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No. of Recommendations: 7
FiberChoice® Chewable Fiber Tablets. Approximately 10 million U.S. households annually purchase bulk fiber products, primarily to promote regularity and improve digestive health. The bulk fiber category represents approximately $340 million in U.S. retail sales. The Company believes this is an attractive product category due to the aging of the baby-boomer generation. As people age, they frequently develop digestive problems. People over 55 years old are three times more likely to purchase a bulk fiber supplement than those younger than 55. Baby boomers are generally more active and demanding than their parents. These consumers search for solutions that do not hamper their active lifestyles.

Comment: Not a bad-sized market for fiber. Decent potential
if they market these right.



The Company's retail customers include national chains of mass merchants, drug stores and grocery stores such as Wal-Mart, Kmart, Target, Eckerd, Walgreens, RiteAid, CVS, Kroger and Albertson's and warehouse clubs such as Sam's Club and Costco, as well as regional and independent stores in the retail channels. In fiscal 2004, Wal-Mart accounted for approximately 26% of sales. The loss of this customer or any other large retailer would require the Company to replace the lost sales through other retail outlets and could disrupt distribution of the Company's products or result in a loss of revenue.

Comment: Didn't know Wal-mart had this big a chunk of sales ...
a little concerning. However, given how big it is ... predictable.
Why can't Walgreen's be that big? :)



FiberChoice® Chewable Fiber Tablet. The market for dietary fiber supplements is highly competitive and dominated by large companies with greater resources and better established brand recognition than the Company. Competitors included Metamucil® manufactured by Proctor and Gamble, Citrucel® manufactured by GlaxoSmithKline and FiberCon® manufactured by Wyeth. The Company believes that its FiberChoice chewable fiber tablet is a unique product with significant market potential that offers consumers an effective, convenient and good-tasting alternative to existing products with more fiber per dose than any other convenient fiber supplement. The technology of the FiberChoice chewable fiber tablet is currently protected by one issued U.S. patent with other U.S. and international patents pending.

Comment: Not the biggest moat, is it? I wonder how many more
are pending, and how difficult is it to work around these patents to
create a decent tasting fiber pill? Then again, I don't see anybody
else doing it, and I've personally been waiting for something like this
for awhile ...



At June 11, 2004, the Company had 54 full-time employees and 3 part-time employees, of whom 15 were engaged in operations, 21 in general administration, and 21 in marketing and sales.

Comment: Surprisingly few employees given their sales. I suppose
that any R&D falls under operations? If so, I wonder how many full-time
employees are actively doing R&D for new products, and how much they're
hoping for an acquisition or an outside developer to help with new products.



On February 18, 2004, the Company, together with Creative Integration & Design, Inc., sued Silver Eagle Labs, Inc. in the United States District Court for the District of Minnesota for infringement of two nasal dilator patents owned by Creative Integration & Design, Inc. and exclusively licensed to the Company. The suit seeks injunctive relief, damages, enhanced damages for willful infringement, attorneys' fees and costs. Silver Eagle has counterclaimed for a declaration that the asserted patents are invalid and not infringed and asks for its attorneys' fees and costs. CNS quickly sought a preliminary injunction forbidding Silver Eagle from making, using or selling or offering the infringing dilator for sale, which the Court denied. The matter, which will now proceed to trial, is in the discovery stage.

Comment: Didn't know this lawsuit was going on. A quick Google
search of Silver Eagle didn't turn up much at all, so no more info on
what they developed that might infringe.



As of June 4, 2004, there were approximately 600 owners of record of the Company's Common Stock.

Comment: Wow! So, if I showed up to the stockholders meeting,
I'd be one of 600 people? This goes to show just how volatile this
stock can be if only 600 shareholders are trading ... am I interpreting
this correctly?



International sales decreased to $13.0 million dollars, down 6.1% versus fiscal 2003 and down 19.0% versus fiscal 2001. This decrease resulted primarily from lower shipments to the Company's distributor in Japan, caused by high distributor inventory levels in that market. The Company expects to further lower distributor inventory levels in Japan during fiscal 2005 and thereby better align future shipments with consumer demand. As a result, the Company expects its net sales to its Japan distributor to decline in fiscal 2005; however, sales growth is expected in subsequent years.

Comment: I was under the impression that the Japan deal was a
one quarter only deal. I must have misinterpreted the press release.



Well, that was my first decent attempt at a look-through at a 10K. I
was hoping for more forward-thinking strategic thoughts, but there wasn't
much more than "gotta get Breathe Right and Fiber Choice going", with
an eye towards a third power line.

Still a reasonably-priced stock.
Still a somewhat questionable future.

Thanks for reading this long. :)

Regards,

Tom


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