x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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|
For
the quarterly period ended June 30, 2009
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||
-OR-
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||
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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|
For
the transition period from...to...
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||
Commission
File No.
333-36379
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PACIFICHEALTH
LABORATORIES, INC.
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||
(Exact
name of registrant as specified in its
charter)
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DELAWARE
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22-3367588
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(State
or other jurisdiction of
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(I.R.S.
Employer
|
|
incorporation
or organization)
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Identification
Number)
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100
Matawan Road, Suite 420
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||
Matawan,
NJ
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07747
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|
(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (732)
739-2900
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o (Do not check if
a smaller reporting company)
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Smaller
reporting company x
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TABLE
OF CONTENTS
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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3
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PART
I. FINANCIAL INFORMATION
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||
ITEM
1.
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FINANCIAL
STATEMENTS
|
|
Balance
Sheets as of June 30, 2009 (Unaudited) and December 31,
2008
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4
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|
Statements
of Operations (Unaudited) for the three and six months ended June 30, 2009
and 2008
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5
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Statements
of Cash Flows (Unaudited) for the six months ended June 30, 2009 and
2008
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6
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Notes
to Unaudited Financial Statements
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7
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ITEM
2.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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12
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ITEM
3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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15
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ITEM
4T.
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CONTROLS
AND PROCEDURES
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15
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PART
II. OTHER INFORMATION
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||
ITEM
1.
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LEGAL
PROCEEDINGS
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15
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ITEM
2.
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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15
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ITEM
3.
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DEFAULTS
UPON SENIOR SECURITIES
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15
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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15
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ITEM
5.
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OTHER
INFORMATION
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16
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ITEM
6.
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EXHIBITS
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16
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SIGNATURES
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18
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●
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The
development, testing, and commercialization of new products and the
expansion of markets for our current products;
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|
●
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The
receipt of royalty payments from our agreements with business
partners;
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|
●
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Implementing
aspects of our business plan;
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●
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Financing
goals and plans;
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●
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Our
existing cash and whether and how long these funds will be sufficient to
fund our operations; and
|
|
●
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Our
raising of additional capital through future equity
financings.
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ITEM
1.
|
FINANCIAL
STATEMENTS
|
June
30,
2009
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December
31,
2008
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|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
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||||||||
Cash
and cash equivalents
|
$ | 581,696 | $ | 888,993 | ||||
Other
short-term investments
|
275,000 | 300,000 | ||||||
Accounts
receivable, net
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1,395,800 | 455,851 | ||||||
Inventories
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984,767 | 1,308,316 | ||||||
Prepaid
expenses
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209,671 | 159,200 | ||||||
Total
current assets
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3,446,934 | 3,112,360 | ||||||
Property
and equipment, net
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220,368 | 236,721 | ||||||
Deposits
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10,895 | 22,895 | ||||||
Total
assets
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$ | 3,678,197 | $ | 3,371,976 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Notes
payable
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$ | 65,321 | $ | 58,810 | ||||
Accounts
payable and accrued expenses
|
1,031,444 | 555,354 | ||||||
Deferred
revenue
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275,313 | 347,945 | ||||||
Total
current liabilities
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1,372,078 | 962,109 | ||||||
Stockholders’
equity:
|
||||||||
Common
stock, $.0025 par value; authorized 50,000,000 shares; issued and
outstanding:
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||||||||
15,268,182
shares at June 30, 2009 and 14,194,613 shares at December 31,
2008
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38,170 | 35,486 | ||||||
Additional
paid-in capital
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19,871,408 | 19,585,297 | ||||||
Accumulated
deficit
|
(17,603,459 | ) | (17,210,916 | ) | ||||
2,306,119 | 2,409,867 | |||||||
Total
liabilities and stockholders’ equity
|
$ | 3,678,197 | $ | 3,371,976 |
Three
Months
Ended
June 30,
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Six
Months
Ended
June 30,
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|||||||||||||||
2009
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2008
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2009
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2008
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|||||||||||||
Revenues:
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||||||||||||||||
Net
product sales
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$ | 2,725,055 | $ | 2,370,429 | $ | 4,420,673 | $ | 4,089,804 | ||||||||
Cost
of goods sold
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1,439,471 | 1,315,887 | 2,393,468 | 2,248,682 | ||||||||||||
Gross
profit
|
1,285,584 | 1,054,542 | 2,027,205 | 1,841,122 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and marketing
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454,904 | 245,468 | 771,012 | 389,702 | ||||||||||||
General
and administrative
|
819,019 | 889,465 | 1,651,501 | 1,789,771 | ||||||||||||
Research
and development
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— | 77,597 | — | 109,508 | ||||||||||||
1,273,923 | 1,212,530 | 2,422,513 | 2,288,981 | |||||||||||||
Income
(loss) before other income (expense) and provision for income
taxes
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11,661 | (157,988 | ) | (395,308 | ) | (447,859 | ) | |||||||||
Other
income (expense):
|
||||||||||||||||
Other
income
|
4,000 | 163 | 4,000 | 1,296 | ||||||||||||
Interest
income
|
811 | 11,683 | 3,102 | 29,147 | ||||||||||||
Interest
expense
|
(1,470 | ) | (466 | ) | (2,257 | ) | (597 | ) | ||||||||
3,341 | 11,380 | 4,845 | 29,846 | |||||||||||||
Income
(loss) before income taxes
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15,002 | (146,608 | ) | (390,463 | ) | (418,013 | ) | |||||||||
Provision
for income taxes
|
2,080 | — | 2,080 | — | ||||||||||||
Net
income (loss)
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$ | 12,922 | $ | (146,608 | ) | $ | (392,543 | ) | $ | (418,013 | ) | |||||
Basic
and diluted income (loss) per share
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$ | 0.00 | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | |||||
Weighted
average common shares - basic
|
14,680,710 | 13,501,426 | 14,570,712 | 13,501,426 | ||||||||||||
Weighted
average common shares - diluted
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14,858,810 | 13,501,426 | 14,570,712 | 13,501,426 |
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (392,543 | ) | $ | (418,013 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
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||||||||
Depreciation
|
90,397 | 67,339 | ||||||
Allowance
for doubtful accounts
|
6,000 | 6,000 | ||||||
Equity
instrument-based expense
|
138,796 | 201,672 | ||||||
Changes
in assets and liabilities:
|
||||||||
Increase
in accounts receivable
|
(945,949 | ) | (675,518 | ) | ||||
Decrease
in inventories
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323,549 | 342,476 | ||||||
Increase
in prepaid expenses
|
(50,471 | ) | (42,534 | ) | ||||
Decrease
in deposits
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12,000 | — | ||||||
Increase
in accounts payable and accrued expenses
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476,089 | 422,960 | ||||||
Decrease
in deferred revenue
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(72,632 | ) | (130,050 | ) | ||||
Net
cash used in operating activities
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(414,764 | ) | (225,668 | ) | ||||
Cash
flows from investing activities:
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||||||||
Proceeds
from sales of other short-term investments
|
25,000 | 625,000 | ||||||
Purchase
of fixed assets
|
(74,044 | ) | (108,245 | ) | ||||
Net
cash (used in) provided by investing activities
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(49,044 | ) | 516,755 | |||||
Cash
flows from financing activities:
|
||||||||
Issuance
of notes payable
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59,751 | 58,537 | ||||||
Repayments
of notes payable
|
(53,240 | ) | (26,650 | ) | ||||
Common
stock issued
|
150,000 | — | ||||||
Net
cash provided by financing activities
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156,511 | 31,887 | ||||||
|
||||||||
Net
(decrease) increase in cash
|
(307,297 | ) | 322,974 | |||||
Cash
and cash equivalents, beginning balance
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888,993 | 212,713 | ||||||
Cash
and cash equivalents, ending balance
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$ | 581,696 | $ | 535,687 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 2,257 | $ | 597 | ||||
Cash
paid for income taxes
|
$ | 2,080 | $ | — |
1.
Basis of Presentation
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|
The
accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions for Form 10-Q. 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 and six months ended June 30, 2009 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2009. 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-K/A for the year ended
December 31, 2008. (See Revenue Recognition note
below.)
|
|
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amount of revenue and expenses during the reporting period.
Actual results may differ from these estimates. The significant estimates
and assumptions made by the Company are in the area of revenue recognition
as it relates to customer returns, inventory obsolescence, allowance for
doubtful accounts, valuation allowances for deferred tax assets,
restructuring charges, and valuation of share-based payments issued under
Statement of Financial Accounting Standards (“SFAS”) No. 123R,
“Share-Based Payment” (“SFAS 123R”).
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|
During
the first six months of 2009, the Company commenced the marketing and
distribution of its new ForzeGPS™ product line. In connection with this
activity, the Company has increased its marketing expenditures. Management
believes it is currently on plan in connection with its working capital
needs at this point in the product launch cycle. There can be no assurance
that sales from this new product line will materialize as planned. Should
such planned sales not materialize, the Company may have to cut
discretionary marketing spending or may be required to raise additional
capital to sustain operations in the future.
|
|
On
April 1, 2009, the Company adopted the provisions of FASB Statement
No. 165, “Subsequent Events” (“SFAS 165”), on a prospective basis.
The provisions of SFAS 165 provide guidance related to the accounting for
and disclosure of events that occur after the balance sheet date but
before the financial statements are issued or are available to be issued.
The Company evaluated events occurring between the end of the most
recent quarter ended June 30, 2009 and August 3, 2009, the date the
financial statements were issued.
|
|
2.
Revenue Recognition
|
|
Sales
are recognized when all of the following criteria are met: (1) persuasive
evidence that an arrangement exists; (2) delivery has occurred or services
have been rendered; (3) the seller’s price to the buyer is fixed and
determinable; and, (4) collectability is reasonably assured. Sales are
recorded net of incentives paid to customers.
|
|
The
Company has a sales agreement with a significant customer whereby unsold
product is subject to return provisions. In determining revenue
recognition for products shipped to this customer, the Company follows the
guidance in SFAS 48 “Revenue Recognition When Right of Return Exists”.
Certain of the products shipped are under a “pay on scan” model and
revenue is deferred by the Company until such time the customer sells
through such products to the end consumer. The amount of deferred revenue
relating to pay on scan products reflected in the accompanying balance
sheets as of June 30, 2009 and December 31, 2008 amounted to $275,313 and
$54,695, respectively.
|
|
Prior
to April 1, 2009, for certain products not under a pay on scan model, the
Company recognized revenue identical to the pay on scan model. Effective
April, 1, 2009, the Company commenced recognizing revenue of these
products upon shipment as the Company determined that it has met the
criteria established in SFAS 48, specifically as it relates to the ability
to estimate future returns. The deferred revenue as of March 31, 2009
related to these products amounted to approximately $318,000 and was
recognized similar to the pay on scan model during the three months ended
June 30, 2009 as GNC recognized sales to the end consumer. This change in
estimate for these product shipments was based primarily on the Company’s
determination that it could, based upon historical secular analysis,
estimate its returns of such product shipments with such historical data
covering a five year period. Had the Company continued to record the
shipments of these products under the pay on scan model, deferred revenue
would have amounted to approximately $279,000 for these products with a
corresponding increase in inventory of approximately
$129,000.
|
3.
Other Short-Term Investments
|
|
Excess
cash is invested in auction rate securities with long-term maturities, the
interest rates of which are reset periodically (typically between 7 and 35
days) through a competitive bidding process often referred to as a “Dutch
auction”.
|
|
Accordingly,
the Company has classified such investments as other short-term
investments. During the six months ended June 30, 2009, the Company
redeemed $25,000 of these investments. From July 1, 2009 through July 31,
2009, the Company redeemed an additional $100,000 of these
investments.
|
|
4.
Inventories
|
|
As
of June 30, 2009 and December 31, 2008, inventories consisted of the
following:
|
June
30,
2009
(Unaudited)
|
December
31,
2008
|
|||||||
Raw
materials
|
$
|
32,346
|
$
|
207,286
|
||||
Work-in-process
|
56,505
|
—
|
||||||
Packaging
supplies
|
96,447
|
42,861
|
||||||
Finished
goods
|
684,386
|
902,132
|
||||||
Finished
goods on consignment
|
115,083
|
156,037
|
||||||
$
|
984,767
|
$
|
1,308,316
|
Included
above are reserves against finished goods of $37,121 and $42,339,
respectively, at June 30, 2009 and December 31, 2008.
|
|
5.
Stock-Based Compensation
|
|
The
Company accounts for equity instrument issuances in accordance with SFAS
123R, “Share-Based Payment”. Such equity issuances encompass transactions
in which an entity exchanges its equity instruments for goods or services
including such transactions in which an entity obtains employee services
in share-based payment transactions and issuances of stock options to
employees. The Company recorded charges of $39,609 and $92,410,
respectively, in the three-month periods ended June 30, 2009 and 2008,
representing the effect on income (loss) from continuing operations,
income (loss) before income taxes and net income (loss). The Company
recorded charges of $79,432 and $201,672, respectively, in the six-month
periods ended June 30, 2009 and 2008, representing the effect on loss from
continuing operations, loss before income taxes and net
loss.
|
|
The
Company granted 200,000 stock options to the Chief Executive
Officer/President during the three and six months ended June 30, 2009 with
an exercise price of $0.28 per share. Of these options, 50,000 vest
ratably in the second quarter of 2010, 50,000 of these options vest
ratably in the second quarter of 2011, 50,000 of these options vest
ratably in the second quarter of 2012, and 50,000 of these options vest
ratably in the second quarter of 2013. These options were determined to
have a total fair value of approximately $43,000. Compensation expense
recognized during the three and six months ended June 30, 2009 for these
options amounted to $0. The Company granted no stock options to employees
and directors during the three months ended June 30, 2008. The Company
granted 207,500 stock options to employees and directors during the six
months ended June 30, 2008 with exercise prices ranging from $0.45 to
$0.55 per share. Of these options, 70,417 vested ratably in the first
quarter of 2009; 70,417 of these options vest ratably in the first quarter
of 2010; and 66,666 of these options vest ratably in the first quarter of
2011. These options were determined to have a total fair value of $87,988.
Compensation expense recognized during the six months ended June 30, 2008
for these options amounted to $14,665. The total intrinsic value of
options exercised during the three and six months ended June 30, 2009 and
2008 was $0 and $0, respectively.
|
|
The
Company granted no stock options to consultants during the three and six
months ended June 30, 2009 and 2008.
|
|
The
Company granted no warrants to non-employee athlete endorsers during the
three months ended June 30, 2009. The Company granted 402,500 warrants to
non-employee athlete endorsers during the six months ended June 30, 2009
with an exercise price of $0.14 per share. Of these warrants, 109,167
options vest ratably in the fourth quarter of 2009; 4,167 options vest
ratably in the first quarter of 2010; 109,167 of these options vest
ratably in the fourth quarter of 2010; 4,167 options vest ratably in the
first quarter of 2011; 109,166 of these options vest ratably in the fourth
quarter of 2011; 4,166 options vest ratably in the first quarter of 2012;
and 62,500 of these options vest ratably in the fourth quarter of 2012.
These options were determined to have a total fair value of $38,713.
Compensation expense recognized during the three months ended June 30,
2009 for these warrants amounted to $2,689. Compensation expense
recognized during the six months ended June 30, 2009 for these warrants
amounted to $5,364. These amounts were charged to operations and added to
paid-in capital in accordance with SFAS 123R. The Company did not grant
any warrants during the three and six months ended March 31, 2008. No
warrants were exercised during the three and six months ended March 31,
2009 and 2008.
|
The
Company recognized $27,000 and $54,000, respectively, for the three and
six month periods ended June 30, 2009 as a component of employee
compensation for common shares issuable as payment of directors’ fees. The
Company recognized $16,400 for the three and six month periods ended June
30, 2008 as a component of employee compensation for common shares
issuable as payment of directors’ fees.
|
|
In
summary, compensation charges to operations for the periods presented are
as follows:
|
Three
Months
Ended
June 30,
|
Six
Months
Ended
June 30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||
Employee
compensation
|
$
|
66,609
|
$
|
92,410
|
$
|
133,432
|
$
|
201,672
|
||||||
Consultant
compensation
|
2,689
|
—
|
5,364
|
—
|
||||||||||
$
|
69,298
|
$
|
92,410
|
$
|
138,796
|
$
|
201,672
|
A summary of employee options activity under our plans as of June 30, 2009 and changes during the six-month period then ended is presented below: | ||||||||||||||||||
Options
|
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
||||||||||||||
Balance, January 1, 2009 | 2,877,000 | $ | 0.67 | |||||||||||||||
Granted
during the period
|
200,000 | 0.28 | ||||||||||||||||
Exercised
during the period
|
— | — | ||||||||||||||||
Expired
during the period
|
(22,500 | ) | 0.20 | |||||||||||||||
Outstanding, June 30, 2009 | 3,054,500 | $ | 0.65 | 2.61 | $ | 26,000 | ||||||||||||
Exercisable, June 30, 2009 | 1,790,751 | $ | 0.78 | 1.66 | $ | 500 |
The market value of the Company’s common stock as of June 30, 2009 was $0.30 per share. | ||||||||||
Non-vested
Shares
|
|
Shares
|
Weighted-
Average
Grant-Date
Black-Scholes
Value
|
|||||||
Non-vested,
January 1, 2009
|
1,320,499 | $ | 0.41 | |||||||
Granted
during the period
|
200,000 | 0.22 | ||||||||
Vested
during the period
|
(256,750 | ) | 0.51 | |||||||
Forfeited
during the period
|
— | — | ||||||||
Non-vested,
June 30, 2009
|
1,263,749 | $ | 0.36 |
Warrants
|
|
Shares
|
Weighted-
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
||||||||||
Balance,
January 1, 2009
|
27,500 | $ | 0.88 | |||||||||||
Granted
during the period
|
402,500 | 0.14 | ||||||||||||
Expired
during the period
|
(27,500 | ) | 0.88 | |||||||||||
Outstanding,
June 30, 2009
|
402,500 | $ | 0.14 | $ | 64,400 |
On
April 3, 2009, the Board of Directors approved the Company’s 2010
Incentive Stock Option Plan consisting of 1,500,000 underlying shares of
the Company’s common stock. Such plan has been voted on and approved at
the Company’s Annual Meeting held on June 10, 2009.
|
|
6.
Equity Instruments
|
|
On
January 2, 2009, the Company issued 267,855 shares of its common stock as
payment of directors’ fees that was properly accrued for in the year ended
December 31, 2008.
|
|
On
April 3, 2009, the Company issued 180,000 shares of its common stock as
payment of directors’ fees that was properly accrued for the first quarter
of 2009 for an amount totaling $27,000.
|
|
On
June 24, 2009, the Company issued a total of 535,714 shares of its common
stock to its President and another employee of the Company for a total of
$150,000. The price of the stock at the date of the issuance was $0.28 per
share, which was the closing price of the stock at the date of the
transaction.
|
|
On
June 30, 2009, the Company issued 90,000 shares of its common stock as
payment of directors’ fees for the second quarter of 2009 for an amount
totaling $27,000.
|
|
7.
Income Taxes
|
|
The
Company has
approximately $15,082,000 in federal and $5,641,000 in state net operating
loss carryovers generated through December 31, 2008 that can be used to
offset future taxable income in calendar years 2009 through 2028. The net
operating loss carryovers begin to expire in the year 2016 through the
year 2028. As of June 30, 2009, the Company has fully reserved for these
net operating loss carryovers.
|
|
8.
Concentrations
|
|
The
Company’s two largest customers accounted for approximately 24% and 16%,
respectively, of net sales for the three months ended June 30, 2009 and
the Company’s two largest customers accounted for approximately 21% and
14%, respectively, of net sales for the three months ended June 30, 2008.
The Company’s two largest customers accounted for approximately 23% and
13%, respectively, of net sales for the six months ended June 30, 2009 and
the Company’s two largest customers accounted for approximately 18% and
17%, respectively, of net sales for the six months ended June 30, 2008. At
June 30, 2009, amounts due from these two customers represented
approximately 34% and 20%, respectively, of net accounts receivable. At
December 31, 2008, amounts due from these two customers represented
approximately 36% and 8%, respectively, of net accounts receivable. No
other customers exceeded 10% of respective captions noted
above.
|
|
One
of the Company’s suppliers accounted for approximately 81% of total
inventory purchases for the three months ended June 30, 2009 and two of
the Company’s suppliers accounted for approximately 56% and 34%,
respectively, of total inventory purchases for the three months ended June
30, 2008. One of the Company’s suppliers accounted for approximately 72%
of total inventory purchases for the six months ended June 30, 2009 and
two of the Company’s suppliers accounted for approximately 61% and 27%,
respectively, of total inventory purchases for the six months ended June
30, 2008. At June 30, 2009, amounts due to this vendor represented
approximately 59% of accounts payable and accrued expenses. At December
31, 2008, amounts due to this vendor represented approximately 24% of
accounts payable and accrued expenses. No other vendors exceeded 10% of
respective captions noted
above.
|
9.
Line of Credit
|
|
In
April 2008, the Company obtained a one-year revolving line of credit with
a financial institution in the amount of $675,000 with an interest rate
equal to the Wall Street Journal Prime Rate (3.25% as of June 30, 2009)
with a floor of 5.00%. This line is collateralized by the short-term
investments that are deemed auction rate securities. The maximum amount
that the Company may borrow is limited to 50% of the value of these
auction rate securities. The Company has renewed this one-year revolving
line of credit in the amount of $137,500 which now matures in May 2010. As
of July 31, 2009, the Company has not drawn down on this line of
credit.
|
|
10.
CEO Separation Agreement
|
|
The
Company entered into a Separation Agreement with the former CEO effective
August 1, 2008. The terms of the agreement consist of twelve equal monthly
payments that aggregate $295,000 and include a non-compete clause. In the
three and six months ended June 30, 2009, the Company recognized $73,749
and $147,498, respectively, of expense under this
Agreement.
|
|
11.
Reclassification
|
|
The
Company reclassified $245,468 of sales and marketing expenses from general
and administrative expenses as well as reclassified $33,243 of
depreciation expense to general and administrative expenses in the quarter
ended June 30, 2008 to conform to current year presentation and enhance
comparability. The Company reclassified $389,702 of sales and marketing
expenses from general and administrative expenses as well as reclassified
$67,339 of depreciation expense to general and administrative expenses in
the six months ended June 30, 2008 to conform to current year presentation
and enhance comparability.
|
|
12. Recent Accounting
Pronouncements
|
|
In
June 2009, the Financial Accounting Standards Board issued Statement No.
168, “The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles—a replacement of FASB Statement
No. 162” (“SFAS 168”). SFAS 168 will become the source of authoritative
U.S. GAAP to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”)
under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The Codification will supersede
all non-SEC accounting and reporting standards. All other nongrandfathered
non-SEC accounting literature not included in the Codification will become
nonauthoritative. SFAS 168 is effective for the Company’s interim
quarterly period beginning July 1, 2009. The Company does not expect the
adoption of FAS 168 to have an impact on the disclosures to the financial
statements.
|
Item
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
•
|
ENDUROX
R4®
Recovery Drink – Introduced in February 1999
|
•
|
ACCELERADETM
Sports Drink – Introduced in May 2001
|
•
|
ACCELERADE
HYDROTM
Sports Drink with 30% less calories and 55% less sugar – Introduced in
June 2008
|
•
|
ACCEL
GEL® –
Introduced in February 2004
|
•
|
ENDUROX
RESTORETM
Recovery Drink for exercise lasting less than one hour – Introduced in
April 2008
|
•
|
ENDUROX®
EXCEL® –
Introduced in March 1997
|
•
|
ENDUROX
EXCEL Natural Workout Supplement to build endurance – Introduced in June
2008
|
•
|
ENDUROX
EXCEL Electrolyte Replenisher to promote rehydration – Introduced in June
2008
|
•
|
ENDUROX
EXCEL Antioxidant Regenerator to prevent muscle fatigue – Introduced in
June 2008
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
ITEM
4T.
|
CONTROLS AND
PROCEDURES
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
ITEM
4.
|
SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
|
(a) On
June 10, 2009, the Company held its Annual Meeting of Stockholders,
pursuant to information contained in the Company’s Notice of Annual
Meeting of Stockholders and Proxy Statement that was mailed to
stockholders on May 12, 2009.
|
|
(b) One
of the matters listed in the Company’s Proxy for the meeting was the
annual Election of Directors. There were six nominees for election who
were elected by the shareholders to serve for a one-year term. The results
of the balloting were as follows (Shares voting: 11,830,354 of
14,642,468):
|
Nominee
|
For
|
Against
|
Abstain
|
|||||||||
Jason
Ash
|
9,166,557
|
-0-
|
2,663,797
|
|||||||||
Robert
Portman
|
10,719,234
|
-0-
|
1,111,120
|
|||||||||
David
Portman
|
10,717,616
|
-0-
|
1,112,738
|
|||||||||
Michael
Cahr
|
9,165,896
|
-0-
|
2,664,458
|
|||||||||
Adam
Mizel
|
9,151,956
|
-0-
|
2,678,398
|
|||||||||
Marc
Particelli
|
9,150,318
|
-0-
|
2,680,036
|
(c) Another
matter voted upon by the stockholders was the approval of the 2010
Incentive Stock Option Plan. This matter was approved. The results of the
balloting for this matter was as
follows:
|
Matter
|
For
|
Against
|
Abstain
|
|||||||
Approval
of 2010 Incentive Stock Option Plan
|
3,525,952
|
153,433
|
2,512,075
|
(d) Another
matter voted upon by the stockholders was the ratification of the
appointment of Weiser, LLP as independent auditors for the Company for the
fiscal year ending December 31, 2009. This matter was approved. The
results of the balloting for this matter was as
follows:
|
Matter
|
For
|
Against
|
Abstain
|
|||||||
Ratification
of auditors
|
9,295,948
|
44,933
|
2,489,473
|
ITEM
5.
|
OTHER
INFORMATION
|
None.
|
|
ITEM
6.
|
EXHIBITS
|
Exhibit
Number
|
Description
of Exhibit(1)
|
||
3(i)(a)
|
Certificate
of Incorporation of PacificHealth Laboratories, Inc. and all amendments
thereto (incorporated by reference to Exhibit 3.1 to PacificHealth
Laboratories, Inc.’s Registration Statement on Form SB-2 (Registration No.
333-36379) filed on September 25, 1997)
|
||
3(i)(b)
|
Certificate
of Amendment of Certificate of Incorporation of PacificHealth
Laboratories, Inc. (incorporated by reference to Exhibit 3.3 to
PacificHealth Laboratories, Inc.’s Annual Report on Form 10-KSB filed on
March 31, 2003)
|
||
3(i)(c)
|
Certificate
of Designations for Series A Preferred Stock (incorporated by reference to
Exhibit 3.1 to PacificHealth Laboratories, Inc.’s Current Report on Form
8-K filed on January 28, 2005)
|
||
3(i)(d)
|
Certificate
of Designations for Series B Preferred Stock, filed with the Secretary of
State of the State of Delaware on April 28, 2005 (incorporated by
reference to Exhibit 3(i) to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed May 4, 2005)
|
||
3(ii)
|
Amended
and Restated Bylaws of PacificHealth Laboratories, Inc. (incorporated by
reference to Exhibit 3.2.1 to PacificHealth Laboratories, Inc.’s Amendment
No. 3 to Registration Statement on Form SB-2/A filed on December 17,
1997)
|
||
4.1
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
PacificHealth Laboratories, Inc.’s Amendment No. 3 to Registration
Statement on Form SB- 2/A filed on December 17, 1997)
|
||
4.2.1
|
Form
of Securities Purchase Agreement entered into among PacificHealth
Laboratories, Inc. and Certain of the Selling Stockholders dated August
26, 2003 (incorporated by reference to Exhibit 4.4 to PacificHealth
Laboratories, Inc.’s Registration Statement on Form SB-2 filed on
September 29, 2003)
|
||
4.2.2
|
Form
of Registration Rights Agreement entered into among PacificHealth
Laboratories, Inc. and Certain of the Selling Stockholders dated August
26, 2003 (incorporated by reference to Exhibit 4.5 to PacificHealth
Laboratories, Inc.’s Registration Statement on Form SB-2 filed on
September 29,
2003)
|
Exhibit
Number
|
Description
of Exhibit(1)
|
||
4.2.3
|
Form
of Warrant issued to Certain of the Selling Stockholders in connection
with Exhibit 4.2.1 on August 26, 2003 (incorporated by reference to
Exhibit 4.6 to PacificHealth Laboratories, Inc.’s Registration Statement
on Form SB-2 filed on September 29, 2003)
|
||
4.3
|
Stock
Purchase Agreement dated June 1, 2001, by and between PacificHealth
Laboratories, Inc. and Glaxo Wellcome International B.V. (incorporated by
reference to Exhibit 4.1 to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed on June 14, 2001)
|
||
4.4.1
|
Series
A Preferred Stock Purchase Agreement dated January 28, 2005, by and
between PacificHealth Laboratories, Inc. and Hormel HealthLabs, LLC
(incorporated by reference to Exhibit 4.3 to PacificHealth Laboratories,
Inc.’s Annual Report on Form 10-KSB filed on April 15,
2005)
|
||
4.4.2
|
Investors’
Rights Agreement dated January 28, 2005, by and between PacificHealth
Laboratories, Inc. and Hormel HealthLabs, LLC (incorporated by reference
to Exhibit 4.4 to PacificHealth Laboratories, Inc.’s Annual Report on Form
10-KSB filed on April 15, 2005)
|
||
4.4.3
|
Right
of First Refusal and Co-Sale Agreement dated January 28, 2005, by and
between PacificHealth Laboratories, Inc., Robert Portman and Hormel
HealthLabs, LLC (incorporated by reference to Exhibit 4.5 to PacificHealth
Laboratories, Inc.’s Annual Report on Form 10-KSB filed on April 15,
2005)
|
||
4.4.4
|
Certificate
of Designations for Series A Preferred Stock (incorporated by reference to
Exhibit 3.1 to PacificHealth Laboratories, Inc.’s Current Report on Form
8-K filed on January 28, 2005)
|
||
4.5
|
Certificate
of Designations for Series B Preferred Stock, filed with the Secretary of
State of the State of Delaware on April 28, 2005 (incorporated by
reference to Exhibit 3(i) to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed on May 4, 2005)
|
||
4.6.1
|
Securities
Purchase Agreement, dated August 24, 2005 by and between PacificHealth
Laboratories, Inc. and Hormel HealthLabs, LLC (incorporated by reference
to Exhibit 10.1 to PacificHealth Laboratories, Inc.’s Current Report on
Form 8-K filed on August 30, 2005)
|
||
4.6.2
|
Amended
and Restated Investors’ Rights Agreement dated August 24, 2005 between
PacificHealth Laboratories, Inc. and Hormel HealthLabs, LLC and any
additional investor that becomes a party thereto (incorporated by
reference to Exhibit 4.1 to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed on August 30, 2005)
|
||
4.6.3
|
Form
of Secured Convertible Promissory Note issued in connection with Exhibit
4.6.1 (incorporated by reference to Exhibit 10.2 to PacificHealth
Laboratories, Inc.’s Current Report on Form 8-K filed on August 30,
2005)
|
||
4.6.4
|
Security
Agreement dated August 24, 2005 by and between PacificHealth Laboratories,
Inc. and Hormel HealthLabs, LLC (incorporated by reference to Exhibit 10.3
to PacificHealth Laboratories, Inc.’s Current Report on Form 8-K filed on
August 30, 2005)
|
||
10.1
|
Employment
Extension Agreement between PacificHealth Laboratories, Inc. and Robert
Portman effective January 1, 2004, executed February 28, 2006
(incorporated by reference to Exhibit 10.6 to PacificHealth Laboratories,
Inc.’s Post-Effective Amendment to Registration Statement on Form SB-2/A
(File No. 333-109197) filed on May 2, 2006)
|
||
10.2.1
|
Asset
Purchase Agreement dated February 22, 2006, by and between PacificHealth
Laboratories, Inc. and Mott’s LLP (redacted, subject to request for
confidential treatment) (incorporated by reference to Exhibit 10.8 to
PacificHealth Laboratories, Inc.’s Annual report on Form 10-KSB filed on
March 31, 2006)
|
Exhibit
Number
|
Description
of Exhibit(1)
|
||
10.2.2
|
License
Agreement dated February 22, 2006, by and between PacificHealth
Laboratories, Inc. and Mott’s LLP (redacted, subject to request for
confidential treatment) (incorporated by reference to Exhibit 10.9 to
PacificHealth Laboratories, Inc.’s Annual report on Form 10-KSB filed on
March 31, 2006)
|
||
10.2.3
|
Consulting,
License and Noncompetition Agreement dated February 22, 2006, by and
between PacificHealth Laboratories, Inc., Mott’s LLP and Robert Portman
(redacted, subject to request for confidential treatment) (incorporated by
reference to Exhibit 10.10 to PacificHealth Laboratories, Inc.’s Annual
report on Form 10-KSB filed on March 31, 2006)
|
||
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer (filed
herewith)
|
||
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer (filed
herewith)
|
||
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
|
(1)
|
In
the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant’s file number under the
Exchange Act is
000-23495.
|
PACIFICHEALTH
LABORATORIES, INC.
|
||||
By:
|
/S/
STEPHEN P. KUCHEN
|
|||
STEPHEN
P. KUCHEN
|
||||
Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
|
Date:
|
August 3,
2009
|
EXHIBIT
INDEX
|
|||
Exhibit
Number
|
Description
of Exhibit(1)
|
||
3(i)(a)
|
Certificate
of Incorporation of PacificHealth Laboratories, Inc. and all amendments
thereto (incorporated by reference to Exhibit 3.1 to PacificHealth
Laboratories, Inc.’s Registration Statement on Form SB-2 (Registration No.
333-36379) filed on September 25, 1997)
|
||
3(i)(b)
|
Certificate
of Amendment of Certificate of Incorporation of PacificHealth
Laboratories, Inc. (incorporated by reference to Exhibit 3.3 to
PacificHealth Laboratories, Inc.’s Annual Report on Form 10-KSB filed on
March 31, 2003)
|
||
3(i)(c)
|
Certificate
of Designations for Series A Preferred Stock (incorporated by reference to
Exhibit 3.1 to PacificHealth Laboratories, Inc.’s Current Report on Form
8-K filed on January 28, 2005)
|
||
3(i)(d)
|
Certificate
of Designations for Series B Preferred Stock, filed with the Secretary of
State of the State of Delaware on April 28, 2005 (incorporated by
reference to Exhibit 3(i) to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed May 4, 2005)
|
||
3(ii)
|
Amended
and Restated Bylaws of PacificHealth Laboratories, Inc. (incorporated by
reference to Exhibit 3.2.1 to PacificHealth Laboratories, Inc.’s Amendment
No. 3 to Registration Statement on Form SB-2/A filed on December 17,
1997)
|
||
4.1
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
PacificHealth Laboratories, Inc.’s Amendment No. 3 to Registration
Statement on Form SB- 2/A filed on December 17, 1997)
|
||
4.2.1
|
Form
of Securities Purchase Agreement entered into among PacificHealth
Laboratories, Inc. and Certain of the Selling Stockholders dated August
26, 2003 (incorporated by reference to Exhibit 4.4 to PacificHealth
Laboratories, Inc.’s Registration Statement on Form SB-2 filed on
September 29, 2003)
|
||
4.2.2
|
Form
of Registration Rights Agreement entered into among PacificHealth
Laboratories, Inc. and Certain of the Selling Stockholders dated August
26, 2003 (incorporated by reference to Exhibit 4.5 to PacificHealth
Laboratories, Inc.’s Registration Statement on Form SB-2 filed on
September 29, 2003)
|
||
4.2.3
|
Form
of Warrant issued to Certain of the Selling Stockholders in connection
with Exhibit 4.2.1 on August 26, 2003 (incorporated by reference to
Exhibit 4.6 to PacificHealth Laboratories, Inc.’s Registration Statement
on Form SB-2 filed on September 29, 2003)
|
||
4.3
|
Stock
Purchase Agreement dated June 1, 2001, by and between PacificHealth
Laboratories, Inc. and Glaxo Wellcome International B.V. (incorporated by
reference to Exhibit 4.1 to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed on June 14, 2001)
|
||
4.4.1
|
Series
A Preferred Stock Purchase Agreement dated January 28, 2005, by and
between PacificHealth Laboratories, Inc. and Hormel HealthLabs, LLC
(incorporated by reference to Exhibit 4.3 to PacificHealth Laboratories,
Inc.’s Annual Report on Form 10-KSB filed on April 15,
2005)
|
||
4.4.2
|
Investors’
Rights Agreement dated January 28, 2005, by and between PacificHealth
Laboratories, Inc. and Hormel HealthLabs, LLC (incorporated by reference
to Exhibit 4.4 to PacificHealth Laboratories, Inc.’s Annual Report on Form
10-KSB filed on April 15,
2005)
|
Exhibit
Number
|
Description
of Exhibit(1)
|
||
4.4.3
|
Right
of First Refusal and Co-Sale Agreement dated January 28, 2005, by and
between PacificHealth Laboratories, Inc., Robert Portman and Hormel
HealthLabs, LLC (incorporated by reference to Exhibit 4.5 to PacificHealth
Laboratories, Inc.’s Annual Report on Form 10-KSB filed on April 15,
2005)
|
||
4.4.4
|
Certificate
of Designations for Series A Preferred Stock (incorporated by reference to
Exhibit 3.1 to PacificHealth Laboratories, Inc.’s Current Report on Form
8-K filed on January 28, 2005)
|
||
4.5
|
Certificate
of Designations for Series B Preferred Stock, filed with the Secretary of
State of the State of Delaware on April 28, 2005 (incorporated by
reference to Exhibit 3(i) to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed on May 4, 2005)
|
||
4.6.1
|
Securities
Purchase Agreement, dated August 24, 2005 by and between PacificHealth
Laboratories, Inc. and Hormel HealthLabs, LLC (incorporated by reference
to Exhibit 10.1 to PacificHealth Laboratories, Inc.’s Current Report on
Form 8-K filed on August 30, 2005)
|
||
4.6.2
|
Amended
and Restated Investors’ Rights Agreement dated August 24, 2005 between
PacificHealth Laboratories, Inc. and Hormel HealthLabs, LLC and any
additional investor that becomes a party thereto (incorporated by
reference to Exhibit 4.1 to PacificHealth Laboratories, Inc.’s Current
Report on Form 8-K filed on August 30, 2005)
|
||
4.6.3
|
Form
of Secured Convertible Promissory Note issued in connection with Exhibit
4.6.1 (incorporated by reference to Exhibit 10.2 to PacificHealth
Laboratories, Inc.’s Current Report on Form 8-K filed on August 30,
2005)
|
||
4.6.4
|
Security
Agreement dated August 24, 2005 by and between PacificHealth Laboratories,
Inc. and Hormel HealthLabs, LLC (incorporated by reference to Exhibit 10.3
to PacificHealth Laboratories, Inc.’s Current Report on Form 8-K filed on
August 30, 2005)
|
||
10.1
|
Employment
Extension Agreement between PacificHealth Laboratories, Inc. and Robert
Portman effective January 1, 2004, executed February 28, 2006
(incorporated by reference to Exhibit 10.6 to PacificHealth Laboratories,
Inc.’s Post-Effective Amendment to Registration Statement on Form SB-2
(File No. 333-109197) filed on May 2, 2006)
|
||
10.2.1
|
Asset
Purchase Agreement dated February 22, 2006, by and between PacificHealth
Laboratories, Inc. and Mott’s LLP (redacted, subject to request for
confidential treatment) (incorporated by reference to Exhibit 10.8 to
PacificHealth Laboratories, Inc.’s Annual report on Form 10-KSB filed on
March 31, 2006)
|
||
10.2.2
|
License
Agreement dated February 22, 2006, by and between PacificHealth
Laboratories, Inc. and Mott’s LLP (redacted, subject to request for
confidential treatment) (incorporated by reference to Exhibit 10.9 to
PacificHealth Laboratories, Inc.’s Annual report on Form 10- KSB filed on
March 31, 2006)
|
||
10.2.3
|
Consulting,
License and Noncompetition Agreement dated February 22, 2006, by and
between PacificHealth Laboratories, Inc., Mott’s LLP and Robert Portman
(redacted, subject to request for confidential treatment) (incorporated by
reference to Exhibit 10.10 to PacificHealth Laboratories, Inc.’s Annual
report on Form 10-KSB filed on March 31, 2006)
|
||
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer (filed
herewith)
|
||
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer (filed
herewith)
|
Exhibit
Number
|
Description
of Exhibit(1)
|
||
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (filed
herewith)
|
(1)
|
In
the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant’s file number under the
Exchange Act is 000-23495.
|