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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
QUARTERLY REPORT
pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
000-19644
(Commission file number)
-------------------
ALPHA NUTRACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
California 33-0300193
(State of incorporation) (IRS Employer Identification No.)
1229 Third Avenue
Chula Vista, California 91911 (619) 427-3077
(Address of principal executive offices) (Registrant's telephone number)
-------------------
-------------------
Indicate by check mark whether Alpha Nutraceuticals, Inc. (ANUI) (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that ANUI was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
|_| Yes |X| No
Indicate by check mark whether Alpha Nutraceuticals, Inc. (ANUI) (1) has
filed all documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
|X| Yes |_| No
Indicate by check mark whether ANUI is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act)
|_| Yes |X| No
As of May 14, 2004, ANUI had 4,113,049 shares of its common stock issued
and outstanding.
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TABLE OF CONTENTS
Page
--------
SPECIAL NOTE: FORWARD-LOOKING STATEMENTS 1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Consolidated Balance Sheets 2
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
SPECIAL NOTE--FORWARD-LOOKING STATEMENTS
Certain statements in this report, including information incorporated by
reference, are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934,
and the Private Securities Litigation Reform Act of 1995. Forward-looking
statements reflect current views about future events and financial performance
based on certain assumptions. They include opinions, forecasts, projections,
guidance, expectations, beliefs or other statements that are not statements of
historical fact. Words such as "may," "will," "should," "could," "would,"
"expects," "plans," "believes," "anticipates," "intends," "estimates,"
"approximates," "predicts," or "projects," or the negative or other variation of
such words, and similar expressions may identify a statement as a
forward-looking statement. Forward-looking statements in this report may include
statements about:
o future financial and operating results, including projections of
revenues, income, earnings per share, profit margins, expenditures,
liquidity and other financial items;
o inventories and facilities;
o sources and availability of raw materials;
o personnel;
o overall industry and market performance;
o competition;
o current and future economic and political conditions;
o product development;
o growth and acquisition strategies;
o the outcome of regulatory and litigation matters;
o customers;
o management's goals and plans for future operations; and
o other assumptions described in this report underlying or relating to
any forward-looking statements.
The forward-looking statements in this report speak only as of the date of this
report. Forward-looking statements are subject to certain events, risks, and
uncertainties that may be outside of our control. When considering
forward-looking statements, you should carefully review the risks, uncertainties
and other cautionary statements in this report as they identify certain
important factors that could cause actual results to differ materially from
those expressed in or implied by the forward-looking statements. These factors
include, among others, the risks described under Item 7 and elsewhere in this
report, as well as in other reports and documents we file with the SEC.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALPHA NUTRACEUTICALS, INC.
(Formerly Sierra-Rockies, Corp.)
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
ASSETS
------
As of As of
March 31, December 31,
2004 2003
--------------- ----------------
CURRENT ASSETS
Cash $ 96,638 $ 111,864
Accounts receivable 177,505 -
Accounts receivable 87,202 -
Inventory 233,573 -
Prepaid expenses 5,084 -
Employee advances 285 -
--------------- ----------------
Total Current Assets 600,287 111,864
NET PROPERTY & EQUIPMENT 20,957 -
OTHER ASSETS
Note receivable 50,280 -
--------------- ----------------
Total Other Assets 50,280 -
--------------- ----------------
TOTAL ASSETS $ 671,524 $ 111,864
=============== ================
See Notes to Financial Statments
2
ALPHA NUTRACEUTICALS, INC.
(Formerly Sierra-Rockies, Corp.)
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
As of As of
March 31, December 31,
2004 2003
------------- -------------
CURRENT LIABILITIES
Accounts payable $ 450,009 $ 93,674
Sales tax payable 9,298 -
Income taxes payable 31,233 -
Credit line payable 49,505 -
Insurance payable 360 -
------------- -------------
Total Current Liabilities 540,405 93,674
LONG-TERM LIABILITIES
Stockholders' loans 111,197 -
Note payable - (a related party) 24,000 -
------------- -------------
Total Long-Term Liabilities 135,197 -
------------- -------------
TOTAL LIABILITIES 675,602 93,674
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock ($0.001 par value, 50,0000,000
shares authorized
4,113,000 and 1,037,049 shares issued and
outstanding
as of March 31, 2004 and December 31,
2003) 4,113 1,037
Paid-in Capital 5,666,076 5,600,249
Retained earnings (deficit) (5,674,267) (5,583,096)
------------- -------------
Total Stockholders' Equity (Deficit) (4,078) 18,190
TOTAL LIABILITIES
------------- -------------
& STOCKHOLDERS' EQUITY (DEFICIT) $ 671,524 $ 111,864
============= =============
See Notes to Financial Statments
3
ALPHA NUTRACEUTICALS, INC.
(Formerly Sierra-Rockies, Corp.)
Consolidated Statements of Operations
- ----------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2004 2003
------------ ------------
REVENUES
Sales - supplements $ 679,246 $ -
Returns and allowances - -
------------ ------------
Total Revenues 679,246 -
COST OF REVENUES (393,963) -
------------ ------------
GROSS PROFIT 285,283 -
OPERATING COSTS
Depreciation expense 2,051 -
Administrative expenses 374,403 -
------------ ------------
Total Operating Costs 376,454 -
------------ ------------
OPERATING INCOME (LOSS) (91,171) -
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES $ (91,171) $ -
INCOME TAX (PROVISION) BENEFIT - -
------------ ------------
NET INCOME (LOSS) $ (91,171) $ -
============ ============
BASIC EARNINGS (LOSS) PER SHARE $ (0.02) $ 0.00
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,020,605 173,828
============ ============
See Notes to Financial Statments
4
ALPHA NUTRACEUTICALS, INC.
(Formerly Sierra-Rockies, Corp.)
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 2004
- ---------------------------------------------------------------------------------------------------
Additional
Common Common Paid-in Retained Total
Shares Stock Capital Earnings
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 2001 173,828 $ 174 $ - $(5,482,513) $(5,482,339)
Net income for the year ended
December 31, 2002 - -
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 2002 173,828 174 - (5,482,513) (5,482,339)
===================================================================================================
November 6, 2003 cancellation of
stock subscription (56,780) (57) 57 -
Stock issued for cash on November 6,
2003 @ $9.56 per share 570,001 570 5,450,492 5,451,062
Stock issued for cash on November 6,
2003 @ $0.50 per share 300,000 300 149,700 150,000
Stock issued on November 6, 2003 50,000 50 - 50
Net loss for the year ended December
31, 2003 (100,583) (100,583)
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 2003 1,037,049 1,037 5,600,249 (5,583,096) 18,190
===================================================================================================
Recapitalization (note 1) 3,000,000 3,000 27,903 30,903
Stock issued for services rendered on
March 11, 2004 @ $0.50 per share 76,000 76 37,924 38,000
Net loss for the period ended
March 31, 2004 (91,171) (91,171)
- ---------------------------------------------------------------------------------------------------
Balance, March 31, 2004 4,113,049 $ 4,113 $5,666,076 $(5,674,267) $ (4,078)
===================================================================================================
See Notes to Financial Statments
5
ALPHA NUTRACEUTICALS, INC.
(Formerly Sierra-Rockies, Corp.)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2004 2003
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net income (loss) $ (91,171) $ -
Depreciation expense 2,051 -
(Increase) decrease in accounts receivable (264,707) -
(Increase) decrease in inventory (233,573) -
(Increase) decrease in prepaid expenses (5,084) -
(Increase) decrease employee advances (285)
Increase (decrease) in accounts payable 356,335 -
Increase (decrease) in sales tax payable 9,298 -
Increase (decrease) in income taxes
payable 31,233 -
Increase (decrease) in line of credit 49,505 -
Increase (decrease) in insurance payable 360 -
Common stock issued for services 38,000
------------- ------------
Net Cash Provided by (Used in) Operating
Activities (108,038) -
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Net sale (purchase) of fixed assets (23,008) -
------------- ------------
Net Cash Provided by (Used in) Investing
Activities (23,008) -
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Change in note receivable (50,280) -
Change in stockholder loan payable 111,197 -
Change in notes payable 24,000 -
Change in comon stock 3,000
Change in additional paid-in capital 27,903
------------- ------------
Net Cash Provided by (Used in) Financing
Activities 115,820 -
------------- ------------
Net Increase (Decrease) in Cash (15,226) -
Cash at Beginning of Period 111,864 66
------------- ------------
Cash at End of Period $ 96,638 $ 66
============= ============
Supplemental Cash Flow Disclosures:
Cash paid during period for interest $ - $ -
============= ============
Cash paid during period for taxes $ - $ -
============= ============
See Notes to Financial Statments
6
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
General
- -------
Alpha Nutraceuticals, Inc. (formerly Sierra-Rockies, Corp.) was incorporated
under the laws of the State of California on March 14, 1988. The Company's
offices are located at 1229-C Third Ave. in Chula Vista, California (San Diego
County). Alpha Nutraceuticals, Inc. through its subsidiary, Let's Talk Health,
Inc., also a California Corporation (LTH), sells vitamins and nutritional
supplements as well as other health related products. The Company entered into
this business on January 1, 2004 as part of a Plan of Reorganization approval by
the United States Bankruptcy Court for the Southern District of California.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
-----------------
The Company's policy is to use the accrual method of accounting to prepare and
present financial statements, which conform to generally accepted accounting
principles (GAAP). The Company has elected a December 31, year-end.
b. Basis of Consolidation
----------------------
The consolidated financial statements of Alpha Nutraceuticals, Inc. include
those accounts of Let's Talk Health, Inc. Alpha Nutraceutical, Inc. owns title
to all of the assets and liabilities of the consolidated financial statement.
All significant intercompany transactions have been eliminated.
c. Cash Equivalents
----------------
The Company considers all highly liquid investments with maturity of three
months or less when purchased to be cash equivalents.
d. Accounts Receivable
-------------------
The Company considers accounts receivable to be fully collectible; accordingly,
no allowances for doubtful accounts are required. If amounts become
uncollectable, they will be charged to operations when that determination is
made.
e. Inventory
---------
Inventory is stated at the lower of cost (first-in, first-out) or market.
Inventory costs include any material, labor and manufacturing overhead incurred
by the Company in the production of inventory.
f. Property and Equipment
----------------------
Property, equipment and leasehold improvements are stated at costs less
accumulated depreciation or amortization. Maintenance and repairs, as well as
renewals for minor amounts are charged to expenses. Renewals and betterments of
substantial amount are capitalized, and any replaced or disposed units are
written off.
g. 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates. In accordance with FASB 16 all
adjustments are normal and recurring.
h. Revenue Recognition and Deferred Revenue
----------------------------------------
Let's Talk Health, Inc. revenue consists of the sale of nutritional supplements
via internet and telephone orders. Revenue is recognized when a sale is made.
i. Related Party Transactions
--------------------------
The majority of the Company's accounts receivable are from Hospital Santa
Monica, a related and controlled US corporation. The Company's note receivable
is also from Hospital Santa Monica.
Long-term note payable represents a note to a related party. This note was
established on September 2002 with a related party. As of March 31, 2004 the
note was classified as a non-interest bearing note.
The note payable to shareholders consists of unsecured advances made to the
Company for working capital purposes. The advances were made under a promissory
note agreement that allows the Company to borrow from certain shareholders. As
of March 31, 2004 the note was classified as a non-interest bearing note.
The Company paid a salary to a shareholder of the Company in the amount of
$5,000.
The Company rents office space from a shareholder under a month-to-month verbal
agreement. Rent expense for the first quarter of 2004 was $12,512.
j. Basic Earnings per Share
------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for earnings
(loss) per share for entities with publicly held common stock. SFAS No. 128
supersedes the provisions of APB No. 15, and requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. The Company has
adopted the provisions of SFAS No. 128 effective July 20, 1998 (inception).
Basic net loss per share amounts is computed by dividing the net income by the
weighted average number of common shares outstanding. Diluted earnings per share
are the same as basic earnings per share due to the lack of dilutive items in
the Company.
k. Line of Credit
--------------
The Company has a $50,000 line of credit. The line of credit is an adjustable
rate loan. The loan is open revolving line of credit. There are no restrictions
on the use of this line of credit. There is an outstanding balance of $49,505 as
of March 31, 2004.
l. Income Taxes
------------
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
NEW ACCOUNTING PRONOUNCEMENTS:
In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections ("SFAS 145"). Among other things, SFAS 145
eliminates the requirement that gains and losses from the extinguishments of
debt be classified as extraordinary items. SFAS 145 is effective for fiscal
years beginning after May 15, 2002, with early adoption permitted. The adoption
of SFAS 145 did not have a material effect on the Company's consolidated
financial statements.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146. The
standard requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The adoption of SFAS 146 did not have an effect on the
Company's consolidated financial statements.
In October 2002, the Financial Accounting Standards Board issued SFAS No. 147,
"Acquisitions of Certain Financial Institutions - an amendment of FASB
Statements No. 72 and 144 and FASB interpretation No. 9". SFAS 147 removes
acquisitions of financial institutions from the scope of both Statement 72 and
interpretation 9 and requires that those transactions be accounted for in
accordance with FASB Statements No. 141, Business Combinations, and No. 142
Goodwill and Other Intangible Assets. Thus, the requirement in paragraph 5 of
Statement 72 to recognize (and subsequently amortize) any excess of the fair
value of liabilities assumed over the fair value of tangible and identifiable
intangible assets acquired as an unidentifiable intangible asset no longer
applies to acquisitions within the scope of this Statement. In addition, this
Statement amends FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor and borrower relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires for other long-lived assets
that are held and used. SFAS 147 is effective October 1, 2002. The adoption of
SFAS 147 did not have an effect on the Company's consolidated financial
statements.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS
148). SFAS 148 amends SFAS No. 123 "Accounting for Stock-Based compensation"
(SFAS 123), to provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. SFAS 148 is effective for
fiscal years beginning after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of SFAS 148
did not have an effect on the Company's consolidated financial statements.
NOTE 3. INVENTORY
Inventory at March 31, 2004 is summarized as follows:
March 31,
2004
-----------------------------
Vitamins & nutritional supplements $ 233,573
--------------------------
Total inventory $ 233,573
==========================
Inventory is stated at the lower of cost (first-in, first-out) or market.
Inventory costs include any material, labor and manufacturing overhead incurred
by the Company in the production of inventory. Inventory is primarily vitamins
and nutritional supplements purchased from outside manufacturers then shipped to
the retailer for sale.
NOTE 4. PROPERTY & EQUIPMENT
Property and equipment is stated at cost. Additions, renovations, and
improvements are capitalized. Maintenance and repairs, which do not extend asset
lives, are expensed as incurred. Depreciation is provided on a straight-line
basis over the estimated useful lives ranging from 27.5 years for commercial
rental properties, 5 years for tenant improvements, and 5 - 7 years on furniture
and equipment.
March 31,
2004
--------------------
Equipment $ 38,830
Furniture 2,682
Leasehold Improvements 10,662
--------------------
$ 52,174
Less Accumulated Depreciation (31,217)
--------------------
Net Property and Equipment $ 20,957
====================
Depreciation expense for the three months ended March 31, 2004 was $2,051.
NOTE 5. INCOME TAXES
Income taxes are provided in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. A deferred tax asset
or liability is recorded for all temporary differences between financial and tax
reporting and net operating loss carryfowards. Deferred tax expense (benefit)
results from the net change during the year of deferred tax assets and
liabilities.
At March 31, 2004 the Company has significant operating and capital losses
carryfoward. The tax benefits resulting for the purposes have been estimated as
follows:
March 31, 2004
--------------------------
Beg. Retained Earnings $ (5,583,096)
Net Income (Loss) for the three months
ended of 3/31/04 (91,171)
--------------------------
Ending Retained Earnings $ (5,674,267)
Gross income tax benefit $ 1,929,251
Valuation allowance (1,929,251)
--------------------------
Net income tax benefit $ -
==========================
The net operating loss expires twenty years from the date the loss was incurred.
In accordance with SFAS 109 paragraph 18 the Company has reduced its deferred
tax benefit asset by a valuation allowance due to negative evidence that has
caused the Company to feel it is more likely than not that some portion or all
of the deferred tax asset will not be realized. No portion of the valuation
allowance will be allocated to reduce goodwill or other noncurrent intangible
asset of an acquired entity. There are no temporary differences or carryforward
tax effects that would significantly effect the Companies deferred tax asset.
Utilization of the net operating losses and credit carryforwards may be subject
to a substantial annual limitation due to the "change in ownership" provisions
of the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization. None of the
valuation allowance recognized was allocated to reduce goodwill or other
noncurrent intangible assets of an acquired entity or directly to contributed
capital.
NOTE 6. LONG-TERM DEBT
Interest Balance as of Maturity
Rate March 31, 2004 Date
---------- ---------------- -----------
Loan payable - D Whitney 0 $ 24,000 8/2005
Outstanding loan payable is to a related party and is a non-interest bearing
note.
NOTE 7. STOCK TRANSACTIONS
Transactions, other than employees' stock issuance, are in accordance with
paragraph 8 of SFAS 123. Thus issuances shall be accounted for based on the fair
value of the consideration received. Transactions with employees' stock issuance
are in accordance with paragraphs (16-44) of SFAS 123. These issuances shall be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, or whichever is more readily
determinable.
On November 6, 2003 the Company issued 570,001 shares of common stock for relief
of debt valued at $9.56 per share.
On November 6, 2003 the Company issued 300,000 shares of common stock for cash
valued at $0.50 per share.
On November 6, 2003 the Company issued 50,000 shares of common stock for cash
valued at $0.001 per share.
On January 1, 2004 the Company issued 3,000,000 share of stock in a
recapitalization of the Company.
On March 11, 2004 the Company issued 76,000 shares of common stock for services
valued at $0.50 a share.
As of March 31, 2004 the Company had 4,113,049 shares of common stock issued and
outstanding.
NOTE 8. STOCKHOLDERS' EQUITY
The stockholders' equity section of the Company contains the following classes
of capital stock as of March 31, 2004.
(A) Common stock, $ 0.001 par value; 50,000,000 shares authorized; 4,113,000
shares issued and outstanding as of March 31, 2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is intended to help you understand our
financial condition and results of operations for the three months ended March
31, 2004. You should read the following discussion and analysis together with
our unaudited financial statements and the notes to the financial statements
included under Item 1 in this report, as well as the information included in our
Annual Report on Form 10-K for the year ended December 31, 2003 and our Reports
of Form 8-K and 8-K-A submitted during the first quarter of 2004. Our future
financial condition and results of operations will vary from our historical
financial condition and results of operations as described below.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires that we make estimates and
assumptions that affect the amounts reported in our financial statements and
their accompanying notes. We have identified certain policies that we believe
are important to the portrayal of our financial condition and results of
operations. These policies require the application of significant judgment by
our management. We base our estimates on our historical experience, industry
standards, and various other assumptions that we believe are reasonable under
the circumstances. Actual results could differ from these estimates under
different assumptions or conditions. An adverse effect on our financial
condition, changes in financial condition, and results of operations could occur
if circumstances change that alter the various assumptions or conditions used in
such estimates or assumptions. Further information on these assumptions and on
our accounting policies will be found in the notes to our financial statements
contained in this Form 10-Q and in our most recent 8-K-A. There have been no
significant changes to these policies during the three months ended March 31,
2004.
Recent Developments
On May 14, 2004 we acquired a manufacturing facility which we expect to use both
to manufacture some of the products which we sell on a retail basis as well as
to manufacture "private label" products for other retailers. Additionally, we
continue to evaluate expansion opportunities that could increase product lines
and/or customers or increase our manufacturing capabilities.
Results of Operations--Three Months Ended March 31, 2004 vs. Three Months Ended
March 31, 2003
Sales
Three Months Ended March 31,
----------------------------------------------------------------
2004 2003
------------------------------- -------------------------------
Total Sales $ 679,246 $ 0
=============================== ===============================
From 1997 through 2003 the company was inactive; it had no operations and thus
no revenues. On January 1, 2004 we acquired Let's Talk Health, Inc., a mail
order retailer of nutritional supplements and related health care products. As a
result of this acquisition our sales went from zero to $679,246 in the first
three months of this year. All of these sales were retail sales. Looking forward
we anticipate moderate growth in retail sales coupled with some new wholesale
sales based on private label contract manufacturing at our newly acquired
manufacturing facility.
Cost of Revenues
Cost of Revenues including costs of goods sold and selling expenses were
$393,963 (58% of sales) in the three months ended March 31, 2004. Looking
forward we anticipate a reduction in costs of goods sold as a result of our
recent acquisition of a manufacturing facility.
General and Administrative Expenses
General and administrative expenses were $376,454 (55.4% of sales) in the three
months ended March 31, 2004, however, approximately $72,000 included in these
expenses were non-recurring costs associated with the company's voluntary
bankruptcy filed under Chapter 11 in 2003. Looking forward we anticipate general
and administrative expenses to increase modestly due to our expansion into the
manufacturing sector, however we also expect that these increased costs will be
offset by new, private label manufacturing sales.
Net Loss from Operations
Three Months Ended March 31,
----------------------------------------------------------------
2004 2003
------------------------------- -------------------------------
Total Sales $ 91,171 $ 0
=============================== ===============================
The company's loss of $91,171 was largely due to non-recurring costs associated
with its voluntary bankruptcy filed under Chapter 11 in 2003. The company's plan
of reorganization was approved by the U.S. Bankruptcy Court, Southern District
of California, in November, 2003, but certain costs associated with that
bankruptcy were only approved and ordered paid by the Court on March 5, 2004.
These costs accounted for approximately $72,000 or approximately 79% of the
total loss. Looking forward we anticipate a reduction in costs of goods sold as
a result of our recent acquisition of a manufacturing facility. This, combined
with growth of sales, is expected to result in profitable operations in the
future.
Liquidity and Capital Resources
Our working capital decreased in the three months ended March 31, 2004 to
$96,638 versus $111,865 at December 31, 2003. Cash and cash equivalents
decreased by $15,227 primarily as a result of costs associated with the
company's voluntary petition for bankruptcy filed On January 2, 2003.
Capital expenditures for the three months ended March 31, 2004 were $23,008.
These expenditures were primarily for the continuing investment in our equipment
used in printing and mailing our catalogues and newsletters which are the
primary means of generating sales of our products.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet debt nor do we have any transactions,
arrangements or relationships with any special purposes entities.
Contractual Obligations
The company has no known contractual obligations or commercial commitments
extending out more than 30 days.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in the Notes to Financial
Statements contained in our Annual Report for 2003. As of March 31, 2004, we are
not aware of any additional pronouncements that materially effect our financial
position or results of operations.
Risks
You should carefully consider the risks described under Item 7 of our 2003
Annual Report, as well as the other information in our 2003 Annual Report, in
this report, and in the Form 8-K and Form 8-K-A filed during the first quarter
of 2004 when evaluating our business and future prospects. If any of the
identified risks actually occur, our business, financial condition and results
of operations could be seriously harmed. In that event, the market price of our
common stock could decline and you could lose all or a portion of the value of
your investment in our common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not currently exposed to any significant market risk of potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. We do expect that in the near future we
will begin selling supplements overseas, particularly in Europe. If European
sales develop as expected, we would be subject to risks associated with foreign
exchange rates, and we may explore the possibilities for entering into financial
instruments to try to manage and reduce the impact of changes in foreign
currency exchange rates. We do not expect to enter into derivatives or other
financial instruments for trading or speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
We maintain certain disclosure controls and procedures. They are designed to
help ensure that material information is: (1) gathered and communicated to our
management, including our principal executive and financial officers, on a
timely basis; and (2) recorded, processed, summarized, reported and filed with
the SEC as required under the Securities Exchange Act of 1934.
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2004. Based on their evaluation, they concluded that
our disclosure controls and procedures were effective for their intended purpose
described above. There were no changes to our internal controls during the
quarterly period ended March 31, 2004 that have materially affected, or that are
reasonably likely to materially affect, our internal controls.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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) The following exhibit index shows those exhibits filed with this report and
those incorporated by reference.
EXHIBIT INDEX
Exhibit Description Incorporated By Reference To
Number
2.1 Plan of Reorganization, dated as Exhibit 2.1 of ANUI's Report on
of November 6, 2003. Form 8-K filed with the
commission on January 16, 2004.
2.2 Asset Purchase Agreement by and Exhibit 2.2 of ANUI's Report on
between the registrant and the Form 8-K filed with the
shareholders of Let's Talk commission on January 16, 2004.
Health, Inc., a California
corporation.
3(i) Restated Certificate of Exhibit 2.3 of ANUI's Report on
Incorporation of Alpha Form 8-K filed with the
Nutraceuticals, Inc., filed with commission on January 16, 2004.
the California Secretary of State
on January 8, 2004
3(ii) By-laws of Alpha Nutraceuticals, Exhibit 3(ii) of ANUI's Amendment
Inc No. 2 to the Registration
Statement on Form 10 filed with
the commission on April 6, 1992.
31.1 Rule 13a-14(a)/15d-14(a) Filed herewith
Certification of Chief Executive
Officer
31.2 Rule 13a-14(a)/15d-14(a) Filed herewith
Certification of Chief Financial
Officer
32 Section 1350 Certification Filed herewith
(b) Reports on Form 8-K
On January 16, 2004, we filed a Report on Form 8-K with the SEC announcing that
the company had completed the acquisition of Let's Talk Health, Inc., a
California corporation, as ordered by the U.S. Bankruptcy Court for the Southern
District of California as part of the our Chapter 11 bankruptcy reorganization.
On March 1, 2004 we filed an amendment to our Report of Form 8-K (Form 8-K/A)
providing audited financial statements for the years ended December 31, 2002 and
2003 for Let's Talk Health, Inc. This report and its amendment was the only
report on Form 8-K that we filed during the quarterly period ended March 31,
2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Alpha
Nutraceuticals, Inc., the registrant, has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: May 15, 2004
ALPHA NUTRACEUTICALS, INC.
By: /s/ James Cartmill
---------------------------------------
James Cartmill, Chief Financial Officer
Mr. Cartmill is the principal financial officer of Alpha Nutraceuticals, Inc.
and has been duly authorized to sign on its behalf.