Pacifichealth Laboratories Inc. (PHLI)

[littlefish]

Some things to ponder from last 10Q:

Deferred revenue increased as a major customer took on additional products and increased its inventories in the third quarter of 2007 as compared to the fourth quarter of 2006. In addition, we issued common stock in connection with sales of common stock and exercises of options and warrants resulting in proceeds of $726,036 during the nine months ended September 30, 2007.



S, G, & A expenses increased primarily due to the investment in marketing and other expenses of $88,449 and $276,167 respectively, for the three- and nine- month periods ended September 30, 2007 associated with the launch of SATIATRIM. We expect to continue to invest in the marketing of SATIATRIM. Late in the second quarter, we officially launched the product via a major public relations campaign that involves the Internet, radio, television, and print media.


For the three months ended September 30, 2007, gross profit margin on product sales was 43.9% compared to 44.9% for the three months ended September 30, 2006. For the nine months ended September 30, 2007, gross profit margin on product sales was 39.7% compared to 47.3% for the nine months ended September 30, 2006. We experienced a change in our product mix. Also, in order to fully take advantage of the CSAB advertising spend, we redesigned all ACCELERADE and ACCEL GEL packaging to conform to the new CSAB ACCELERADE RTD packaging. To flush out old inventory, we aggressively discounted these products, leading to lower gross profit margins. We wrote off approximately $49,000 of non CSAB-type packaging material, which is the equivalent of 0.8% of the nine-month revenues. We experienced cost of production and raw material price increases, specifically whey protein, in our finished products from 2006 to 2007. We also experienced a significant increase in freight costs coupled with our decision to provide free freight to more customers as a sales incentive. To address these issues, we implemented our first ever price increase effective July 1, 2007. This price increase met no resistance in the market place.



Personally, I think the company would be stronger today if it had never tried to launch Satiatrim. But I've tried the product and think it has some merit as far as I think it cuts down on my snacking. Not sure about direct weight loss, but there seems to be a bit of effect IMO.

Still like this one though for the Accelerade powder and gel sales.

Gross margins haven't perked up even with approx 20% increased sales, and the addition of Mr Ash will likely keep pressure on GMs in the short term IMO for early 2008 (his salary and incentives).

Maybe we'll see some traction build with Satiatrim. They obviously were way too aggressive in estimating sales and that inventory writedown hurt the bottom line (although they did put some of it to use placing it to prospective clinets apparently).

But that's behind us now. Insiders are dabbling with more shares, although Mr Cahr hasn't joined in (recently) yet.

The expense of RTD Accelerade is certainly a deterrent for competing directly with the Powerades and Gatorades of the world.

But there's a niche market for it for sure. And the powder and gel sales IMO could help provide a cheaper alternative to that niche market segment.

Considering Q4 is often seasonally a bit weaker, I would think we might see a semi-slow 1st half to 2008. But with Mr Ash about to start, some marketing spending done for Satiatrim to help with hopefully a little traction, the write-downs for old packaging done, the implemented price increase, and Accelerade brand awareness helping a bit going forward things may look to turn around for PHLI going into 2nd half of 2008 and I htink it looks attractive at current levels.

Anybody else around here? Or has everybody abandoned ship.