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CBBD.PK > SEC Filings for CBBD.PK > Form 10QSB on 20-Sep-2006All Recent SEC Filings

Show all filings for ALPHA NUTRACEUTICALS INC | Request a Trial to NEW EDGAR Online Pro

Form 10QSB for ALPHA NUTRACEUTICALS INC


20-Sep-2006

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding our capital needs, business plans, and expectations. These risks and uncertainties could cause actual results to differ materially from those expressed in forward-looking statements. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance. Forward-looking statements are only predictions. The forward-looking events discussed in this Quarterly Report, the documents to which we refer you, and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties, and assumptions about us. For these statements, we claim the protection of the "bespeaks caution" doctrine. The forward-looking statements speak only as of the date hereof, and we expressly disclaim any obligation to publicly release the results of any revisions to these forward-looking statements to reflect events or circumstances after the date of this filing.

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 Current Report on Form 8-K. There have been no significant changes to these policies during the period discussed in this Report on Form 10-QSB.

RISK FACTORS

You should carefully consider the risks described below, as well as the other information in this report, when evaluating our business and future prospects. Should any of the following 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 investors could lose all or a portion of the value of their investment in our common stock.

Our operating results will vary and there is no guarantee that we will earn a profit. Fluctuations in our operating results may adversely affect the share price of our common stock.

We have experienced losses in the past and may incur losses in the future. Our operating results may fluctuate from year to year due to any of numerous factors described in this report. At times, these fluctuations may be significant. Fluctuations in our operating results may adversely affect the share price of our common stock.

A significant or prolonged economic downturn could have a material adverse effect on our results of operations.

Our sales are effected by the level of consumer demand for our products. A significant or prolonged economic downturn may adversely affect the disposable income of many consumers and may lower demand for the products we produce. A decline in consumer demand due to economic conditions could have a material adverse effect on our revenues and profit margins.

Our industry is highly competitive and we may be unable to compete effectively. Increased competition could adversely affect our financial condition.

The market for our products is highly competitive. Many of our competitors are substantially larger and have greater financial resources and broader name recognition than we do. Our larger competitors may be able to devote greater resources to research and development, marketing and other activities that could provide them with a competitive advantage. Our market has relatively low entry barriers and is highly sensitive to the introduction of new products that may rapidly capture a significant market share. Increased competition could result in price reductions, reduced gross profit margins, or loss of market share, any of which could have a material adverse effect on our financial condition and results of operations. There can be no assurance that we will be able to compete in this intensely competitive environment.

We may not be able to raise additional capital or obtain additional financing if needed.

Our cash from operations may not be sufficient to meet our working capital needs and/or to implement our business strategies. We do not currently have a line of credit or similar financing in place, and there can be no assurance that debt financing can be obtained if needed. In recent years, it has been difficult for companies to raise equity capital due to a variety of factors including the overall poor performance of the stock markets and the economic slowdown in the United States and other countries. Thus, there is no assurance we would be able to raise additional capital if needed. To the extent we do raise additional capital, the ownership position of existing shareholders could be diluted. Similarly, there can be no assurance that additional financing will be available if needed or that it will be available on favorable terms. Our inability to raise additional capital or to obtain additional financing if needed would negatively affect our ability to implement our business strategies and meet our goals. This, in turn, would adversely affect our financial condition and results of operations.

We may not be able to acquire new revenue generating divisions

We have recently sold our two major revenue producing divisions, Avidia Nutrition, Inc. and Lets Talk Health, Inc. We are currently looking to acquire new revenue generating divisions in the nutritional supplement industry. If we cannot acquire these new revenue generating divisions, our revenues will suffer substantially.

We are significantly influenced by our officers, directors and entities affiliated with them.

In the aggregate, ownership of Alpha Nutra, Inc. shares by management, and /or entities affiliated with management, represents a majority of our present issued and outstanding shares of common stock. These shareholders, if acting together, will be able to significantly influence all matters requiring approval by shareholders, including the election of directors and the approval of mergers or other business combinations.

The failure of our suppliers to supply products in sufficient quantities, at a favorable price, and in a timely fashion could adversely affect the results of our operations.

We buy our products, vitamins, nutritional supplements, and health care devices, from a limited number of suppliers. The loss of a major supplier could adversely affect our business operations. Although we believe that we could establish alternate sources for our products, any delay in locating and establishing relationships with other sources could result in product shortages and back orders for our products, with a resulting loss of sales and customers. In certain situations we may be required to alter our products or to substitute different materials from alternative sources.

A shortage of raw materials or an unexpected interruption of supply could also result in higher prices for products using those materials.

Although we may be able to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices sufficiently or quickly enough to offset the negative effects of the cost increases on our results of operations. Further, there can be no assurance that suppliers will provide the products needed by us in the quantities requested or at a price we are willing to pay. Because we do not control the manufacture of these products, we are also subject to delays caused by conditions outside of our control, including weather, transportation interruptions, strikes by supplier employees, and natural disasters or other catastrophic events.

Our business is subject to the effects of adverse publicity, which could negatively affect our sales and revenues.

Our business can be affected by adverse publicity or negative public perception about our industry, our competitors, or our business generally. This adverse publicity may include publicity about the nutritional supplements industry generally, the safety and quality of nutritional supplements or their ingredients in general, or our products or ingredients specifically. It may also include publicity regarding regulatory investigations, regardless of whether these investigations involve us or the business practices or products of our competitors. There can be no assurance that we will be able to avoid any adverse publicity or negative public perception in the future. Any adverse publicity or negative public perception will likely have a material adverse effect on our business, financial condition, and results of operations. Our business, financial condition, and results of operations also could be adversely affected if any of our products or any similar products distributed by other companies are alleged to be or are proved to be harmful to consumers or to have unanticipated health consequences.

We could be exposed to product liability claims or other litigation, which may be costly and could materially and adversely affect our operations.

We could face financial liability due to product liability claims if the use of our products results in significant loss or injury. Additionally, the sale of our products involves the risk of injury to consumers from tampering by unauthorized third parties or product contamination. We could be exposed to future product liability claims that, among others: our products contain contaminants; we provide consumers with inadequate instructions about product use; or we provide inadequate warning about side effects or interactions of our products with other substances.

We do not have product liability insurance coverage.

The cost of product liability this coverage has increased dramatically in recent years, while the availability of adequate insurance coverage has decreased. We currently do not have product liability coverage and there can be no assurance that product liability insurance will be available at an economically reasonable cost or that we will be able to obtain such insurance, or adequate insurance, at all. Additionally, it is possible that one or more of our insurers could exclude from our coverage certain ingredients used in our products. In such event, we may have to stop using those ingredients or stop offering those products. A substantial increase in our product liability risk or the loss of product lines could have a material adverse effect on our results of operations and financial condition.

We are subject to political and economic risks.

As we expand into markets outside the United States our business will become increasingly subject to political and economic risks in those markets. Our future growth may depend, in part, on our ability to expand into markets outside the United States. There can be no assurance that we will be able to expand our presence in markets outside the United States, enter new markets on a timely basis, or that new markets outside the United States will be profitable. There are significant regulatory and legal barriers in markets outside the United States that we must overcome. We will be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Our sales and operations outside the United States will be subject to political, economic and social uncertainties including, among others:

• changes and limits in import and export controls;

• increases in custom duties and tariffs;

• changes in government regulations and laws;

• coordination of geographically separated locations;

• changes in currency exchange rates;

• economic and political instability; and

•currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United States.

Any changes related to these and other factors could adversely affect our business, profitability and growth prospects.

Our products are subject to extensive government regulation, which could limit or prevent the sale of our products in some markets and could increase our costs.

The packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and in other countries. Failure to comply with FDA regulations may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions. Any action of this type by the FDA could materially adversely affect our ability to successfully market our products. In addition, if the FTC has reason to believe the law is being violated (for example, if it believes we do not possess adequate substantiation for product claims), it can initiate an enforcement action. FTC enforcement could result in orders requiring, among other things, limits on advertising, consumer redress, divestiture of assets, rescission of contracts, and such other relief as may be deemed necessary. Violation of these orders could result in substantial financial or other penalties. Any action by the FTC could materially adversely affect our ability to successfully market our products.

In markets outside the United States, before commencing operations or marketing our products, we may be required to obtain approvals, licenses, or certifications from a country's ministry of health or comparable agency.

Before commencing operations or marketing our products, we may be required to obtain approvals, licenses, or certifications from a country's ministry of health or comparable agency. Approvals or licensing may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients. We must also comply with product labeling and packaging regulations that vary from country to country. Furthermore, the regulations of these countries may conflict with those in the United States and with each other. The cost of complying with these various and potentially conflicting regulations can be substantial and can adversely affect our results of operations. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if adopted, would have on our business. They could include requirements for the reformulation of certain products to meet new standards, the recall or discontinuance of certain products, additional record keeping, expanded or different labeling, and additional scientific substantiation. Any or all of these requirements could have a material adverse effect on our operations.

If we are unable to attract and retain qualified management personnel, our business will suffer.

Our management personnel are primarily responsible for our day-to-day operations. We believe our success depends largely on our ability to attract, maintain and motivate highly qualified management personnel. Competition for qualified individuals can be intense, and we may not be able to hire additional qualified personnel in a timely manner and on reasonable terms. Our inability to retain a skilled professional management team could adversely affect our ability to successfully execute our business strategy and achieve our goals.

We will face additional risks if we are able to acquire or develop a manufacturing capability.

If we begin to manufacture our own vitamins and nutritional supplements we will be dependent on the uninterrupted and efficient operation of our manufacturing facility. Manufacturing operations are subject to power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural or other disasters, and the need to comply with the requirements or directives of governmental agencies, including the FDA. There can be no assurance that the occurrence of these or any other operational problems would not have a material adverse effect on our business, financial condition and results of operations. Furthermore, there can be no assurance that we would be able to obtain insurance to cover these and all other risks associated with manufacturing at a reasonable cost or, if obtained, that it will be adequate to cover any losses that we may incur from an interruption in our manufacturing operations.

We may be unable to protect our intellectual property rights or may inadvertently infringe on the intellectual property rights of others.

We possess and may possess in the future, certain proprietary trade secrets and similar intellectual property. There can be no assurance that we will be able to protect our intellectual property adequately. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Litigation in the United States or abroad may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. This litigation, even if successful, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, results of operation and financial condition. If any such claims are asserted against us, we may seek to obtain a license under the third party's intellectual property rights. There can be no assurance, however, that a license would be available on terms acceptable or favorable to us, if at all.

Our stock price could fluctuate significantly.

Our stock price has changed radically in the past four months. This is largely the result of moving from bankruptcy to the acquisition of a viable business. In the future we expect that the trading price of our stock could be subject to fluctuations in response to:

• broad market fluctuations and general economic conditions;

• fluctuations in our financial results;

• future offerings of our common stock or other securities or the exercise of warrants;

• the general condition of the nutritional supplement industry;

• increased competition;

• regulatory action;

• adverse publicity; and

• product and other public announcements.

The stock market has historically experienced significant price and volume fluctuations. There can be no assurance that an active market in our stock will develop, and if it develops there can be no assurance that the price of our common stock will not decline.

RECENT DEVELOPMENTS

On or about October 8, 2004, we entered into a share exchange agreement with Tempo Laboratories, Inc. to acquire 100% of the issued and outstanding stock of Tempo in exchange for the issuance of 1,320,000 shares of our common stock to the Tempo shareholders. Shortly thereafter, the parties to the agreement became parties to a lawsuit entitled Mankosa v. Donsbach (CA Sup. Ct. Case No. GIC 843131) concerning the terms of the agreement and various representations made by the parties. On May 19, 2005, the parties to the Mankosa v. Donsbach litigation entered into a settlement agreement whereby pursuant to the terms of the settlement agreement, the share exchange agreement with Tempo was unwound and no shares were transferred pursuant to the agreement.

On October 22, 2004, we formed a wholly owned Nevada subsidiary for the purpose of changing our domicile to the state of Nevada. On December 15, 2004, we merged with and into Alpha Nutraceuticals, Inc., a Nevada Corporation, changing our state of domicile to the state of Nevada. Our merger into Alpha Nutraceuticals, Inc. increased our authorized stock from 50,000,000 to 100,000,000 shares.

On December 31, 2004, we entered into a settlement agreement with GMGH International, Inc., a Nevada limited liability company, whereby we settled our $411,917 debt owed to GMGH by issuing GMGH 4,476,946 reverse-protected restricted shares of our common stock valued at $0.092 per share.

On December 31, 2004, we entered into a settlement agreement with Health Advances USA, a California corporation, whereby we settled our $595,756 debt owed to Health Advances USA by issuing Health Advances USA 3,600,000 reverse-protected restricted shares of our common stock valued at $0.165 per share.

On January 27, 2005, we changed our name to Alpha Nutra, Inc.

On June 30, 2005, we entered into a Stock and Asset Exchange Agreement with GMGH International, LLC and Golden Tones International, LLC whereby we exchanged 100% of the Avidia Nutrition interests and Let's Talk Health, Inc. shares of common stock held by us for 100% of the Alpha Nutra, Inc. shares of common stock held by GMGH, Golden Tones and each of the respective owners of GMGH and Golden Tones. The 10,465,333 shares of common stock we received from GMGH, Golden Tones and the owners were retired. Accordingly, following the exchange, GMGH and Golden Tones owned 100% of Avidia Nutrition and Let's Talk Health, Inc. We retained ownership of our AlphaNutra.com business.

On June 30, 2005, we entered into a settlement agreement with Business Consulting Group Unlimited, Inc., a Nevada company, pursuant to which BCGU forgave the outstanding debt we owed BCGU in exchange for our payment to BCGU of $47,500 and 500,000 restricted shares of our common stock.

On July 30, 2005, our board of directors appointed Messrs. Mark L. Baum and James B. Panther to our board of directors.

On August 26, 2005, directors Louis J. Paulsen, Robert Bliss and Jim Cartmill resigned from their positions as a director of the company. The resignations were not because of any disagreements with the company on matters relating to its operations, policies and practices.

SALES

Three Months
Ended March 31

2006 2005

Total Sales - $1,491,951

We had no sales for the three months ended March 31, 2006 as compared with $1,491,951 for the three months ended March 31, 2006. This reduction in sales is due to the June 30, 2005 sale of our revenue generating divisions Avidia Nutrition and Let's Talk Health, Inc. We are currently looking to acquire new revenue generating divisions in the nutritional supplement industry.

COST OF REVENUES

We had no costs associated with revenues in the three months ended March 31, 2006 as compared with $781,110 for the three months ended March 31, 2005. This reduction in cost of revenues is due to the June 30, 2005 sale of our revenue generating divisions Avidia Nutrition and Let's Talk Health, Inc.

GENERAL AND ADMINISTRATIVE EXPENSES

We sustained no general and administrative expenses in the three months ended March 31, 2006 as compared with $1,127,139 for the three months ended March 31, 2005. This reduction in expenses is due to the June 30, 2005 sale of our revenue generating divisions Avidia Nutrition and Let's Talk Health, Inc.

NET PROFIT FROM OPERATIONS

Three Months
Ended March 31

2006 2005

Net Profit (Loss) - ($418,881)

For the three months ended March 31, 2006, we had no profits or losses from operations as compared with a net loss of $418,881 on operations or about 28% of sales for the three months ended March 31, 2005. This reduction in net losses is due to the June 30, 2005 sale of our revenue generating divisions Avidia Nutrition and Let's Talk Health, Inc.

LIQUIDITY AND CAPITAL RESOURCES

Our cash on hand for the three months ended September 30, 2005 was $0 as compared to $49,076 for the three months ended September 30, 2004. This reduction in cash on hand is due to the June 30, 2005 sale of our revenue generating divisions Avidia Nutrition and Let's Talk Health, Inc.

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

We have 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 2005. As of March 31, 2006, we are not aware of any additional pronouncements that materially effect our financial position or results of operations.

EMPLOYEES

We currently do not have any employees. We hire contract labor on an as need basis. We have not entered into a collective bargaining agreement with any union. We have not experienced any work stoppages and consider the relations with the individuals that work for us to be good.

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