Business context and reporting period
The filing is ChromaDex Corporation’s Form 10-K for the 52-week fiscal year ended December 29, 2012, compared with the 52 weeks ended December 31, 2011. The request metadata names Niagen Bioscience, but the filing itself identifies the registrant as ChromaDex Corporation.
ChromaDex supplied phytochemical reference standards, analytical and contract services, ingredients, and scientific and regulatory consulting. It acquired Spherix Consulting in December 2012. Its BluScience retail supplement line was sold after year-end in March 2013.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $11.61 million | $8.11 million |
| Gross profit | $2.28 million; 19.6% margin | $2.47 million; 30.5% margin |
| Operating loss | $11.64 million | $7.86 million |
| Net loss | $11.66 million; $0.13 per share | $7.89 million; $0.12 per share |
| Cash used in operations | $10.12 million | $4.10 million |
| Cash at year-end | $520,000 | $420,152 |
| Current assets / current liabilities | $7.93 million / $4.76 million | $4.95 million / $3.34 million |
| Total assets / stockholders’ equity | $9.03 million / $3.99 million | $6.27 million / $2.56 million |
At year-end, capital lease obligations totaled $225,633; the filing reports no other off-balance-sheet arrangements beyond ordinary operating leases. Accounts receivable was $1.94 million and inventory was $5.21 million. The filing does not report a conventional credit-facility debt balance.
Material changes versus prior year
- Sales increased 43%, but cost of sales rose 65% and gross profit fell 8%; gross margin contracted materially.
- Core standards, services and ingredients net sales rose 6% to $8.53 million. BluScience generated $3.08 million of net sales, but $3.78 million of promotions, discounts and returns reduced its $6.86 million gross sales; the retail segment recorded a $151,584 gross loss.
- Sales and marketing expense more than doubled to $5.52 million, including $3.29 million for BluScience. General and administrative expense increased 8% to $8.39 million.
- Net loss widened by 48%. Operating cash use increased to $10.12 million, substantially affected by higher receivables and inventory.
Outlook, risks and unusual items
- Management said cash, operating cash flows and payments expected from the BluScience sale, together with expenditure reductions, were expected to support planned operations through December 2013. It warned that additional financing might be needed and was not assured; the financial statements were presented on a going-concern basis.
- The March 2013 BluScience transaction had an estimated value of approximately $6.2 million: $1.0 million in cash payments, a $2.5 million senior secured note payable in installments, and NeutriSci preferred shares. ChromaDex also expects a 6% royalty on future BluScience net sales and to supply pTeroPure. The value and collection of noncash and deferred consideration are uncertain.
- Management cited $671,000 of one-time officer severance, $987,399 of investor-relations expense, and $2.70 million of share-based compensation in 2012. Advertising expense was $2.56 million, versus $418,108 in 2011.
- The company raised net proceeds of approximately $10.07 million through common-stock offerings during 2012. At year-end it had 10.06 million warrants and 13.45 million options outstanding, presenting potential dilution.
- Key risks include continuing losses and financing needs, weak cash relative to operating burn, product acceptance and regulatory requirements, dependence on suppliers and key personnel, competition, and intellectual-property and product-liability exposure. The BluScience receivables allowance was $450,000, including a $433,000 retailer hold for potential returns.
- Auditors issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Actual cash received, note repayment performance, preferred-share value and royalty receipts under the BluScience sale.
- Cash runway and funding requirements after the stated December 2013 operating-plan horizon.
- Receivable collectability, retailer return exposure, inventory quality and the effects of the BluScience exit.
- Whether core-business sales growth can improve margins enough to reduce operating losses and cash burn.
- Potential dilution from outstanding options, warrants and subsequent share issuances.