ChromaDex Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparative period ended April 2, 2011. The filing identifies the registrant as ChromaDex Corporation, not Niagen Bioscience, Inc.; verify the issuer identity and filing association.
Business context
ChromaDex supplied phytochemical reference standards, contract services, and proprietary ingredients, and had recently launched its BluScience dietary supplement line. It reported two segments: core standards, contract services and ingredients; and retail dietary supplement products.
Financial results and liquidity
| Metric | Q1 2012 | Comparable 2011 period |
|---|---|---|
| Net sales | $1.785 million | $2.539 million |
| Gross profit (loss) | $(0.604) million | $1.020 million |
| Operating expenses | $3.821 million | $2.168 million |
| Operating loss | $(4.425) million | $(1.148) million |
| Net loss / diluted loss per share | $(4.432) million / $(0.05) | $(1.156) million / $(0.02) |
| Operating cash flow | $(4.656) million | $0.247 million provided |
At March 31, 2012, cash was $5.805 million, current assets $11.629 million, and current liabilities $4.284 million. Total assets were $12.925 million. Capital-lease obligations totaled approximately $271,000; the filing reports no other borrowings in the presented balance sheet. Inventory was $4.051 million. The company raised $10.070 million net from stock offerings during the quarter, ending with stockholders’ equity of $8.266 million. Shares outstanding were 88.205 million at quarter-end and 91.339 million as of May 9, 2012.
Material changes and segment performance
- Net sales declined 30%; core-segment sales fell 27% to $1.855 million, reflecting lower sales across existing products and services.
- BluScience recorded $2.179 million in gross sales but $2.249 million in promotions, discounts and returns, resulting in negative net sales of $69,742 and a gross loss of $1.112 million. Its sales and marketing costs were $1.384 million.
- Consolidated cost of sales rose to $2.389 million, while sales and marketing expense increased to $1.859 million. The company attributed the greater loss principally to BluScience launch promotions and marketing, along with lower core sales and relatively fixed labor and overhead.
- Operating cash use reflected the net loss and increases in receivables and inventory. Financing cash flow was $10.048 million, primarily from the registered offering and private placement.
Outlook, risks and unusual items
- Management said current cash and expected operating cash flows were anticipated to support projected plans through December 2012, but cautioned that additional financing might be needed and could be unavailable or unfavorable. It was reviewing operating plans and commitments and said BluScience marketing and inventory plans were being adjusted downward.
- Management stated that lower-than-expected BluScience sales could prompt cuts to advertising; insufficient financing could delay or curtail product expansion and operations. Exercise of 8.554 million warrants at $0.21 could provide about $1.796 million, but exercise was not assured.
- The company committed $1.581 million to television advertising through June 17, 2012; $1.407 million remained to be expensed as the advertising ran.
- Former president William Spengler left in February. The company paid him $310,000 under a separation agreement and reversed previously recognized compensation expense associated with forfeited options and restricted stock.
- No legal proceedings were reported. Management concluded disclosure controls were effective at March 31, 2012. A full valuation allowance was maintained against net deferred tax assets.
- Key risks cited include demand and market acceptance, competition, product development, intellectual-property protection, regulation, and access to capital. The filing provides no formal numerical revenue or earnings guidance.
Important facts for investors to verify
- Confirm the issuer’s identity and the relationship, if any, between this ChromaDex filing and Niagen Bioscience.
- Assess BluScience’s actual sell-through, returns and promotion levels, and whether the launch economics and advertising commitments improved after the quarter.
- Verify cash runway and financing needs against subsequent cash flows, operating-plan revisions and any new capital raises.
- Track core-segment demand, margins, inventory levels and receivable collections, as well as potential dilution from shares and warrants.