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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, 2000
-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.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 636-6141
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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 [_]
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At March 31, 2000, 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]
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<PAGE>
PACIFICHEALTH LABORATORIES, INC.
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2000
and December 31, 1999................................... 3
Statements of Operations for the three
months ended March 31, 2000 and March 31, 1999.......... 4
Statements of Cash Flows for the three months
ended March 31, 2000 and March 31, 1999................. 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......................................... 10
SIGNATURES.................................................................. 10
2
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,402,131 $ 1,742,360
Accounts receivable, net 268,241 538,837
Inventories 710,876 385,427
Prepaid expenses 73,321 89,305
------------ ------------
Total current assets 2,454,569 2,755,929
Property and equipment, net 84,665 84,339
Other asset:
Deposits 3,991 3,991
Organization cost, net of accumulated amortization 133 --
------------ ------------
4,124 3,991
------------ ------------
$ 2,543,358 $ 2,844,259
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 391,685 $ 211,061
Reserve for product replacement 160,573 161,062
Customer deposits -- --
------------ ------------
Total current liabilities 552,258 372,123
------------ ------------
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, 1999 and March 31, 2000 11,386 11,386
Additional paid-in capital 10,803,085 10,803,085
Accumulated deficit (8,823,371) (8,342,335)
------------ ------------
1,991,100 2,472,136
------------ ------------
$ 2,543,358 $ 2,844,259
============ ============
</TABLE>
3
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Revenues $ 348,755 $ 322,794
Cost of goods sold:
Inventories, beginning 385,427 375,074
Purchases 477,187 174,100
----------- ----------
862,614 549,174
Less: inventories, ending 710,876 431,847
----------- ----------
151,738 117,327
----------- ----------
Gross Profit 197,017 205,467
Selling, general and administrative expenses 607,150 778,795
Research & Development 82,260 20,700
Amortization expense 795 795
Depreciation expense 8,823 9,765
----------- ----------
699,028 810,055
----------- ----------
Net operating loss (502,011) (604,588)
Other income (expense)
Interest income 20,975 35,862
Bad debt recovery -- 1,350
----------- ----------
20,975 37,212
----------- ----------
Loss before income taxes (481,036) (567,376)
Provision (benefit) for income taxes -- --
----------- ----------
Net loss $ (481,036) $ (567,376)
=========== ==========
Basic loss per share $ (0.11) $ (0.12)
=========== ==========
Diluted loss per share $ (0.11) $ (0.12)
=========== ==========
Weighted average common shares:
Basic 4,554,367 4,554,367
=========== ==========
Diluted 4,831,116 4,642,260
=========== ==========
</TABLE>
4
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss (481,036) $ (567,376)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 8,823 9,795
Amortization 765 795
Changes in assets and liabilities:
Decrease in accounts receivable 270,596 (199,122)
Decrease in prepaid expenses 15,984 (45,492)
Increase in Inventories (325,449) (56,773)
Decrease in other current assets -- --
Increase in accounts payable and accrued expenses 180,624 292,402
Decrease in reserve for product replacement (489) (778)
Decrease in customer deposits -- (1,999)
---------- -----------
Net cash used in operating activities (330,152) (568,578)
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets (10,077) (1,680)
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Net cash used in investing activities (10,077) (1,680)
---------- -----------
Cash flows from financing activities:
Repayments of long-term debt -- (19,824)
---------- -----------
Net cash used in financing activities -- (19,824)
---------- -----------
Net decrease in cash (340,229) (590,082)
Cash, beginning balance 1,742,360 3,415,120
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Cash, Ending balance $1,402,131 $ 2,825,038
========== ===========
</TABLE>
5
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
NOTE TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(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, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. 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, 1999.
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. Our first product, ENDUROX(R) was
introduced in March 1996, and commercial sales began in May 1996. In March 1997,
we 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, we introduced ENDUROX(R)R4(R) Performance/Recovery Drink, the latest in
our 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. In April 2000, we introduced SATIETROL(R), a new diet product that
will compete in the approximately $10 billion market for weight loss and weight
control products.
(b) Results of Operations
(i) Three Months Ended March 31, 2000 versus March 31, 1999
We incurred a loss of $481,036 or $.11 per share for the fiscal quarter
ended March 31, 2000 compared to a loss of $567,376 or $.12 per share for the
period ended March 31, 1999. Revenues in the three months ended March 31, 2000
were $348,755 compared to $322,794 for the same period in 1999. 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.
Our revenues for the first quarter of 2000 were derived from substantially
two sources - ENDUROX R4 (57%) and the original ENDUROX line of products (41%).
This is comparable to the first quarter of 1999 when revenues were also derived
from the same two sources - ENDUROX R4 (53%) and the original ENDUROX line of
products (45%).
7
<PAGE>
We believe that sales for the original ENDUROX line of products in the
three months ended March 31, 2000 (approximately $151,000) are indicative of
sales levels of these products in future periods with the current levels of
advertising and promotional expenditures. We also believe that sales of ENDUROX
R4 will increase in the second quarter due to increased advertising and
promotional expenditures coupled with the improvement in the weather. Although
not evident from the results in the first quarter of 2000, we believe that the
our advertising and promotional support for ENDUROX R4 in the second and third
quarters may also stimulate sales of the original ENDUROX line of products. Our
new weight loss product, SATIETROL, has been well received since its
introduction in early April 2000 and we expect total revenues for the second
quarter 2000 to significantly exceed total revenues for the second quarter 1999.
Our gross profit margin declined from 64% for the three months ended March
31, 1999 to 56% for the three months ended March 31, 2000, primarily as a result
of a decrease in the gross profit margin on ENDUROX R4. In 1999, when Endurox R4
was first introduced, it was only available in one size and one flavor. Since
then, we have expanded that line to include several size canisters and several
flavors, which has increased our cost of goods sold for Endurox R4 products.
Selling, general and administrative expenses decreased from $778,795 for
the three months ended March 31, 1999 to $607,150 (approximately 22%) for the
three months ended March 31, 2000. The primary reasons for the decrease in
selling, general and administrative expenses between the periods was the
elimination of $93,000 in spokesperson's fees and the reduction of $94,000 in
advertising, promotion, and package development expenses. Selling, general and
administrative costs are expected to increase during the remainder of 2000 as
the ENDUROX R4 and SATIETROL advertising and promotional campaigns are carried
forth.
(c) Liquidity and Capital Resources
Our strong current position is the result of the completion of our initial
public offering in the fourth quarter of 1997, which resulted in net proceeds of
approximately $5.98 million to the Company. At March 31, 2000, our current
assets exceeded our current liabilities by approximately $1.9 million, with a
ratio of current assets to current liabilities of approximately 4.4 to 1.
Inventory levels were higher at March 31, 2000 compared to December 31, 1999,
because we were in the process of building up our SATIETROL inventory in
preparation for the introduction of that new product. Accounts receivable were
lower at March 31, 2000 compared to December 31, 1999, because sales were lower
in the first quarter 2000 than in the fourth quarter of 1999. We expect our
accounts receivable turnover to increase in the future, as more sales are
transacted through our SATIETROL web site (www.hungeroff.com), where payment is
made by credit card.
We expect to satisfy our cash requirements during the next 12 months from
cash on hand. We have 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 and
8
<PAGE>
promotional expenditures associated with ENDUROX R4 and the introduction of
SATIETROL. These expenditures presently are projected in the range of $600,000
over the remainder of 2000.
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,
2000, 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 83,136
(3) Purchase of real estate -0-
(4) Acquisition of other businesses -0-
(5) Repayment of debt 156,922
(6) Working capital 4,026,836
(7) Temporary investments* 1,357,003
(8) Any other purpose expected to -0-
involve $100,000 or more
(9) Research & development 354,649
----------
Total applied through 3/31/00 $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 10, 2000
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,402,131
<SECURITIES> 0
<RECEIVABLES> 269,726
<ALLOWANCES> 1,485
<INVENTORY> 710,876
<CURRENT-ASSETS> 2,454,569
<PP&E> 84,665
<DEPRECIATION> 8,823
<TOTAL-ASSETS> 2,543,358
<CURRENT-LIABILITIES> 552,258
<BONDS> 0
0
0
<COMMON> 11,386
<OTHER-SE> 1,979,714
<TOTAL-LIABILITY-AND-EQUITY> 2,543,358
<SALES> 348,755
<TOTAL-REVENUES> 369,730
<CGS> 151,738
<TOTAL-COSTS> 850,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (481,036)
<INCOME-TAX> 0
<INCOME-CONTINUING> (481,036)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (481,036)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
