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April 17, 2006

Sport drink co. /Hormel

I'm sorry this is somewhat late, but here's an annual report from a company that Hormel Health Labs pumped $1 million into at the start of 2005. Hormel Health Labs is a subsidiary of Diamond Crystal Sales and owned by Hormel Foods Corp.

PacificHealth Labs of Matawan, N.J. has developed several sports drinks, fitness supplements and weight-loss products. It also has a weight loss drink that also reportedly helps control diabetes.

That all sounds pretty sexy in today's mixing of health, beauty and medicine. However, this company barely survived through 2005. Here's a snippet of from an interview with the previous CEO before the company hit even tougher times in mid-2005.

"… the company has financial "liquidity" problems, Dave Mastroianni said. In its third-quarter earnings report released Nov. 12, PacificHealth reported a net loss of $303,343 and $1.9 million in revenue. Its cash balance was approximately $272,000.

PacificHealth's cash balance was $539,269 at the end of September. The cash drain was the result of costs for sales, marketing and inventory, according to documents filed with the Securities Exchange Commission.

"We have great technology and great science," Mastroianni said. "We don't have the financial wherewithal."

Now its latest CEO is, of course, optimistic about the future.

I wonder how what Hormel's opinion of PacificHealth is these days?

Here's some from a wire piece about this company's annual report at the start of April:

After a tumultuous 2005, PacificHealth Labs looks to be sailing towards a steadier year, thanks to a strategic shift and the sale of its sports drink intellectual property.

One of the main blows to have struck PacificHealth in 2004 was retailer GNC's decision in March to discontinue the NTS strength training product line, causing it to write off its own inventory of $679,000 and patents in the amount of $137,138.

This was reflected in the full 2004 results, and is therefore a major reason why 2005 looks so much better in comparison.

Sales, general and administration expenses were down to $3.7 million from $4.6 million in 2004.

Although the company had received a $1 million equity investment from Hormel Health Labs in January 2005, by August it was in dire straits, with fears that the company would not be able to continue operating for more than 30 to 60 days beyond 15 August 2005, if no additional financing came through.

Consequently it managed to raise $500,000 from the placement of convertible debt.

President and CEO Robert Portman called 2005 “a pivotal year”, in which the company effected a major shift in strategy involving management changes, a more aggressive stance on licensing, cost-saving, and streamlining of sales and marketing.

Portman is optimistic about the prospects for the coming year – and part of that optimism is down to the sale of PacificHealth's sports drink technology, including its Accelerade and Endurox brands, for $4m upfront with a built-in royalty revenue stream.

The company has managed to pay off all its outstanding debt, and should save almost $1 million in operating expenses in 2006 thanks to streamlining of its sales and marketing, e-commerce expansion and discontinuation of low potential brands.

While operating losses were $700,000 in Q1 2005, Portman expects that losses will be all but eliminated in the same three months of 2006, and that sales will be “appreciably higher”.


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