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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, 1999
--------------
-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)
1480 Route 9 North, Suite 204 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, 1999, 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, 1999
and December 31, 1998................................... 3
Statements of Operations for the three
months ended March 31, 1999 and March 31, 1998.......... 4
Statements of Cash Flows for the three months
ended March 31, 1999 and March 31, 1998................. 5
Notes 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......................................... 10
SIGNATURES................................................................ 10
2
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,825,038 $ 3,415,120
Accounts receivable, net 469,795 270,673
Inventories 431,847 375,074
Prepaid expenses 254,030 208,538
------------ ------------
Total current assets 3,980,710 4,269,405
Property and equipment, net 96,448 104,533
Other asset:
Deposits 3,991 3,991
Organization cost, net of accumulated amortization 3,312 4,107
------------ ------------
7,303 8,098
------------ ------------
$ 4,084,461 $ 4,382,036
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 62,440 $ 82,264
Accounts payable and accrued expenses 544,664 252,262
Reserve for product replacement 343,686 344,464
Customer deposits 3,530 5,529
------------ ------------
Total current liabilities 954,320 684,519
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, 1998 and March 31, 1999 11,386 11,386
Additional paid-in capital 10,803,085 10,803,085
Accumulated deficit (7,684,330) (7,116,954)
------------ ------------
3,130,141 3,697,517
------------ ------------
$ 4,084,461 $ 4,382,036
============ ============
</TABLE>
3
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 322,794 $ 339,394
Cost of goods sold:
Inventories, beginning 375,074 553,098
Purchases 174,100 236,679
----------- -----------
549,174 789,777
Less: inventories, ending 431,847 687,500
----------- -----------
117,327 102,277
----------- -----------
Gross Profit 205,467 237,117
Selling, general and administrative expenses 778,795 676,112
Research & Development 20,700 27,205
Amortization expense 795 795
Depreciation expense 9,765 14,480
----------- -----------
810,055 718,592
----------- -----------
Net operating loss (604,588) (481,475)
Other income (expense)
Interest income 35,862 72,301
Bad debt recovery 1,350 --
----------- -----------
37,212 72,301
----------- -----------
Loss before income taxes (567,376) (409,174)
Provision (benefit) for income taxes -- --
----------- -----------
Net loss $ (567,376) $ (409,174)
=========== ===========
Basic loss per share $ (0.12) $ (0.09)
=========== ===========
Diluted loss per share $ (0.12) $ (0.09)
=========== ===========
Weighted average common shares:
Basic 4,554,367 4,554,367
=========== ===========
Diluted 4,642,260 4,949,567
=========== ===========
</TABLE>
4
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss (567,376) $ (409,174)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 9,765 14,480
Amortization 795 795
Changes in assets and liabilities:
Increase (decrease) in accounts receivable (199,122) 65,456
Increase in prepaid expenses (45,492) (50,330)
Increase in Inventories (56,773) (134,452)
Decrease in other current assets -- 2,906
Increase in accounts payable and accrued expenses 292,402 124,482
Decrease in reserve for product replacement (778) (132,480)
Decrease in customer deposits (1,999) --
----------- -----------
Net cash used in operating activities (568,578) (518,317)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (1,680) (14,107)
----------- -----------
Net cash used in investing activities (1,680) (14,107)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt (19,824) (17,991)
----------- -----------
Net cash used in financing activities (19,824) (17,991)
----------- -----------
Net decrease in cash (590,082) (550,415)
Cash, beginning balance 3,415,120 5,865,881
----------- -----------
Cash, Ending balance $ 2,825,038 $ 5,315,466
=========== ===========
</TABLE>
5
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,1999 AND MARCH 31, 1998
(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, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. 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, 1998.
2. Year 2000 Discussion
As has been widely reported, many computer systems process dates based on
two digits for the year of a transaction and are unable to process dates in the
year 2000 and beyond. Therefore, these computer programs do not properly
recognize a year that begins with "20" instead of the familiar "19". If not
corrected, many computer applications could fail or create erroneous results.
The Company primarily uses licensed software products in its operations with a
significant portion of processes and transactions centralized in one particular
software package. The manufacturer of this software has already provided the
Company with a Year 2000 Update for no charge, so that the Company's main
processing system is Year 2000 compliant. In addition, the server for the
Company's workstation environment and the word processing and spreadsheet
package that the Company utilizes have been upgraded with "service releases" or
"patches" that have made these systems Year 2000 compliant. These upgrades were
provided to the Company at no cost. The Company has initiated a formal
communications program with a substantial majority of its significant suppliers
and customers to determine their Year 2000 status. While the Company expects a
successful resolution of all issues, there can be no guarantee that the systems
of other companies which interact with the Company's systems will be converted
in a timely manner. Unsuccessful conversions by these third party companies
should not have a material adverse effect on the Company's business as
contingent plans have been formed to transact business through facsimile and
telephone lines.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 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. 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.
In March 1997, the Company extended the ENDUROX line of products with ENDUROX
ProHeart(R) and ENDUROX EXCEL(R). Prosol Plus(TM), a product marketed to sustain
emotional balance and promote a positive frame of mind, was introduced in
December 1997. In February 1999, the Company introduced ENDUROX(R)R4(TM)
Performance/Recovery Drink, the latest in its ENDUROX line of products, which
demonstrated a number of exercise related benefits in clinical studies,
including enhanced performance and extended endurance, decreased post-exercise
muscle stress, and reduced free radical build-up. The Company expects to
introduce later in 1999 a new product that will compete in the approximately $3
billion market for weight loss and weight control products.
(b) Results of Operations
(i) Three Months Ended March 31, 1999 versus March 31, 1998
The Company incurred a loss of $567,376 or $.12 per share for the fiscal
quarter ended March 31, 1999, compared to a loss of $409,174 or $.09 per share
for the period ended March 31, 1998. Revenues in the three months ended March
31, 1999, were $322,794 compared to $339,394 for the same period in 1998.
The Company's revenues for the first quarter of 1999 were derived from
substantially two sources - the ENDUROX(R)R4(TM) Performance/Recovery Drink
(53%) and the original ENDUROX line of products (45%) compared to the first
quarter of 1998 when 80% of the revenues came from the original ENDUROX line of
products and 20% from Prosol Plus(TM). Sales revenues reported for the first
quarter of 1999 are net of $84,474 for the return of certain products for which
the Company allowed full credit.
The Company believes sales for the original ENDUROX line of products in the
three months ended March 31, 1999 (approximately $145,000) is indicative of
sales levels of these products in future periods with current levels of
advertising and promotional expenditures. Management believes that sales of the
7
<PAGE>
ENDUROX(R)R4(TM) Performance/Recovery Drink will increase in the second quarter
due to the broadening of its distribution base accompanied by a rise in
advertising and promotional expenditures. Although not evident in the first
quarter of 1999, management believes that the Company's advertising and
promotional support for ENDUROX(R)R4(TM) Performance/Recovery Drink in the
second and third quarters may also stimulate sales of the original ENDUROX line
of products.
The Company's gross profit margin declined from 70% for the three months
ended March 31, 1998 to 64% for the three months ended March 31, 1999, primarily
as a result of the Company's product sales mix. The ENDUROX(R)R4(TM)
Performance/Recovery Drink has a higher cost of goods sold than the original
ENDUROX line of products and during the three months ended March 31, 1998, only
the original ENDUROX line of products was sold. In addition, selling, general
and administrative expenses increased from $676,112 for the three months ended
March 31, 1998 to $778,795 (approximately 15%) for the three months ended March
31, 1999. The primary reasons for increase in selling, general and
administrative expenses between the periods was higher office salaries in the
first quarter of 1999 due to new hires in the second quarter of 1998 and to
advertising and promotional expenditures associated with the launch of the
ENDUROX(R)R4(TM) Performance/Recovery Drink.
Selling, general and administrative costs are expected to increase during
the remainder of 1999 as the ENDUROX(R)R4(TM) Performance/Recovery Drink's
advertising and promotional campaigns are carried forth. While the Company's
current level of selling, general and administrative expenses is high relative
to present sales levels, management believes that its investment in
infrastructure, (primarily for sales and marketing personnel and a new
advertising and promotional campaign), is necessary to build multiple product
lines and to adequately support the sales that new products are expected to
generate.
(c) Liquidity and Capital Resources
At March 31, 1999, the Company's current assets exceeded its current
liabilities by approximately $3.03 million, with a ratio of current assets to
current liabilities of approximately 4.2 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 increased advertising and promotional expenditures
associated with the ENDUROX(R)R4(TM) Performance/Recovery Drink and the
introduction of its weight control product in the fourth quarter of 1999. These
expenditures presently are projected in the range of $750,000 over the remainder
of 1999.
8
<PAGE>
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,
1999, 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
machine and equipment 57,997
(3) Purchase of real estate -0-
(4) Acquisition of other business -0-
(5) Repayment of debt 94,482
(6) Working capital 3,081,077
(7) Temporary investments* 2,631,774
(8) Any other purpose expected to
involve $100,000 or more -0-
(9) Research & development 113,216
----------
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: MAY 13, 1999
--------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,825,038
<SECURITIES> 0
<RECEIVABLES> 476,947
<ALLOWANCES> 7,152
<INVENTORY> 431,847
<CURRENT-ASSETS> 3,980,710
<PP&E> 96,448
<DEPRECIATION> 9,765
<TOTAL-ASSETS> 4,084,461
<CURRENT-LIABILITIES> 954,320
<BONDS> 0
0
0
<COMMON> 11,386
<OTHER-SE> 3,118,755
<TOTAL-LIABILITY-AND-EQUITY> 4,084,461
<SALES> 322,794
<TOTAL-REVENUES> 360,006
<CGS> 117,327
<TOTAL-COSTS> 927,382
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (567,376)
<INCOME-TAX> 0
<INCOME-CONTINUING> (567,376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (576,376)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
