarkets,
Rite Aid, Sams Club, Savon Drugs, Target, Von's Supermarkets, WalMart and
Wegman's Supermarkets.
Axtion has also entered into distribution agreements with the following
companies, persons and entities:
Sorkin Productions
441S. Beverly Dr. Suite 1 Beverly Hills ca. 90212
Smart Choice
6855 Ramon Rd. SuiteD 204 Cathederal City Ca 92234
Invision Group LLC
520 Washington Blvd. Suite 104 Marina del Rey, Ca. 90292
7Distribution
4509 Adams St.
Carlsbad, Ca
American Harvest Financial Group
12033 Southeast Court 42nd. St.
Bellevue Wa. 98006
Associated Services of Washington
1075 Bellevue Way NE, #188
Bellevue, WA 98006
Next Generation Proteins, Inc.
5423 Central Avenue, #10
Newark, CA 94560
U.S. Tech Electronics
50351/2N. 7th Avenue, #4
Phoenix, AZ 85013
On December 19, 2002 we entered into a letter of intent to acquire Securesoft
Systems, Inc., a Delaware corporation (S3I), as a wholly owned subsidiary of
Axtion in exchange for a new issuance of 20,000,000 shares of common stock by
Axtion to the shareholders of S3I. subject to the completion of a plan of
reorganization. It is the intention of the parties hereto that all of the issued
and outstanding capital stock S3I shall be acquired by Axtion in exchange solely
for Axtion voting stock. These shares to be issued to the owners of S3I pursuant
to this agreement shall be subject to the terms and conditions as outlined under
Securities and Exchange Commission Rule 144 of the Securities Act of 1933. It is
the intention of the parties hereto that this transactio qualify as a tax-free
reorganization under Section 368(a) (1) (B) of the Internal Revenue Code of
1986, as amended, and related sections thereunder. That transaction has not yet
closed and is still being negotiated.
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Securesoft Systems, Inc. (S3I) is a software development company providing
enterprise security and privacy compliance solutions for regulated business
environments. S3I's core product, the Immunity Management Suite, is a web-based
suite of compliance software providing process, knowledge, management and
integration components that facilitate the assessment, remediation, reporting
and on-going management of compliance issues. S3I is firmly footed in the Health
Care industry today to facilitate the stringent regulations set forth by the
Health Insurance Portability and Accountability Act (HIPAA).
S3I's software provides a structured approach that combines knowledge of current
business processes and systems, an understanding of related legislation and the
use of cohesive teams that are experienced with the issues and objectives
surrounding compliance. S3I's implementation services include compliance gap
analysis, risk management, cost benefit analysis, implementation strategies and
monitoring.
Liquidity and Capital Resources
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. 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. 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, 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
11
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 - Change In Auditor February 14, 2003
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: May 20, 2003 /s/ Julia I. Reynolds
Julia I. Reynolds President
12
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: May 20, 2003
/s/ Julia I. Reynolds
Julia I. Reynolds
Chief Executive Officer
13
*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.
14
S31 HOLDINGS, INC.
(formerly Axtion Foods, Inc.)
(A Development Stage Company)
INTERIM BALANCE SHEETS
March 31, 2003 and June 30, 2002
(Stated in US Dollars)
(Unaudited)
(Unaudited) (Audited)
March 31, June 30,
ASSETS 2002 2002
------ ---- ----
Current
Cash $ 145 $ 27,833
Accounts receivable - 13,350
Inventory 10,960 28,684
Prepaid expenses - 2,875
11,105 72,742
Capital assets 14,421 19,799
$ 25,526 $ 92,541
LIABILITIES
Current
Accounts payable $ 23,164 $ 26,886
STOCKHOLDERS' EQUITY
Capital Stock
Preferred stock, no par value
10,000,000 authorized, none outstanding
Common stock, no par value
100,000,000 authorized, 26,982,000 outstanding 157,539 157,539
Deficit accumulated during the development stage ( 155,177) ( 91,884)
2,362 65,655
$ 25,526 $ 92,541
15
S31 HOLDINGS, INC.
(formerly Axtion Foods, Inc.)
(A Development Stage Company)
INTERIM STATEMENTS OF OPERATIONS for the three and nine
months ended March 31, 2003 and 2002
and April 20, 2000 (Date of Inception) to March 31, 2003
(Stated in US Dollars)
(Unaudited)
Cumulative from
April 20, 2000
(Date of Incep-
Three months ended Nine months ended tion) to
March 31, March 31, March 31,
2003 2002 2003 2002 2003
---- ---- ---- ---- ----
Sales $ - $ 2,102 $ - $ 2,102 $ 13,362
Cost of sales - 1,051 - 1,051 4,449
-
------------ ------------ ------------ ------------
Gross profit - 1,051 - 1,051 8,913
Expenses
Amortization 1,793 - 5,378 - 7,179
Bad debts - - 13,350 - 13,350
Consulting - - - - 14,000
Legal - - - - 25,000
General and administrative 2,619 33,565 26,444 59,025 68,218
Research and development - - - - 5,000
Selling and marketing - - 1,707 - 14,390
4,412 33,565 46,879 59,025 147,137
Loss before the following ( 4,412) ( 32,514) ( 46,879) ( 57,974) ( 138,224)
Interest - - - ( 12) ( 539)
Write-down inventory - - ( 16,414) - ( 16,414)
Net loss for the period $ ( 4,412) $ ( 32,514) $ ( 63,293) $ ( 57,986) $ ( 155,177)
Basic loss per share $ ( 0.00) $ ( 0.00) $ ( 0.00) $ ( 0.00)
Weighted average number of
common shares outstanding 26,982,000 26,280,000 26,982,000 26,280,000
16
S31 HOLDINGS, INC.
(formerly Axtion Foods, Inc.)
(A Development Stage Company)
INTERIM STATEMENTS OF CASH FLOWS for the three and nine
months ended March 31, 2003 and 2002
and April 20, 2000 (Date of Inception) to March 31, 2003
(Stated in US Dollars)
(Unaudited)
Cumulative from
April 20, 2000
(Date of Incep-
Three months ended Nine months ended tion) to
March 31, March 31, March 31,
2003 2002 2003 2002 2003
---- ---- ---- ---- ----
Cash flows used in operating activities:
Net loss for the period $ ( 4,412) $ ( 32,514) $ ( 63,293) $ ( 57,986) $ ( 155,177)
Adjustments to reconcile net
loss to net cash used in
operations:
Amortization 1,793 240 5,378 240 7,179
Non cash interest - 12 - 12 539
Changes in non-cash balances:
Accounts receivable - - 13,350 - -
Inventory - - 17,724 - ( 10,960)
Prepaid expenses - - 2,875 - -
Accounts payable 1,848 (2,955) ( 3,722) 2,450 23,164
Net cash used in operating
activities ( 771) ( 35,217) ( 27,688) ( 55,284) ( 135,255)
Cash flows used in investing
activity
Acquisition of capital assets - ( 14,404) - ( 23,904) ( 21,600)
Net cash used in investing
activity - ( 14,404) - ( 23,904) ( 21,600)
Cash flows from financing activities:
Note proceeds (repayments) - - - ( 5,000) -
Proceeds from issuance of
common stock - - - 133,911 157,000
Net cash provided by financing
activities - - - 128,911 157,000
17
S31 HOLDINGS, INC. Continued
(formerly Axtion Foods, Inc.)
(A Development Stage Company)
INTERIM STATEMENTS OF CASH FLOWS for the three and nine
months ended March 31, 2003 and 2002
and April 20, 2000 (Date of Inception) to March 31, 2003
(Stated in US Dollars)
(Unaudited)
Cumulative from
April 20, 2000
(Date of Incep-
Three months ended Nine months ended tion) to
March 31, March 31, March 31,
2003 2002 2003 2002 2003
---- ---- ---- ---- ----
Net (decrease) increase in cash ( 771) ( 49,621) ( 27,688) 49,723 145
Cash, beginning of the period 916 104,237 27,833 4,893 -
Cash, end of the period $ 145 $ 54,616 $ 145 $ 54,616 $ 145
Supplementary disclosure of cash flow information: Cash paid for:
Interest $ - $ - $ - $ - $ -
Income taxes $ - $ - $ - $ - $ -
18
S31 HOLDINGS, INC.
(formerly Axtion Foods, Inc.)
(A Development Stage Company)
INTERIM STATEMENT OF
STOCKHOLDERS' EQUITY
(DEFICIENCY) for the period from April 20, 2000
(Date of Inception) to March 31, 2003
(Stated in US Dollars)
(Unaudited)
Deficit
Accumulated
(Restated - Note 4) During the
Common Stock Development
-------------------------------------
Shares Amount Stage Total
Balance, April 20, 2000 - $ - $ - $ -
For debt
Issuance of stock - at $0.000027 20,000,000 539 - 539
Net loss for the period - - ( 4,934) ( 4,934)
Balance, June 30, 2001 20,000,000 539 ( 4,934) ( 4,395)
For cash
Issuance of stock - at $0.025 6,280,000 157,000 - 157,000
Net loss for the year - - ( 86,950) ( 86,950)
Balance, June 30, 2002,
as previously reported 26,280,000 157,539 ( 91,884) 65,655
For finders' fees
Issuance of stock - at $0.025 702,000 17,550 - 17,550
Prior period restatement - Note 4 - ( 17,550) - ( 17,550)
Balance, June 30, 2002, as restated 26,982,000 157,539 ( 91,884) 65,655
Net loss for the period - - ( 63,293) ( 63,293)
Balance, March 31, 2003 26,982,000 $ 157,539 $ ( 155,177) $ 2,362
The number of shares issued and outstanding has been restated to give
retroactive effect to a stock split on a four for one basis approved by the
shareholders on January 10, 2002.
19
S31 HOLDINGS, INC.
(formerly Axtion Foods, Inc.)
(A Development Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
March 31, 2003
(Stated in US Dollars)
(Unaudited)
Note 1 Interim Reporting
While the information presented in the accompanying interim nine
months financial statements is unaudited, it includes all
adjustments which are, in the opinion of management, necessary to
present fairly the financial position, results of operations and
cash flows for the interim periods presented. These interim
financial statements follow the same accounting policies and
methods of their application as the Company's June 30, 2002 annual
financial statements. All adjustments are of a normal recurring
nature. It is suggested that these interim financial statements be
read in conjunction with the Company's June 30, 2002 annual
financial statements.
Note 2 Continuance of Operations
These financial statements have been prepared using generally
accepted accounting principles in the United States of America
applicable to a going concern which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary
course of business. As at March 31, 2002, the Company has a
working capital deficiency of $12,059 and has accumulated losses
of $155,177 since inception. The Company's ability to continue as
a going concern is dependent upon obtaining the necessary
financing to meet its obligations and pay its liabilities arising
from normal business operations when they come due.
Note 3 Prior Period Restatement
During the year ended June 30, 2002, the Company issued 702,000
common shares at $0.025 per share for finders' fees, which was not
previously reported. Accordingly, capital stock has been restated
to include the issuance of these shares and the payment of the
finders' fees.
Note 4 Subsequent Event
By an Agreement and Plan of Reorganization ("Agreement") dated
February 15, 2003 and closed April 16, 2003, the Company acquired
100% of the issued and outstanding capital stock of Securesoft
Systems, Inc., a Delaware incorporated software development firm
by the issuance of 20,076,644 common shares of the Company. In
addition, the controlling shareholders of the Company have
surrendered and returned to treasury their stock held in the
Company (20,000,000 common shares) in exchange for the transfer of
all the right, title and interest to the sports nutrition products
developed by the Company since its inception. In connection with
this Agreement, the Company changed its name
from Axtion Foods, Inc. to S31 Holdings, Inc.
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 March 31, 2003 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: May 20, 2003