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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
-OR-
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from...to...
Commission File No. 333-36379
PACIFICHEALTH LABORATORIES, INC.
--------------------------------------
(Exact name of issuer as specified in its charter)
DELAWARE 22-3367588
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1460 Route 9 North
Woodbridge, NJ 07095
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 636-6141
Check whether the issuer (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 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 [_]
At May 1, 1998 there were 4,554,367 shares of common stock, par value $.0025 per
share, of the registrant outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1998
and December 31, 1997................................... 3
Statements of Operations for the three
months ended March 31, 1998 and March 31, 1997.......... 4
Statements of Cash Flows for the three months
ended March 31, 1998 and March 31, 1997................. 5
Note to Consolidated Financial Statements.................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 7
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds............. 9
ITEM 6. Exhibits and Reports..................................
SIGNATURES..................................................................10
2
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,315,466 $ 5,865,881
Accounts receivable, net 342,654 408,110
Inventories 687,550 553,098
Prepaid expenses 294,911 244,581
Other -- 2,906
------------ ------------
Total current assets 6,640,581 7,074,576
Property and equipment, net 101,377 101,750
Other asset:
Organization cost, net of accumulated amortization 6,493 7,288
------------ ------------
$ 6,748,451 $ 7,183,614
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 62,440 $ 74,658
Accounts payable and accrued expenses 380,112 255,630
Reserve for product replacement 478,011 610,491
------------ ------------
Total current liabilities 920,563 940,779
Long-term debt 76,491 82,264
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares;
issued and outstanding -0- shares
shares of 10% convertible preferred -- --
Common stock, $.0025 par value;
authorized 10,000,000 shares;
issued and outstanding 4,554,367 shares
at December 31, 1997 and March 31, 1998 11,386 11,386
Additional paid-in capital 10,803,085 10,803,085
Accumulated deficit (5,063,074) (4,653,900)
------------ ------------
5,751,397 6,160,571
------------ ------------
$ 6,748,451 $ 7,183,614
============ ============
</TABLE>
3
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $ 339,394 $ 1,527,902
Cost of goods sold:
Inventories, beginning 553,098 905,950
Purchases 236,679 538,439
----------- -----------
789,777 1,444,389
Less: inventories, ending 687,500 1,107,233
----------- -----------
102,277 337,156
----------- -----------
Gross Profit 237,117 1,190,746
Selling, general and administrative expenses 676,112 2,151,204
Research & Development 27,205 11,476
Amortization expense 795 795
Depreciation expense 14,480 19,836
----------- -----------
718,592 2,183,311
----------- -----------
Net operating loss (481,475) (992,565)
Other income (expense)
Interest income 76,253 16,403
Investment fees (3,952) --
----------- -----------
72,301 16,403
----------- -----------
Loss before income taxes (409,174) (976,162)
Provision (benefit) for income taxes -- --
----------- -----------
Net loss $ (409,174) $ (976,162)
=========== ===========
Primary net loss per share of common stock $ (0.09) $ (0.29)
=========== ===========
Fully diluted net loss per share of common stock $ (0.09) $ (0.29)
=========== ===========
Primary weighted average shares outstanding 4,554,367 3,372,908
=========== ===========
Fully diluted weighted average shares outstanding 6,325,067 4,597,847
=========== ===========
</TABLE>
4
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (409,174) $ (976,162)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 14,480 19,836
Amortization 795 795
Changes in assets and liabilities:
Decrease in accounts receivable 65,456 1,038,326
Increase in prepaid expenses (50,330) (61,336)
Increase in Inventories (134,452) (201,283)
Decrease (increase) in other current assets 2,906 (1,638)
Increase in accounts payable and accrued expenses 124,482 154,342
Decrease in reserve for product replacement (132,480) --
----------- -----------
Net cash used in operating activities (518,317) (27,120)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (14,107) (34,844)
----------- -----------
Net cash used in investing activities (14,107) (34,844)
----------- -----------
Cash flows from financing activities:
Issuance of common stock -- 949,631
Repayments of long-term debt (17,991) --
Dividends paid -- (177)
----------- -----------
Net cash (used in) provided by financing activities (17,991) 949,454
----------- -----------
Net (decrease) increase in cash (550,415) 887,490
Cash, beginning balance 5,865,881 743,313
----------- -----------
Cash, Ending balance $ 5,315,466 $ 1,630,803
=========== ===========
Non-cash financing activity:
Preferred stock dividend $ -- $ 33,240
=========== ===========
</TABLE>
5
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1. Basis of presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB and Item
310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. The
unaudited financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1997.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion contains forward-looking statements made by the Company
pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements reflect the Company's current
views with respect to such future events. Actual results may vary materially and
adversely from those anticipated, believed, estimated or otherwise indicated.
Factors that could cause actual results to differ adversely include, without
limitation, unexpected laboratory results in clinical research studies,
inability to secure targeted product endorsers, and timing differences between
the scheduled and actual launch date of new products. Further information and
additional important factors are set forth in reports and other filings with the
Securities and Exchange Commission, including the Company's Prospectus dated
December 19, 1997, under the caption "Risk Factors". The Company does not
undertake to update any forward-looking statement that may be made from time to
time by or on behalf of the Company.
(a) Introduction
The Company was incorporated in April 1995 to develop and market dietary
supplements that improve and promote health and well being and can be offered
for sale without prior approval by The Food and Drug Administration in
compliance with current regulatory guidelines. The Company's first product,
ENDUROX(R), was introduced in March 1996, and commercial sales began in May
1996. Prior to that time, the Company was engaged in organizational and
financing activities, product research and development, and preliminary
marketing and distribution activities. As of March 31, 1998, the Company had
introduced and was engaged in marketing the following four products: ENDUROX(R),
ENDUROX ProHeart(R), ENDUROX EXCEL(R) ("the ENDUROX line of products") and
PROSOL PLUS(TM).
The Company has identified and developed a number of new products, several
of which are scheduled to be introduced in the current fiscal year. These
products, which are expected to be launched in the third and fourth quarters,
1998, are primarily in the areas of weight management, treatment of arthritis
and wound healing. In addition, the Company expects to introduce its ENDUROX(R)
SPORTS DRINK, the latest in its ENDUROX line of products, in the third quarter
of 1998.
(b) Results of Operations
(i) Three Months Ended March 31, 1998 versus March 31, 1997
The Company incurred a loss of $409,174 or $.09 per share for the fiscal
quarter ended March 31, 1998, compared to a loss of $976,162 or $.29 per share
for the period ended March 31, 1997. Revenues in the three months ended March
31, 1998, were $339,394 compared to $1,527,902 for the same period in 1997.
The substantial decrease in revenues (approximately 78%) from the first
quarter of 1997 compared to the first quarter 1998 is attributable to reduced
sales levels for the Company's initial product, ENDUROX. Substantially all sales
of the Company in the three months ended March 31, 1997 were attributed to
"pipe-line fill" for the original ENDUROX product. Once the distribution
pipeline for a product is filled, sales result only from reorders from retailers
as they replenish inventory sold to their customers, from the
7
<PAGE>
expansion of the distribution network, or from adding retailers in existing
distribution channels. As a result, the Company believes sales for the ENDUROX
line of products in the three months ended March 31, 1998 are more indicative of
sales levels that will be achieved in future periods with current levels of
advertising and promotional expenditures. The Company intends to initiate a new
advertising and promotion campaign for the ENDUROX line of products during the
third quarter, 1998. This campaign is intended to commence simultaneously with
the launching of the ENDUROX(R) SPORTS DRINK.
The Company's gross profit margin declined from 78% for the three month
ended March 31, 1997 to 70% for the three months ended March 31, 1998, primarily
as a result of the Company's product sales mix. ENDUROX ProHeart(R), ENDUROX
EXCEL(R) and PROSOL PLUS(TM) have a higher cost of goods sold than ENDUROX. For
the three months ended March 31, 1997, only ENDUROX was sold. In addition,
selling, general and administrative expenses decreased from $2,183,311 for the
three months ended March 31, 1997 to $718,592 (approximately 67%) for the three
months ended March 31, 1998. The primary reasons for the substantial decrease in
selling, general and administrative expenses between the periods was the lack of
television and print advertising in the three months ended March 31, 1998 along
with a general reduction in advertising and promotional expenditures.
Due to the Company's lack of advertising funds in the fourth quarter, 1997,
the Company was unable to commit to advanced advertising and promotional dates
for the first six months of 1998. However, in the second quarter, 1998, the
Company has hired two additional employees who will primarily focus on
increasing the sales of the ENDUROX line of products, implementing the Company's
new advertising and promotional campaigns, and launching the new ENDUROX SPORTS
DRINK. As a result, management expects that sales in the ENDUROX line of
products will increase in the third and fourth quarters, 1998 over the sales of
these products in the first half of 1998. Sales of PROSOL PLUS, which was
introduced in December, 1997, are expected to exceed sales in comparable 1997
periods. The Company is unable to predict sales for the ENDUROX SPORTS DRINK and
other new products scheduled for introduction in the second half of 1998.
(c) Liquidity and Capital Resources
At March 31, 1998, the Company's current assets exceeded its current
liabilities by approximately $5.72 million, with a ratio of current assets to
liabilities of approximately 6.6 to 1. The Company's strong current position is
the result of completion of its initial public offering in the fourth quarter of
1997, which resulted in net proceeds of approximately $5.98 million to the
Company.
Management expects the Company to be able to satisfy its cash requirements
during the next 12 months from cash on hand. The Company has no commitments for
significant capital expenditures over the next 12 months. The largest
expenditures now contemplated (apart from current levels of sales, general and
administrative costs) are advertising or promotion expenditures anticipated in
connection with the ENDUROX line of products and PROSOL PLUS. These expenditures
presently are projected in the range of $500,000 to $750,000 over the remainder
of 1998. At this time, the Company is unable to project expenditures relating to
the future product launches of the new products.
8
<PAGE>
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a), (b) Changes in Securities: None.
(c) Sales of Unregistered Securities: None.
(d) The Registration Statement to which the following
disclosures pertain is Registration Statement on Form SB-2 (Registration No.
333-36379) effective December 18, 1997 (the "Registration Statement").
From the effective date of the Registration Statement through March 31,
1998, net proceeds from the sale of securities pursuant to the Registration
Statement have been applied as follows (update numbers):
(1) Construction of plant, building
and facilities $ -0-
(2) Purchase and installation of
machinery and equipment 14,107
(3) Purchase of real estate -0-
(4) Acquisition of other businesses -0-
(5) Repayment of debt 17,991
(6) Working capital 866,019
(7) Temporary investments* 5,053,224
(8) Any other purpose expected to
involve $100,000 or more -0-
(9) Research & development 27,205
----------
Total applied through 3/31/98 $5,978,546
==========
- ----------
* Short term commercial paper.
None of the expenditures described above were made directly or indirectly
to directors, officers or general partners of the Company, any associate of any
such persons, any person owning 10% or more of any class of equity securities of
the Company, or any affiliate of the Company.
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
No. Description
------------ -----------
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PACIFICHEALTH LABORATORIES, INC.
By: /s/ JONATHAN D. RAHN
-----------------------------------
JONATHAN D. RAHN
Executive Vice President
(Principal Financial
Officer and Principal Accounting
Officer)
Date:
---------------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,315,466
<SECURITIES> 0
<RECEIVABLES> 366,568
<ALLOWANCES> 23,914
<INVENTORY> 687,550
<CURRENT-ASSETS> 6,640,581
<PP&E> 101,377
<DEPRECIATION> 14,480
<TOTAL-ASSETS> 6,748,451
<CURRENT-LIABILITIES> 920,563
<BONDS> 0
0
0
<COMMON> 11,386
<OTHER-SE> 5,740,011
<TOTAL-LIABILITY-AND-EQUITY> 6,748,451
<SALES> 339,394
<TOTAL-REVENUES> 415,647
<CGS> 102,277
<TOTAL-COSTS> 820,869
<OTHER-EXPENSES> 3,952
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (409,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (409,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (409,174)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
