ChromaDex(CDXC) - 2018 Q4 - Annual Report

Financial Performance - ChromaDex's total revenues for the fiscal year ended December 31, 2018, were approximately $31.6 million, up from $21.2 million in 2017, representing a growth of 49%[33] - Net sales of TRU NIAGEN® increased by $13.0 million, from $5.5 million in 2017 to $18.5 million in 2018, offsetting a 23% decline in the ingredients segment[27] - The ingredients segment net sales decreased from $11.1 million in 2017 to $8.6 million in 2018, a decline of 23%[27] - The company incurred net losses of approximately $33.3 million and $11.4 million for the years ended December 31, 2018, and December 30, 2017, respectively, with an accumulated deficit of approximately $90 million as of December 31, 2018[99] - Cash and cash equivalents totaled approximately $22.6 million as of December 31, 2018, with expectations that current cash and operations will suffice for projected plans over the next twelve months[100] - As of December 31, 2018, the company's working capital was approximately $3.1 million, down from $7.4 million in 2017, indicating a need for increased working capital as segments grow[88] Market Trends and Opportunities - The global anti-aging market is projected to grow at a CAGR of 5.8% through 2021, reaching approximately $330 billion[28] - The worldwide market for vitamins and dietary supplements was approximately $106 billion in 2018, expected to grow at a CAGR of 3.0% to about $123 billion by 2023[38] - ChromaDex plans to continue expanding its TRU NIAGEN® brand internationally, having launched in Hong Kong, Macau, Singapore, New Zealand, and Canada[29] - The company aims to enhance its proprietary ecommerce platforms and expand its marketing and distribution in new international markets[41] Research and Development - Research and development costs for the fiscal years ended December 31, 2018, and December 30, 2017, were approximately $5.5 million and $4.0 million, respectively[85] - The company completed a second human clinical trial on NIAGEN® in 2018, showing that NAD levels rose in response to doses, with elevated levels sustained throughout the eight-week treatment period[84] - The company plans to explore cost-saving processes for existing products through its research and development laboratory in Longmont, Colorado[85] Regulatory and Compliance - The company is subject to various U.S. federal regulations, including those from the FDA and FTC, which govern production activities and advertising claims[58][63] - The company is focusing on obtaining additional regulatory approvals to expand TRU NIAGEN® marketing and distribution in new international markets[55] - The company protects its intellectual property through patents, trademarks, and licenses, anticipating long-term royalty payments from proprietary ingredients[74] - The company is evaluating strategic joint ventures to rapidly expand distribution in Asia[55] Competition and Market Risks - The company faces direct competition from Elysium Health in the consumer products segment, while its ingredients segment has little direct competition due to exclusive intellectual property[69][70] - Global economic conditions may adversely affect sales, particularly for discretionary nutritional products, impacting financial results[114] - The company faces significant competitive risks due to price competition, which could lead to reduced sales revenues and increased losses if competitors lower their prices[143] - Adverse changes in consumer perception regarding nutritional supplements could materially affect demand for the company's products[126] Customer Dependency and Sales - Major customers included A.S. Watson Group, accounting for 19.4% of total sales in 2017, and Thorne Research at 10.2%[68] - One customer accounted for approximately 10% of the company's sales for the year ended December 31, 2018, indicating a significant dependency on key customers[108] - NIAGEN® sales accounted for approximately 60% of the ingredient segment's total sales in 2018, equating to 16% of overall revenue, highlighting the importance of this product[112] - The company has minimal backlog orders for its consumer products and ingredients segments, with a small backlog of approximately $25,000 for analytical reference standards[91] Legal and Litigation - The company is engaged in litigation with Elysium, which represented 19% of net sales for the year ended December 31, 2016, and has not made purchases since August 2016[105] - The company is involved in ongoing litigation with Elysium Health, which includes claims of breach of supply agreements and misappropriation of trade secrets[214] - The Patent Trial and Appeal Board upheld a claim of the '086 Patent, preventing Elysium from raising invalidity arguments in ongoing litigation[216] - The company is currently in discovery regarding allegations made by Elysium Health[215] Operational Challenges - The company relies on key personnel, and the loss of any could negatively impact business operations[137] - The company relies on a limited number of third-party suppliers for raw materials, which poses risks related to pricing, availability, and quality[173] - The company may need to contract with third parties for marketing and distribution, which could lower product revenue and increase costs[178] - Cyber security threats pose risks to the company's operations, potentially leading to disrupted operations and increased costs[180] Future Outlook and Strategic Plans - The company intends to consider acquisitions of similar or complementary businesses or products, but there is no assurance of success in identifying attractive candidates or completing acquisitions on favorable terms[175] - The company expects operating expenses to continue increasing due to the expansion of product launches and hiring additional personnel[117] - The success of the consumer product business is linked to the effectiveness of marketing efforts, which will significantly influence future growth and profitability[123] - The company has made forward-looking statements regarding future operating results, which may not be met, potentially affecting stock price[205]