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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 30, 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
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 August 4, 2000 there were 4,646,367 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 2000
and December 31, 1999................................. 3
Statements of Operations for the three and six
months ended June 30, 2000 and 1999................... 4
Statements of Cash Flows for the six months
ended June 30, 2000 and 1999.......................... 5
Notes to 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.................. 10
ITEM 6. Exhibits and Reports....................................... 11
SIGNATURES................................................................ 11
2
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PACIFICHEALTH LABORATORIES, INC.
BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- ------------
Current assets:
Cash and cash equivalents $ 768,935 $ 1,742,360
Accounts receivable, net 695,744 538,837
Inventories 1,257,244 385,427
Prepaid expenses 69,739 89,305
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Total current assets 2,791,662 2,755,929
Property and equipment, net 79,297 84,339
Other asset:
Deposits 53,991 3,991
----------- -----------
$ 2,924,951 $ 2,844,259
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 658,503 211,061
Reserve for product replacement 80,573 161,062
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Total current liabilities 739,077 372,123
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares;
issued and outstanding -0- shares
shares of 10% convertible preferred
Common stock, $.0025 par value;
authorized 10,000,000 shares;
issued and outstanding 4,554,367 shares
at December 31, 1999 and 4,629,367 shares
at June 30, 2000 11,573 11,386
Additional paid-in capital 10,955,094 10,803,085
Accumulated deficit (8,780,793) (8,342,335)
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2,185, 874 2,472,136
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$ 2,924,951 $ 2,844,259
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3
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PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $1,485,342 $ 527,365 $ 1,834,097 $ 850,159
Cost of goods sold 633,920 199,097 785,658 316,424
---------- ---------- ----------- -----------
Gross Profit 851,422 328,268 1,048,439 533,735
Selling, general and administrative expenses 816,464 879,302 1,423,614 1,658,097
Research & Development 34,289 38,634 116,549 59,334
Amortization expense 133 795 928 1,590
Depreciation expense 9,604 8,869 18,427 18,634
Provision for replacement of product (35,000) (162,285) (35,000) (162,285)
---------- ---------- ----------- -----------
825,490 765,315 1,524,518 1,575,370
---------- ---------- ----------- -----------
Net operating income (loss) 25,932 (437,047) (476,079) (1,041,635)
Other income (expense)
Interest income 16,646 25,971 37,621 61,833
Bad debt recovery - - - 1,350
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16,646 25,971 37,621 63,183
---------- ---------- ----------- -----------
Income (loss) before income taxes 42,578 (411,076) (438,458) (978,452)
Provision for income taxes - - - -
---------- ---------- ----------- -----------
Net income (loss) $ 42,578 $ (411,076) $ (438,458) $ (978,452)
========== ========== =========== ===========
Basic income (loss) per share $ 0.01 $ (0.09) $ (0.10) $ (0.21)
========== ========== =========== ===========
Diluted income (loss) per share $ 0.01 $ (0.09) $ (0.10) $ (0.21)
========== ========== =========== ===========
Weighted average common shares:
Basic 4,597,488 4,554,367 4,575,927 4,554,367
========== ========== =========== ===========
Diluted 4,928,710 4,554,367 4,858,711 4,563,105
========== ========== =========== ===========
</TABLE>
4
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PACIFICHEALTH LABORATORIES, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss (438,458) (978,452)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 18,427 18,634
Amortization 928 1,590
Intrinsic value of non-employee stock options granted 20,946 --
Changes in assets and liabilities:
(Increase) / Decrease in accounts receivable (156,907) (259,848)
(Increase) / Decrease in inventories (871,817) 55,744
(Increase) / Decrease in prepaid expenses 19,566 38,844
Increase in other current assets (50,928) --
Increase in accounts payable and accrued expenses 447,443 137,704
Decrease in reserve for product replacement (80,489) (166,161)
Decrease in customer deposits -- (3,333)
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Net cash used in operating activities (1,091,289) (1,155,278)
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Cash flows from investing activities:
Purchase of fixed assets (13,386) (7,426)
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Net cash used in investing activities (13,386) (7,426)
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Cash flows from financing activities:
Repayments of long-term debt -- (40,135)
Common stock options exercised 131,250 --
----------- -----------
Net cash provided (used) by in financing activities 131,250 (40,135)
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Net decrease in cash (973,425) (1,202,839)
Cash, beginning balance 1,742,360 3,415,120
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Cash, ending balance $ 768,935 $ 2,212,281
=========== ===========
</TABLE>
5
<PAGE>
PACIFICHEALTH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 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 and six months ended June 30, 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.
2. Stock Based Compensation
The Company granted 312,500 Incentive Stock Options (ISOs) to employees
during the first six months of 2000 of which 275,000 vested upon grant with
an exercise price of $2.50 per share and 37,500 vest during the first 6
months of 2001 with exercise prices ranging from $2.375 per share to $3.25
per share. The exercise price for all 312,500 options was equal to the fair
market value of the common stock on the date of grant. Since the Company
accounts for its options under APB No. 25, no compensation expense was
recognized.
The Company also granted 68,000 stock options to consultants during the
first six months of 2000, of which 6,000 vested upon grant with an exercise
price of $2.1875 per share, 2,000 vest in the first quarter 2001 with an
exercise price of $2.25 per share and 60,000 vest in the first quarter of
2002 with an exercise price of $2.1875 per share. The options granted were
determined to have a value of $12,459 and this amount was charged to
operations in the quarter ended June 30, 2000 and added to paid-in capital
in accordance with SFAS 123.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion contains forward-looking statements, which we have made
pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements reflect our 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. We do not undertake to update any
forward-looking statement that may be made from time to time by us or on our
behalf.
(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. We
subsequently discontinued active marketing of PROSOL PLUS and ENDUROX PROHEART
in order to concentrate our marketing resources on products that we believed had
greater sales potential.
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 - Three Months and Six Months Ended June 30,
2000 versus June 30, 1999
We recorded net income of $42,578 or $.01 per share for the three months
ended June 30, 2000, compared to a loss of $411,076 or $.09 per share for the
three months ended June 30, 1999. We incurred a loss of $438,458 or $.10 per
share for the six months ended June 30, 2000, compared to a loss of $978,452 or
$.21 per share for the six months ended June 30, 1999. The net income in 2000
vs. the net loss in 1999 for the three months period ended June 30, 2000 and the
reduction in our net loss in the six month periods ended June 30, 2000, are due
primarily to increased sales. We also reduced our reserve for product
replacement by $35,000 in the quarter ended June 30, 2000 and $162,285 in the
quarter ended June 30, 1999, taking these amounts back into income as described
below.
7
<PAGE>
Revenues in the three months ended June 30, 2000, were $1,485,342 compared
to $527,365 for the same period in 1999. Revenues in the six months ended June
30, 2000, were $1,834,097 compared to $850,159 for the same period in 1999.
Revenue increases in the first half of 2000 were due primarily to our
introduction of SATIETROL, our new diet product, and an 83% increase in sales of
ENDUROX R4 Performance/Recovery Drink compared to the same period in 1999. The
following table provides additional information concerning our revenues in the
first half of 2000 and 1999:
Revenues
------------------------------------------------------
ENDUROX R4
ENDUROX & Performance
ENDUROX Recovery
EXCEL Drink SATIETROL Other(1)
--------- ------------ --------- --------
2000
First Quarter $143,365 $199,928 $ -- $ 5,462
Second Quarter 221,564 610,576 650,536 2,666
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Total $364,929 $810,504 $650,536 $ 8,128
======== ======== ======== =======
1999
First Quarter $139,984 $173,127 $ -- $ 9,683
Second Quarter 242,588 268,956 -- 15,821
-------- -------- -------- -------
Total $382,572 $442,083 $ -- $25,504
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(1) - Principally ENDUROX PROHEART and PROSOL PLUS
Sales revenues reported for the first half of 1999 are net of a credit of
$84,474 for the return of certain products.
Our gross profit margin decreased from 62.2% for the three months ended
June 30, 1999 to 57.3% for the three months ended June 30, 2000, and from 62.8%
for the six months ended June 30, 1999 to 57.2% for the six months ended June
30, 2000, primarily as a result of a decrease in the gross profit margin on
ENDUROX R4 as well as the introduction of SATIETROL into our product mix. When
ENDUROX R4 was first introduced last year, 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. SATIETROL has a lower gross margin than the original
ENDUROX and ENDUROX R4 product lines as this product competes in the highly
competitive weight loss products segment resulting in competitive pricing
pressures.
Our selling, general and administrative expenses decreased from $879,302
for the three months ended June 30, 1999 to $816,464 (approximately 7%) for the
three months ended June 30, 2000, and from $1,658,097 for the six months ended
June 30, 1999 to $1,423,614 (approximately 14%) for the six months ended June
30, 2000. These decreases resulted primarily from the elimination of certain
spokesperson's fees and the reduction of advertising, promotion, and package
development expenses. Selling, general and administrative costs are expected to
8
<PAGE>
increase during the remainder of 2000 as the ENDUROX R4 and SATIETROL
advertising and promotional campaigns are carried forth.
In 1997, we reformulated our original ENDUROX product into a caplet, rather
than a capsule, because the capsule form was very hygroscopic and became altered
in size and color in conditions of high heat and humidity. At June 30, 1997 we
estimated a reserve for charges resulting from exchanging our retailers'
inventory of capsules for caplets or issuing a credit refund for returned
capsules. At the end of each quarter, we compare the reserve's balance to a
current estimate of capsule exchange/credit refund exposure. At June 30, 1999,
we estimated that our remaining capsule exchange for caplets and /or credit
refunds would not exceed $178,303. As a result, we reduced our reserve by
$162,285 and offset our net loss for the three and six months ended June 30,
1999 by taking that amount back into income in the second quarter. At June 30,
2000, we estimated that our remaining capsule exchange for caplets and /or
credit refunds would not exceed $80,573. As a result, we reduced our reserve by
$35,000 and increased our net income for the three months ended June 30, 2000
and offset our net loss for the six months ended June 30, 2000 by taking that
amount back into income in the second quarter.
(c) Liquidity and Capital Resources
At June 30, 2000, our current assets exceeded our current liabilities by
approximately $2.0 million, with a ratio of current assets to current
liabilities of approximately 3.8 to 1. The Company received cash in the amount
of $131,250 during the quarter ended June 30, 2000 for the exercise of 75,000
shares of stock under the Company's 1995 Incentive Stock Option Plan. Accounts
receivable were higher at June 30, 2000 compared to December 31, 1999 because
sales were higher in the second quarter 2000 than in the fourth quarter of 1999.
We increased our accounts receivable turnover in the second quarter of 2000 as
initial sales of SATIETROL were made through our SATIETROL web site
(www.hungeroff.com), where payment is made via credit card. As we increase sales
of SATIETROL to other retailers and Internet sites, sales of SATIETROL through
our web site as a percentage of sales will decrease. Inventory levels are higher
at June 30, 2000 compared to December 31, 1999 because we are in the process of
building up our SATIETROL inventory in preparation for the national launch of
this product in retail outlets and on direct TV. The SATIETROL line also has
been broadened to include a new chocolate flavor.
We expect to satisfy our cash requirements during the next 12 months from
cash on hand provided we continue to maintain the same level of advertising and
promotional expenditures. We have no commitments for significant capital
expenditures over the next 12 months and the largest expenditures now
contemplated (apart from current levels of sales, general and administrative
costs) are advertising and promotional expenditures associated with ENDUROX R4
and the national launch of SATIETROL. These expenditures presently are projected
in the range of $500,000 over the remainder of 2000. If sales continue to rise
at their present pace, management may seek additional equity to enable the
Company to increase their expenditures for advertising, marketing, and inventory
to support this expanding sales base. Management may also seek additional equity
to fund the launch of additional flavors and line extensions for ENDUROX R4 in
the first quarter of 2001 and to fund the launch of a SATIETROL meal replacement
product now scheduled for January 2001.
9
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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 June 30,
2000, net proceeds from the sale of securities pursuant to the Registration
Statement in the amount of $5,978,546 have been applied as follows:
(1) Construction of plant, building
and facilities $ -0-
(2) Purchase and installation of
machinery and equipment 87,373
(3) Purchase of real estate -0-
(4) Acquisition of other businesses -0-
(5) Repayment of debt 156,922
(6) Working capital 4,581,331
(7) Temporary investments* 763,982
(8) Any other purpose expected to -0-
involve $100,000 or more
(9) Research & development 388,938
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Total applied through 6/30/00 $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.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
No. Description
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27 Financial Data Schedule.
(b) Reports on Form 8-K:
On June 13, 2000, we filed a Current Report on Form
8-K reporting the appointment of Stephen P. Kuchen to
the Board of Directors.
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/ STEPHEN P. KUCHEN
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STEPHEN P. KUCHEN
Vice President
(Principal Financial
Officer and Principal Accounting
Officer)
Date: AUGUST 4, 2000
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