x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
DELAWARE |
22-3367588 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification Number) |
100 Matawan Road, Suite 420 |
|
Matawan, NJ |
07747 |
(Address of principal executive offices) |
(Zip Code) |
Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company x |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
3 | ||
PART I. |
FINANCIAL INFORMATION |
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ITEM 1. |
FINANCIAL STATEMENTS |
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Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008 |
4 | ||
Statements of Operations (Unaudited) for the three and nine months ended September 30, 2009 and 2008 |
5 | ||
Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008 |
6 | ||
Notes to Unaudited Financial Statements |
7 | ||
ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
13 | |
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
16 | |
ITEM 4T. |
CONTROLS AND PROCEDURES |
17 | |
PART II. |
OTHER INFORMATION |
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ITEM 1. |
LEGAL PROCEEDINGS |
17 | |
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
17 | |
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
17 | |
ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
17 | |
ITEM 5. |
OTHER INFORMATION |
17 | |
ITEM 6. |
EXHIBITS |
17 | |
SIGNATURES |
18 |
● |
The development, testing, and commercialization of new products and the expansion of markets for our current products; | |
● |
The receipt of royalty payments from our agreements with business partners; | |
● |
Implementing aspects of our business plan; | |
● |
Financing goals and plans; | |
● |
Our existing cash and whether and how long these funds will be sufficient to fund our operations; and | |
● |
Our raising of additional capital through future equity financings. |
PACIFICHEALTH LABORATORIES, INC. |
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BALANCE SHEETS |
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ASSETS |
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September 30, |
December 31, |
|||||||
2009 |
2008 |
|||||||
(Unaudited) |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 457,724 | $ | 888,993 | ||||
Other short-term investments |
175,000 | 300,000 | ||||||
Accounts receivable, net |
1,527,864 | 455,851 | ||||||
Inventories |
1,500,865 | 1,308,316 | ||||||
Prepaid expenses |
164,481 | 159,200 | ||||||
Total current assets |
3,825,934 | 3,112,360 | ||||||
Property and equipment, net |
277,448 | 236,721 | ||||||
Deposits |
10,895 | 22,895 | ||||||
Total assets |
$ | 4,114,277 | $ | 3,371,976 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Notes payable |
$ | 34,591 | $ | 58,810 | ||||
Accounts payable and accrued expenses |
1,530,629 | 555,354 | ||||||
Deferred revenue |
323,213 | 347,945 | ||||||
Total current liabilities |
1,888,433 | 962,109 | ||||||
Stockholders' equity: |
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Common stock, $.0025 par value; authorized |
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50,000,000 shares; issued and outstanding: |
||||||||
15,409,403 shares at September 30, 2009 and |
||||||||
14,194,613 shares at December 31, 2008 |
38,524 | 35,486 | ||||||
Additional paid-in capital |
19,964,874 | 19,585,297 | ||||||
Accumulated deficit |
(17,777,554 | ) | (17,210,916 | ) | ||||
2,225,844 | 2,409,867 | |||||||
Total liabilities and stockholders' equity |
$ | 4,114,277 | $ | 3,371,976 | ||||
See accompanying notes to financial statements. |
PACIFICHEALTH LABORATORIES, INC. |
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STATEMENTS OF OPERATIONS |
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FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 |
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(UNAUDITED) |
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Three Months |
Nine Months |
|||||||||||||||
Ended September 30, |
Ended September 30, |
|||||||||||||||
2009 |
2008 |
2009 |
2008 |
|||||||||||||
Revenues: |
||||||||||||||||
Net product sales |
$ | 2,376,291 | $ | 2,176,196 | $ | 6,796,964 | $ | 6,266,000 | ||||||||
Cost of goods sold: |
||||||||||||||||
Cost of product sales |
1,170,550 | 1,202,456 | 3,564,018 | 3,451,138 | ||||||||||||
Reserve for obsolete inventory |
- | 84,669 | - | 84,669 | ||||||||||||
1,170,550 | 1,287,125 | 3,564,018 | 3,535,807 | |||||||||||||
Gross profit |
1,205,741 | 889,071 | 3,232,946 | 2,730,193 | ||||||||||||
Operating expenses: |
||||||||||||||||
Sales and marketing |
569,705 | 344,829 | 1,340,717 | 734,531 | ||||||||||||
General and administrative |
808,973 | 915,811 | 2,460,474 | 2,705,582 | ||||||||||||
Research and development |
- | 15,220 | - | 124,728 | ||||||||||||
Restructuring expense |
- | 472,069 | - | 472,069 | ||||||||||||
1,378,678 | 1,747,929 | 3,801,191 | 4,036,910 | |||||||||||||
Loss before other (expense) income and |
||||||||||||||||
provision for income taxes |
(172,937 | ) | (858,858 | ) | (568,245 | ) | (1,306,717 | ) | ||||||||
Other (expense) income: |
||||||||||||||||
Other income |
- | - | 4,000 | 1,296 | ||||||||||||
Interest income |
343 | 9,425 | 3,445 | 38,572 | ||||||||||||
Interest expense |
(1,501 | ) | (536 | ) | (3,758 | ) | (1,133 | ) | ||||||||
(1,158 | ) | 8,889 | 3,687 | 38,735 | ||||||||||||
Loss before income taxes |
(174,095 | ) | (849,969 | ) | (564,558 | ) | (1,267,982 | ) | ||||||||
Provision for income taxes |
- | - | 2,080 | - | ||||||||||||
Net loss |
$ | (174,095 | ) | $ | (849,969 | ) | $ | (566,638 | ) | $ | (1,267,982 | ) | ||||
Basic and diluted loss per share |
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.09 | ) | ||||
Weighted average common shares - basic and diluted |
15,296,300 | 13,557,005 | 14,815,232 | 13,520,156 | ||||||||||||
See accompanying notes to financial statements. |
PACIFICHEALTH LABORATORIES, INC. |
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STATEMENTS OF CASH FLOWS |
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 |
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(UNAUDITED) |
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2009 |
2008 |
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Cash flows from operating activities: |
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Net loss |
$ | (566,638 | ) | $ | (1,267,982 | ) | ||
Adjustments to reconcile net loss to net |
||||||||
cash (used in) provided by operating activities: |
||||||||
Depreciation |
141,659 | 112,137 | ||||||
Allowance for doubtful accounts |
9,000 | 9,000 | ||||||
Equity instrument-based expense |
232,615 | 325,719 | ||||||
Reserve of inventory |
- | 84,669 | ||||||
Restructuring expense |
- | 472,069 | ||||||
Changes in assets and liabilities: |
||||||||
Increase in accounts receivable |
(1,081,013 | ) | (169,719 | ) | ||||
(Increase) decrease in inventories |
(192,549 | ) | 526,178 | |||||
(Increase) decrease in prepaid expenses |
(5,281 | ) | 7,640 | |||||
Decrease in deposits |
12,000 | - | ||||||
Increase in accounts payable and accrued expenses |
975,275 | 222,402 | ||||||
Decrease in deferred revenue |
(24,732 | ) | (173,903 | ) | ||||
Net cash (used in) provided by operating activities |
(499,664 | ) | 148,210 | |||||
Cash flows from investing activities: |
||||||||
Proceeds from sales of other short-term investments |
125,000 | 725,000 | ||||||
Purchase of fixed assets |
(182,386 | ) | (195,098 | ) | ||||
Net cash (used in) provided by investing activities |
(57,386 | ) | 529,902 | |||||
Cash flows from financing activities: |
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Issuance of notes payable |
59,751 | 58,537 | ||||||
Repayments of notes payable |
(83,970 | ) | (42,481 | ) | ||||
Common stock issued |
150,000 | - | ||||||
Net cash provided by financing activities |
125,781 | 16,056 | ||||||
Net (decrease) increase in cash and cash equivalents |
(431,269 | ) | 694,168 | |||||
Cash and cash equivalents, beginning balance |
888,993 | 1,712,713 | ||||||
Reclassification of cash to other short-term investments |
- | (1,500,000 | ) | |||||
Cash and cash equivalents, ending balance |
$ | 457,724 | $ | 906,881 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid for interest |
$ | 3,758 | $ | 1,133 | ||||
Cash paid for income taxes |
$ | 2,080 | $ | - | ||||
See accompanying notes to financial statements. |
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 nine months ended September 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 ASC 718-10-05, “Compensation - Stock Compensation” (“ASC
718-10-05”). | |
During the first nine months of 2009, the Company commenced the marketing and distribution of its new FORZE GPS™ 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 ASC 855-10-05, “Subsequent Events” (“ASC 855-10-05”), on a prospective basis. The provisions of ASC 855-10-05 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 our most recent quarter ended September 30, 2009 and October 30, 2009, the date the financial statements were issued. | |
In the quarter ended September 30, 2008, the Company made the decision to restructure in order to be better able to sustain its base sports performance business. The Company eliminated a number of positions and chose to exit certain market sectors. As a result of these decisions, the Company recorded a restructuring charge in the amount of
$472,069 in the quarter ended September 30, 2008. Approximately $138,000 of this charge was for the accelerated vesting of options to the Company’s former CEO pursuant to a Separation Agreement. Approximately $150,000 was accrued for severance and benefits for the eliminated positions. The Company wrote-off approximately $139,000 in SATIATRIM raw materials and packaging components that will no longer be used as the Company does not intend to market that brand any longer. The Company also wrote off approximately
$45,000 in raw materials and packaging inventory for certain sports performance products that no longer fit into the Company’s plans. |
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 GNC, a significant customer of the Company, whereby unsold product is subject to return provisions. In determining revenue recognition for products shipped to this customer, the Company follows the guidance in ASC 605-10-25-1,” Sales of Product When Right of Return Exists” (“ASC
605-10-25-1”). 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 September 30, 2009 and December 31, 2008 amounted to $323,213 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 ASC 605-10-25-1,
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. |
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 nine months ended September 30, 2009, the Company redeemed $125,000 of these investments. |
As of September 30, 2009 and December 31, 2008, inventories consisted of the following: |
September 30, |
||||||||
2009 |
December 31, |
|||||||
(Unaudited) |
2008 |
|||||||
Raw materials |
$ | 51,205 | $ | 207,286 | ||||
Work-in-process |
- | - | ||||||
Packaging supplies |
82,370 | 42,861 | ||||||
Finished goods |
1,218,452 | 902,132 | ||||||
Finished goods on consignment |
148,838 | 156,037 | ||||||
$ | 1,500,865 | $ | 1,308,316 |
Included above are reserves against finished goods of $37,121 and $42,339, respectively, at September 30, 2009 and December 31, 2008. |
The Company accounts for equity instrument issuances (including common stock, options, and warrants) in accordance with ASC 718-10-05. 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 $93,819 and $124,047, respectively, in the three-month periods ended September 30, 2009 and 2008, representing the effect on loss from continuing operations, loss before income taxes and net loss. The Company recorded charges of $232,615 and $325,719, respectively, in the nine-month periods ended September 30, 2009 and 2008, representing the effect on loss from continuing operations, loss before income taxes and
net loss. | |
Employee Compensation | |
The Company recorded charges of $41,229 and $124,047, respectively, in the three-month periods ended September 30, 2009 and 2008 for previously issued equity issuances for employees. The Company recorded charges of $120,661 and $325,719, respectively, in the nine-month periods ended September 30, 2009 and 2008 for previously issued
equity issuances for employees. |
The Company did not grant any options to employees in the three months ended September 30, 2009. The Company granted 200,000 stock options to the Chief Executive Officer/President during the nine months ended September 30, 2009 with an exercise price of $0.28 per share. Of these options, 50,000 vest in the second quarter of 2010, 50,000 of
these options vest in the second quarter of 2011, 50,000 of these options vest in the second quarter of 2012, and 50,000 of these options vest 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 nine months ended September 30, 2009 for these options amounted to $2,688. The Company granted 450,000 stock options to other employees and directors during the three months ended September 30, 2008 with
exercise prices ranging from $0.23 to $0.28 per share that vest on an annual basis through the third quarter of 2012. These options were determined to have a total fair value of $85,700. Compensation expense recognized during the three months ended September 30, 2008 for these options amounted to $2,651. The Company granted 657,500 stock options to employees and directors during the nine months ended September 30, 2008 with exercise prices ranging from $0.23 to $0.55 per share. There were 70,417 options that
vested in the first quarter of 2009; 70,417 of these options vest in the first quarter of 2010; 66,666 of these options vest in the first quarter of 2011; and 450,000 of these options vest through the third quarter of 2012. These options were determined to have a total fair value of $173,688. Compensation expense recognized during the nine months ended September 30, 2008 for these options amounted to $24,756. The total intrinsic value of options exercised during the three and nine months ended September 30, 2009
and 2008 was $0 and $0, respectively. | |
The Company recognized $24,000 and $78,000, respectively, for the three and nine month periods ended September 30, 2009 as a component of employee compensation for common shares issuable as payment of directors’ fees. The Company recognized $35,000 and $51,400, respectively, for the three and nine month periods ended September 30, 2008
as a component of employee compensation for common shares issuable as payment of directors’ fees. | |
Non-Employee Compensation | |
The Company granted no warrants to non-employee athlete endorsers during the three months ended September 30, 2009. The Company granted 402,500 warrants to non-employee athlete endorsers during the nine months ended September 30, 2009 with an exercise price of $0.14 per share. Of these warrants, 109,167 warrants vest in the fourth quarter
of 2009; 4,167 warrants vest in the first quarter of 2010; 109,167 of these warrants vest in the fourth quarter of 2010; 4,167 warrants vest in the first quarter of 2011; 109,166 of these warrants vest in the fourth quarter of 2011; 4,166 warrants vest in the first quarter of 2012; and 62,500 of these warrants vest in the fourth quarter of 2012. These warrants were determined to have a total fair value of $38,713. Compensation expense recognized during the three and nine months ended September 30, 2009 for these
warrants amounted to $2,689 and $8,053, respectively. These amounts were charged to operations and added to additional paid-in capital in accordance with ASC 718-10-05. The Company did not grant any warrants during the three and nine months ended September 30, 2008. No warrants were exercised during the three and nine months ended September 30, 2009 and 2008. | |
The Company recognized $25,901 for the three and nine month periods ended September 30, 2009 as a component of sales commissions for common shares issued as payment of certain sales representative commissions. The Company did not recognize any expense in the three and nine month periods ended September 30, 2008 as a component of consultant
compensation for common shares issued as payment of certain sales representative commissions. | |
The Company granted no stock options to consultants during the three and nine months ended September 30, 2009 and 2008. | |
In summary, compensation charges to operations for the periods presented are as follows: |
Three Months |
Nine Months |
|||||||||||||||
Ended Sept. 30, |
Ended Sept. 30, |
|||||||||||||||
2009 |
2008 |
2009 |
2008 |
|||||||||||||
Employee compensation |
$ | 65,229 | $ | 124,047 | $ | 198,661 | $ | 325,719 | ||||||||
Consultant compensation |
28,590 | - | 33,954 | - | ||||||||||||
$ | 93,819 | $ | 124,047 | $ | 232,615 | $ | 325,719 |
A summary of employee options activity under our plans as of September 30, 2009 and changes during the nine-month period then ended is presented below: |
Weighted- | ||||||||||||||||
Weighted- |
Average | |||||||||||||||
Average |
Remaining | Aggregate | ||||||||||||||
Exercise |
Contractual | Intrinsic | ||||||||||||||
Options |
Shares |
Price |
Term (Years) | 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 |
(518,500 | ) | 0.64 | |||||||||||||
Outstanding, September 30, 2009 |
2,558,500 | $ | 0.64 |
2.83 |
$ |
7,800 |
||||||||||
Exercisable, September 30, 2009 |
1,412,251 | $ | 0.79 |
2.14 |
$ |
2,175 |
The market value of the Company’s common stock as of September 30, 2009 was $0.26 per share. |
Weighted |
|||||||||
Average |
|||||||||
Grant-Date |
|||||||||
Black-Scholes |
|||||||||
Non-vested Options |
Shares |
Value |
|||||||
Non-vested, January 1, 2009 |
1,320,499 | $ | 0.41 | ||||||
Granted during the period |
200,000 | 0.22 | |||||||
Vested during the period |
(374,250 | ) | 0.43 | ||||||
Forfeited during the period |
- | - | |||||||
Non-vested, September 30, 2009 |
1,146,249 | $ | 0.37 |
As of September 30, 2009, the total fair value of non-vested awards amounted to $327,842. The weighted average remaining period over which such options are expected to be recognized is 2.87 years. | |
A summary of warrant activity as of September 30, 2009 and changes during the nine-month period then ended is presented below: |
Weighted- |
|||||||||||||
Average |
Aggregate | ||||||||||||
Exercise |
Intrinsic | ||||||||||||
Warrants |
Shares |
Price |
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, September 30, 2009 |
402,500 | $ | 0.14 | $ |
48,300 |
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. |
On January 2, 2009, the Company issued 267,855 shares of its common stock as payment of directors’ fees that were 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 were 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. | |
On August 11, 2009, the Company issued 48,912 shares of its common stock as payment of certain sales commissions for the first and second quarters of 2009 for an amount totaling $14,673. | |
On September 30, 2009, the Company issued 92,309 shares of its common stock as payment of directors’ fees for the third quarter of 2009 for an amount totaling $24,000. |
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 September 30, 2009, the Company has fully reserved for these net operating loss carryovers. |
The Company’s two largest customers accounted for approximately 23% and 18%, respectively, of net sales for the three months ended September 30, 2009 and the Company’s three largest customers accounted for approximately 16%, 13% and 10%, respectively, of net sales for the three months ended September 30, 2008. The Company’s
two largest customers accounted for approximately 20% and 16%, respectively, of net sales for the nine months ended September 30, 2009 and the Company’s two largest customers accounted for approximately 17% and 16%, respectively, of net sales for the nine months ended September 30, 2008. At September 30, 2009, amounts due from these two customers represented approximately 36% 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. | |
Two of the Company’s suppliers accounted for approximately 56% and 25%, respectively, of total inventory purchases for the three months ended September 30, 2009 and two of the Company’s suppliers accounted for approximately 83% and 13%, respectively, of total inventory purchases for the three months ended September 30, 2008. Two
of the Company’s suppliers accounted for approximately 64% and 15%, respectively, of total inventory purchases for the nine months ended September 30, 2009 and two of the Company’s suppliers accounted for approximately 69% and 22%, respectively, of total inventory purchases for the nine months ended September 30, 2008. At September 30, 2009, amounts due to these two vendors represented approximately 40% and 17%, respectively, of accounts payable and accrued expenses. At December
31, 2008, amounts due to these two vendors represented approximately 24% and 0%, respectively, of accounts payable and accrued expenses. No other vendors exceeded 10% of respective captions noted above. |
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 September 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 renewed this one-year revolving line of credit that now matures in May 2010 in the amount of $137,500. As of September 30, 2009, this line of credit has a borrowing limit of $87,500. As of October 30, 2009, the Company has not drawn down on this line of credit. |
In September 2009, the Company entered into a lease extension for its current office space that was set to expire in June 2012. The terms of the lease extension call for the term to begin September 2009 and conclude in June 2015. Monthly payments commence at $9,583 and increase to $11,250 by the last year with the first month of rent free.
The Company records monthly rent expense on a straight line basis over the term of the lease. The difference between rent expense recorded and the amount paid is credited or charged to “deferred rent” which is included as a component of accounts payable and accrued expenses in the accompanying balance sheet. As of September 30, 2009, this amounted to $10,304. |
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 nine months ended September 30, 2009, the Company recognized $24,583 and $172,081, respectively,
of expense under this Agreement. In the three and nine months ended September 30, 2008, the Company recognized $49,166 of expense under this Agreement. |
The Company reclassified $344,829 of sales and marketing expenses from general and administrative expenses as well as reclassified $44,798 of depreciation expense to general and administrative expenses in the quarter ended September 30, 2008 to conform to current year presentation and enhance comparability. The Company reclassified $734,531
of sales and marketing expenses from general and administrative expenses as well as reclassified $112,137 of depreciation expense to general and administrative expenses in the nine months ended September 30, 2008 to conform to current year presentation and enhance comparability. |
On October 13, 2009, the Company issued 43,185 shares of its common stock as payment of certain sales commissions for the third quarter of 2009 for an amount totaling $11,228. |
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4T. |
CONTROLS AND PROCEDURES |
Exhibit
Number |
Description of Exhibit |
31.1* |
Rule 13a-14(a) Certification of Chief Executive Officer |
31.2* |
Rule 13a-14(a) Certification of Chief Financial Officer |
32** |
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* |
Filed herewith |
** |
Furnished herewith |
PACIFICHEALTH LABORATORIES, INC. | |||
By: /S/ STEPHEN P. KUCHEN | |||
STEPHEN P. KUCHEN | |||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
Date: |
October 30, 2009 |