Edgar Filing: PACIFICHEALTH LABORATORIES INC

t62610_10qsb.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 March 31, 2008

-OR-

o 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.

(Exact name of Small Business Issuer as specified in its charter)

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)

Registrant's telephone number, including area code: (732) 739-2900

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjected to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-25 of the Exchange Act) Yes o No x

At May 2, 2008, there were 13,501,426 shares of common stock, par value $0.0025 per share, of the issuer outstanding.

Transitional small business disclosure format: Yes o No x

PACIFICHEALTH LABORATORIES, INC.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			3

PART I. FINANCIAL INFORMATION

	ITEM 1.	FINANCIAL STATEMENTS

		Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007	4

		Statements of Operations (Unaudited) for the three months ended March 31, 2008 and 2007	5

		Statements of Cash Flows (Unaudited) for the three months ended March 31, 2008 and 200	6

		Notes to Financial Statements	7

	ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11

	ITEM 3.	CONTROLS AND PROCEDURES	14

PART II. OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS	14

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	14

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	14

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14

	ITEM 5.	OTHER INFORMATION	14

	ITEM 6.	EXHIBITS	15

SIGNATURES			17

Cautionary Note Regarding Forward-Looking Statements

As used herein, unless we otherwise specify, the terms the “Company,” "we," "us," and "our" means PacificHealth Laboratories, Inc.

This Report contains forward-looking statements concerning our financial condition, results of operations and business, including, without limitation, statements pertaining to:

	●	The development, testing, and commercialization of new products and the expansion of the market for our current products;
	●	The receipt of royalty payments from our agreements with business partners;
	●	Implementing aspects of our business plans;
	●	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.

These and other forward-looking statements are primarily in the section entitled "Management's Discussion and Analysis of Financial Conditions and Results of Operations". Generally, you can identify these statements because they include phrases such as "anticipates," "believes," "expects," "future," "intends," "plans," and similar terms. These statements are only predictions. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which are unforeseen. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Report on Form 10-QSB. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those stated in this Report. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. We cannot be sure when or if we will be permitted by regulatory agencies to undertake clinical trials or to commence any particular phase of clinical trials. Because of this, statements regarding the expected timing of clinical trials cannot be regarded as actual predictions of when we will obtain regulatory approval for any “phase” of clinical trials.

We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or over which we have no control. Cautionary language in this Report provides examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PACIFICHEALTH LABORATORIES, INC.
BALANCE SHEETS

ASSETS
	March 31,			December 31,
	2008			2007
	(Unaudited)
Current assets:
Cash and cash equivalents	$	182,601		$	1,712,713
Other short-term investments		1,350,000			-
Accounts receivable, net		1,103,290			709,623
Inventories		1,775,729			2,010,446
Prepaid expenses		75,992			111,672
Total current assets		4,487,612			4,544,454

Property and equipment, net		177,728			185,007

Deposits		10,895			10,895

Total assets	$	4,676,235		$	4,740,356

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable	$	-		$	16,205
Accounts payable and accrued expenses		663,588			472,475
Deferred revenue		482,990			559,876
Total current liabilities		1,146,578			1,048,556

Stockholders' equity:
Common stock, $.0025 par value; authorized
50,000,000 shares; issued and outstanding:
13,501,426 shares at March 31, 2008 and
13,501,426 shares at December 31, 2007		33,754			33,754
Additional paid-in-capital		18,983,871			18,874,609
Accumulated deficit		(15,487,968	)		(15,216,563	)

		3,529,657			3,691,800

Total liabilities and stockholders' equity	$	4,676,235		$	4,740,356

See accompanying notes to financial statements.

PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)


	2008			2007
Revenues:
Net product sales	$	1,719,375		$	1,818,894

Cost of goods sold		932,795			1,132,887

Gross profit		786,580			686,007

Selling, general and administrative expenses		1,010,444			849,166
Research and development expenses		31,911			75,370
Depreciation expense		34,096			15,812
		1,076,451			940,348

Net operating loss		(289,871	)		(254,341	)

Other income (expense)
Other income		1,133			10,000
Interest income		17,464			20,536
Interest expense		(131	)		(611	)
		18,466			29,925

Loss before income taxes		(271,405	)		(224,416	)

Provision for income taxes		-			-

Net loss	$	(271,405	)	$	(224,416	)

Basic and diluted loss per share	$	(0.02	)	$	(0.02	)

Weighted average common shares - Basic and diluted		13,501,426			12,983,950

See accompanying notes to financial statements.

PACIFICHEALTH LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)

	2008			2007
Cash flows from operating activities:
Net loss	$	(271,405	)	$	(224,416	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation		34,096			15,812
Allowance for doubtful accounts		3,000			3,000
Equity instrument-based expense		109,262			60,844
Changes in assets and liabilities:
Increase in accounts receivable		(396,667	)		(607,737	)
Decrease (increase) in inventories		234,717			(722,125	)
Decrease in prepaid expenses		35,680			38,504
Increase (decrease) in accounts payable/accrued expenses		191,113			(98,816	)
(Decrease) increase in deferred revenue		(76,886	)		50,945
Net cash used in operating activities		(137,090	)		(1,483,989	)

Cash flows from investing activity:
Purchase of fixed assets		(26,817	)		(100,918	)
Net cash used in investing activity		(26,817	)		(100,918	)

Cash flows from financing activities:
Issuance of notes payable		-			7,874
Repayments of notes payable		(16,205	)		(26,787	)
Common stock issued		-			450,000
Proceeds from common stock options/warrants exercised		-			179,004
Net cash (used in) provided by financing activities		(16,205	)		610,091

Net decrease in cash		(180,112	)		(974,816	)

Cash and cash equivalents, beginning balance		1,712,713			2,564,038

Reclassification of other short-term investments		(1,350,000	)		-

Cash and cash equivalents, ending balance	$	182,601		$	1,589,222

Supplemental disclosures of cash flow information:
Cash paid for interest	$	131		$	611

See accompanying notes to financial statements.

PACIFICHEALTH LABORATORIES, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

1. Basis of Presentation

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-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 ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. 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, 2007.

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, and valuation of share-based payments issued under Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment" ("SFAS 123R").

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) collectibility is reasonably assured. Sales are recorded net of incentives paid to customers.

The Company has a sales agreement with a significant customer for all products sold to this customer whereby all unsold product is subject to return provisions. The Company recognizes revenue when this major customer sells through its products to its consumers. At March 31, 2008, the Company has deferred $482,990 in revenues related to this customer. At December 31, 2007, the Company had deferred $559,876 in revenues related to this customer.

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". Despite the underlying long-term maturity of these securities, such securities were typically priced and accounted for as cash equivalents because of the Dutch auction process which has historically provided a liquid market for auction rate securities, as this mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities at the then existing market interest rate or to liquidate their holdings by selling their securities at par value. Recently, however, primarily due to liquidity issues experienced in global credit and capital markets, many auctions for auction rate securities have failed and the sellers of such securities have been unable to liquidate their securities. A seller must then wait until the next successful auction to attempt to sell its auction rate securities, unless there is a secondary market for the particular securities. As a result of a failed auction, however, the auction rate securities will generally pay interest to the holder at a maximum or default rate defined by the securities' governing documents.

Accordingly, as of March 31, 2008, the Company has reclassified such investments from cash and cash equivalents to other short-term investments. During the three months ended March 31, 2008, the Company redeemed $150,000 of these investments with no gain or loss.

4. Inventories

As of March 31, 2008 and December 31, 2007, inventories consisted of the following:

	Mar. 31, 2008		December 31,
	(Unaudited)		2007
Raw materials	$	292,464	$	266,624
Work in process		-		67,920
Packaging supplies		62,541		56,480
Finished goods		1,198,839		1,358,378
Finished goods on consignment		221,885		261,044
	$	1,775,729	$	2,010,446

Included above are reserves against finished goods of $37,420 and $176,363, respectively, at March 31, 2008 and December 31, 2007.

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 a charge of $109,262 in the three-month period ended March 31, 2008, representing the effect on income from continuing operations, income before income taxes, and net income. The Company recorded a charge of $60,844 in the three-month period ended March 31, 2007, representing the effect on income from continuing operations, income before income taxes, and net income.

The Company granted 207,500 stock options to employees and directors during the three months ended March 31, 2008 with exercise prices ranging from $0.45 to $0.55 per share. There were 70,417 options that vest 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 three months ended March 31, 2008 for these options amounted to $7,225. The Company granted 20,000 stock options to employees and directors during the three months ended March 31, 2007 with an exercise price of $2.14 per share. These options vest ratably through the first quarter of 2008. These options were determined to have a total fair value of $35,800. Compensation expense recognized during the three months ended March 31, 2007 amounted to $4,476. The total intrinsic value of options exercised during the three months ended March 31, 2008 and 2007 was $0 and $0, respectively.

The Company granted no stock options to consultants during the three months ended March 31, 2008. The Company granted 1,000 stock options to a consultant during the three months ended March 31, 2007 that vested upon grant with an exercise price of $2.10 per share. These options were determined to have a fair value of $1,510 that was charged to operations in the three-month period ended March 31, 2007.

In summary, compensation charges to operations for the periods presented are as follows:

	Three Months
	Ended March 31,
	2008		2007

Employee compensation	$	109,262	$	59,334
Consultant compensation		-		1,510
	$	109,262	$	60,844

A summary of employee options activity under our plans as of March 31, 2008 and changes during the three-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, 2008		2,338,500		$	0.77
Granted during the period		207,500		$	0.55
Exercised during the period		-			-
Expired during the period		(34,500	)	$	1.46
Outstanding, March 31, 2008		2,511,500		$	0.75	3.28	$	8,280
Exercisable, March 31, 2008		1,213,001		$	0.75	2.14	$	8,280

The market value of the Company’s common stock as of March 31, 2008 was $0.43 per share.

				Weighted-
				Average
				Grant-Date
Non-vested Shares	Shares			Fair Value
Non-vested, January 1, 2008		1,264,332		$	0.80
Granted during the period		207,500		$	0.55
Vested during the period		(173,333	)	$	0.93
Forfeited during the period		-		$	-
Non-vested, March 31, 2008		1,298,499		$	0.75

As of March 31, 2008, the total fair value of non-vested awards amounted to $664,226. The weighted average remaining period over which such options are expected to be recognized is 4.35 years.

The fair value of each option award during the three months ended March 31, 2008 is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table:

	Mar. 31, 2008
Expected volatility	103% - 104%
Weighted-average volatility	104%
Expected dividends	0.0%
Expected term (in years)	5
Risk-free rate	2.78% - 3.49%

6. Income Taxes

The Company has approximately $13,401,000 in federal and $4,051,000 in state net operating loss carryovers generated through December 31, 2007 that can be used to offset future taxable income in calendar years 2008 through 2027. The net operating loss carryovers will expire in the year 2015 through the year 2027. As of March 31, 2008, the Company has fully reserved for these net operating loss carryovers.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. The Company adopted the provision of FIN 48 effective January 1, 2007. The adoption of FIN 48 had no material effect on the Company’s results of operations or financial position.

7. Concentration

The Company’s two largest customers accounted for approximately 16% and 14%, respectively, of net sales for the three months ended March 31, 2008 and the Company’s three largest customers accounted for approximately 18%, 11% and 10%, respectively, of net sales for the three months ended March 31, 2007. At March 31, 2008, amounts due from these two customers represented approximately 25% and 24%, respectively, of accounts receivable. At December 31, 2007, amounts due from these two customers represented approximately 43% and 19%, respectively, of accounts receivable. No other customers exceeded 10% of respective captions noted above.

Two suppliers accounted for approximately 70% and 13%, respectively, of total inventory purchases for the three months ended March 31, 2008 and three suppliers accounted for approximately 59%, 16% and 11%, respectively, of total inventory purchases for the three months ended March 31, 2007. At March 31, 2008, amounts due to these two vendors represented approximately 38% and 3%, respectively, of accounts payable and accrued expenses. At December 31, 2007, amounts due to these two vendors represented approximately 45% and 1%, respectively, of accounts payable and accrued expenses. No other vendors exceeded 10% of respective captions noted above.

8. Subsequent Event

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 (currently 5.25%) with a floor of 5%. This line is collateralized by the short-term investments that are deemed auction rate securities. As of May 2, 2008, the Company has not drawn down on this line of credit.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Report on Form 10-QSB, the terms the “Company,” “we”, “us,” and “our” refer to PacificHealth Laboratories, Inc.

(a) Introduction

PacificHealth Laboratories is a nutrition technology company that was incorporated in the State of Delaware in April 1995. Our mission is to conceive, develop and commercialize specific and scientifically validated nutrition tools in the areas of fitness development and weight regulation to improve our consumer’s performance in life. Our products are substantiated by clinical trials conducted at leading university research centers. Our principal areas of focus include sports performance, weight loss, and management of Type II diabetes. Our products can be marketed without prior Food and Drug Administration (“FDA”) approval under current regulatory guidelines. We employ multiple strategies for the commercialization of our technologies: 1) launch a brand via highly targeted consumer channels, 2) license the technology to a major food or drug company, or 3) a combination of both 1 and 2.

We are focused on developing patented protein-based nutrition products using two core technology platforms. One platform involves the activation of biochemical pathways by specific nutritional compositions to enhance muscle growth, energy, and transport pathways. Using this nutritional technology platform, our research efforts have been directed to product development for 1) improving exercise performance, 2) post-surgical muscle recovery, and 3) oral rehydration. The second technology platform involves stimulation of specific satiety peptides that are released in the stomach. Using this nutritional technology platform, our research efforts have been directed in product development for 1) appetite suppression and weight loss, and 2) management of Type II diabetes.

ACTIVATION OF MUSCLE GROWTH, ENERGY AND TRANSPORT PATHWAYS

Exercise Performance

Our research into factors influencing exercise performance and muscle growth and recovery has led to the development and commercialization of a new generation of sports and recovery drinks. The key to our technology is the specific ratio in which protein is combined with carbohydrates. We received two patents on this technology and over 18 studies have been published demonstrating that products based on this technology can extend endurance, reduce muscle damage, improve rehydration, and accelerate muscle recovery. Our research in exercise performance has led to the introduction and commercialization of a number of products for the aerobic and strength training athlete. These include:

· ENDUROX EXCEL® - Introduced in May 1996 and March 1997.

· ENDUROX R4® Recovery Drink – Introduced in February 1999

· ACCELERADE® Sports Drink – Introduced in May 2001

· ACCEL GEL® – Introduced in February 2004

· ENDUROX RESTORETM Recovery Drink for exercise lasting less than one hour – To be introduced in April 2008

On February 22, 2006, pursuant to an Asset Purchase Agreement of the same date, we sold to Mott’s LLP, a division of Cadbury Schweppes Americas Beverages (“CSAB”), the patents, trademarks, web sites, and other intellectual property related to our ACCELERADE and ENDUROX sports nutrition product lines for $4,000,000 in cash and potential future royalty payments. Simultaneously, we entered into a License Agreement with CSAB giving us the exclusive, royalty free right to continue to sell our sports nutrition products in powder, gel and pill form. Consequently, we will continue to sell our current sports nutrition products in the same manner as prior to the sale of the intellectual property assets.

We are eligible to receive royalty payments from Mott’s for a finite period, subject to an annual limitation on the amount of the royalty. There are no annual minimum royalties. Mott’s launched ACCELERADE Ready To Drink (“RTD”) in the second quarter of 2007. Going forward, we believe Mott’s intends to focus ACCELERADE RTD exclusively on targeted channels and classes of trade and accounts where they expect the product to be financially viable.

Post-Surgical Muscle Recovery

Scientific insights emanating from our discoveries in sports nutrition have led to a potentially new and exciting medical application. Individuals undergoing orthopedic surgery, particularly involving the shoulder, hip or knee, experience muscle atrophy that occurs as a normal consequence of muscle immobilization in the post-surgery period. The degree of muscle atrophy a patient experiences significantly impacts health care costs and quality of life. We are currently evaluating a novel nutritional formulation that has the potential of slowing muscle atrophy following a period of forced immobilization. Such a product could have enormous benefit for the 1.6 million patients who undergo arthroscopy and muscle and knee replacement operations each year, and the 5 million patients who suffer a sports related injury. A clinical study to examine the effectiveness of this formulation is underway. We have filed one patent on this technology and plan to file additional patents in the future.

Oral Rehydration

Another scientific byproduct of our research on the effects of protein has been the identification of nutritional formulas that can enhance sodium transport. Such products would have widespread medical application in treating dehydration commonly associated with vomiting and diarrhea. We will continue our studies and may file patents for this indication in 2008.

ACTIVATION OF SATIETY PEPTIDES

Weight Loss

Satiety peptides have been shown to reduce food intake and suppress appetite in humans. Our research has specifically focused on developing nutritional formulations that can stimulate cholecystokin (CCK), one of the body’s primary satiety peptides. CCK is normally released after a meal, particularly one high in fat and protein. CCK is often called the “feel full” protein because when it is released it gives a feeling of fullness and signals the brain to terminate the meal. The objective of our research is to develop a nutritional composition that stimulates and extends the duration of action of CCK in a calorically efficient way, i.e. to cause a release of CCK with 45-50 calories of specific nutrients rather than 1,000 calories.

The first product we commercialized using this technology was SATIETROL® that was released in April 2000. This was followed by the introduction of a meal replacement product called SATIETROL COMPLETE® in January 2001. Clinical studies showed that both of these products could reduce hunger and reduce caloric intake. In June 2001, we signed an exclusive worldwide licensing agreement with GlaxoSmithKline (“GSK”) for our weight loss technology. Under the agreement, we received an initial payment of $1,000,000 and received a subsequent milestone payment of $250,000. GSK subsequently terminated the agreement in September 2002 with all rights reverting back to us.

We have continued research in this area in order to develop a more effective composition that could be incorporated into different forms (ready-to-drink beverage and chewable tablet) and also has the potential to be added to food and increase the satiation property of the food to which it was added. Starting in the third quarter of 2003, the Company funded a number of clinical studies on an improved formulation. The new formulation was shown to be significantly better than the previous product in reducing caloric intake, slowing gastric emptying, and extending a feeling of satiation following a meal. We have seven patents on our appetite suppressant technology with additional patents pending. We test launched a ready-to-drink beverage using this improved technology under the trade name SATIATRIM® in January 2007 and officially launched the product in June 2007. To date, we have not generated significant sales from this product line and do not expect to do so in the near term.

Type II Diabetes

Our appetite suppression technology may also have potential for the treatment of Type II diabetes, the fastest growing chronic condition in the U.S., affecting an estimated 46 million people. We have instituted clinical trials to measure the effectiveness of our formulation in controlling blood glucose.

(b) Results of Operations – Three Months Ended March 31, 2008 and 2007

We recorded a net loss of ($271,405), or ($0.02) per share (basic and diluted), for the quarter ended March 31, 2008 compared to a net loss of ($224,416), or ($0.02) per share (basic and diluted), for the quarter ended March 31, 2007. For the three-month period ended March 31, 2008, non-cash equity instrument-based (options) expense was $109,262 compared to $60,844 for the same period in 2007. Taking these non-cash items out results in net losses of ($162,143) and ($163,572) (non-GAAP measure), respectively, for the periods ending March 31, 2008 and 2007.

Revenues for the three-month period ended March 31, 2008 were $1,719,375 compared to $1,818,894 for the same period in 2007. Revenues decreased in the first quarter of 2008 as compared to the same period in 2007 as in the first quarter of 2007, we first implemented an aggressive new retailer program that involved freestanding racks and we aggressively discounted old labeled ACCELERADE of approximately $400,000 in sales in order to flush out old inventory to conform to the new CSAB ACCELERADE RTD packaging in anticipation of the CSAB Ready-To-Drink launch. We expect to continue to expand the retailer program involving freestanding racks throughout 2008 though and we also plan to launch new products in 2008 that can be introduced as part of this rack program.

For the three months ended March 31, 2008, gross profit margin was 45.7% compared to 37.7% for the three months ended March 31, 2007. The first quarter of 2008 includes the effects of our first ever price increase that was effective July 1, 2007. In the first quarter of 2007, 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 successfully initiated a 5% price increase on all of our products effective April 1, 2008 that should cover any increase in costs of raw materials or production in 2008.

Selling, general, and administrative (“S, G, & A”) expenses increased $161,278 to $1,010,444 for the three-month period ended March 31, 2008 from $849,166 for the three-month period ended March 31, 2007. For the three-month period ended March 31, 2008, non-cash options expense was $109,262 compared to $60,844 for the same period in 2007. S, G, & A expenses increased primarily due to the hiring of a President/Chief Operating Officer and a Vice President of Product Development and as well as, in the first quarter 2007, we incurred $107,000 of marketing expenses associated with the launch of SATIATRIM.

Research and development expenses were $31,911 for the three months ended March 31, 2008 compared to $75,370 for the three months ended March 31, 2007. We anticipate research and development expenses will increase as we conduct additional clinical trials on all of our products.

At March 31, 2008, our current assets exceeded our current liabilities by approximately $3,341,000 with a ratio of current assets to current liabilities of approximately 3.9 to 1. At March 31, 2008, cash on hand was $178,454, a decrease of $1,534,259 from December 31, 2007, primarily as the result of an increase of $1,354,147 in other short-term investments, an increase of $393,667 in accounts receivable, a decrease in inventory of $234,717, a decrease in prepaid expenses of $35,680, an increase in accounts payable and accrued expenses of $191,113, repayments of notes payable of $16,205 and a decrease in deferred revenue of $76,886 from December 31, 2007. Accounts receivable increased at March 31, 2008 from December 31, 2007 due to higher revenues in the first quarter as compared to the fourth quarter of the previous year. Inventory also decreased due to higher sales volumes and better inventory management. Deferred revenue decreased as a major customer increased its sell-through to the end-user consumers in the first three months of 2008.

As of March 31, 2008, we have approximately $1.35 million invested in auction rate securities that are presented as short-term investments on the balance sheet. During the first quarter, we were able to redeem $150,000 of these investments with no gain or loss. We have subsequently been informed that requests for redemption have been temporarily suspended due to difficult credit market conditions. We have obtained a revolving line of credit with a financial institution that will accept these securities as collateral. We have evaluated our cash flow needs for the next 12 months and have determined that we will have sufficient funds to meet our current obligations as they come due and that if funds are needed, we have a viable alternative to accessing liquidity from the source noted above.

We have no material commitments for capital expenditures.

(d) Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between the Company and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2008, the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; that such information is accumulated and disclosed to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and that such disclosure controls and procedures are effective.

Changes in internal control over financial reporting. During the quarter ended March 31, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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)

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)

Exhibit Number	Description of Exhibit(1)

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)

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.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PACIFICHEALTH LABORATORIES, INC.


		By: /S/ STEPHEN P. KUCHEN
		STEPHEN P. KUCHEN
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

		Date: May 2, 2008

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)

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.