Business context and reporting period
The filing is ChromaDex Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020. This differs from the “Niagen Bioscience, Inc.” name in the request metadata. ChromaDex sells TRU NIAGEN consumer products, NIAGEN ingredients, and analytical reference standards and services.
Financial performance and position
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $15.3 | $11.1 | $29.6 | $21.1 |
| Gross profit | $9.1 | $6.3 | $17.4 | $11.6 |
| Gross margin | 59.4% | 56.3% | 58.7% | 54.6% |
| Operating loss | $(3.7) | $(7.2) | $(9.6) | $(15.6) |
| Net loss | $(3.7) | $(7.8) | $(9.6) | $(16.1) |
| Loss per share, basic and diluted | $(0.06) | $(0.14) | $(0.16) | $(0.29) |
Sales increased 38% in Q2 and 40% for the first half year over year. At June 30, cash, including restricted cash of $0.2 million, was $18.9 million; current assets were $35.8 million and current liabilities $16.0 million. Inventory was $12.3 million. Total liabilities were $20.4 million and stockholders’ equity $21.6 million. Lease obligations totaled approximately $1.3 million; the filing does not give a clear value for any borrowings outstanding under the bank credit facility.
Six-month operating cash use was $6.8 million, investing cash use $0.1 million, and financing cash provided $7.0 million. Cash increased $0.1 million from year-end 2019. The company reported a cumulative deficit of $131.5 million.
Material changes versus the prior comparable period
- Consumer products sales rose 34% in Q2 and 41% in the first half; ingredient sales rose 105% and 85%, respectively. Management attributed growth to TRU NIAGEN demand and stronger sales to ingredient customers.
- Analytical reference standards and services sales fell 26% in Q2 and 30% in the first half, reflecting the November 2019 spinoff of regulatory consulting and COVID-19-related demand effects.
- Gross margin improved by about 3 percentage points in Q2 and 4 points for the first half. Management cited product-cost savings, scale, and a supplier rebate; lower utilization pressured the analytical segment.
- Net loss narrowed versus 2019, aided by higher gross profit and lower general and administrative expense, including lower legal costs. The first half included $1.2 million in severance and restructuring expense.
- Operating cash use improved from $12.1 million to $6.8 million. Financing included $4.9 million net proceeds from a $5.0 million related-party stock sale and $2.3 million from option exercises; shares outstanding increased from 59.6 million at year-end to 61.4 million at June 30.
Outlook, risks, contingencies and unusual items
Management said available cash, expected operating cash generation, and up to $7.0 million of available credit from Western Alliance Bank should fund projected plans for at least 12 months from the report’s issuance. It may seek additional capital. A $50.0 million ATM facility had been established but no shares had been sold under it by June 30; the company also filed a $125.0 million shelf registration statement. No specific sales or earnings guidance was provided, and management cautioned that first-half results are not necessarily indicative of full-year results.
COVID-19 disrupted retail sales, including sales to A.S. Watson, through store closures and reduced hours. E-commerce performed relatively well; the company reported supplier shipment delays but no major supply-chain disruption and said inventory was adequate for current demand. Risks include continued pandemic effects, customer concentration, dependence on third-party suppliers, ongoing operating losses and possible financing needs.
The company had $11.6 million of remaining inventory purchase commitments at June 30 under a supply agreement, due through June 2021. A licensor asserted a $1.6 million sublicense-fee claim plus interest; ChromaDex disputed liability and did not expect resolution to be material. Multiple Elysium-related legal proceedings remained pending; the company could not reasonably estimate a possible loss range and had not accrued a potential loss for the specified cases. The Elysium California trial was adjourned amid COVID-19; a Delaware patent trial was scheduled for September 2021.
Management concluded disclosure controls were not effective at June 30 because of a material weakness related to disclosure of reasonably possible loss contingencies. A remedial control had been developed, but remediation was not complete; management expected completion before year-end 2020. A subsequent lease amendment added approximately $1.1 million of lease payments and extended a lease through December 2025.
Most important facts for investors to verify
- Whether revenue growth and improved gross margins continue, particularly in consumer products and NIAGEN ingredients.
- Whether COVID-19 continues to constrain international retail demand, supply, or customer collections.
- Cash burn, actual availability and use of the $7.0 million credit line, and any future ATM or other financing and dilution.
- Progress in remediating the internal-control material weakness and the effect of any further disclosure issues.
- Developments and potential financial exposure in Elysium litigation, the disputed licensor claim, and the company’s inventory purchase commitments.