ChromaDex Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended July 2, 2016; comparisons are with the periods ended July 4, 2015. The registrant is named in the filing as ChromaDex Corporation.
Business context and results
The company develops and commercializes ingredient technologies for dietary supplements, food, beverages, skin care and pharmaceutical markets. It also provides phytochemical standards and contract services, analytical testing, and scientific and regulatory consulting.
| Metric | Three months ended July 2, 2016 | Three months ended July 4, 2015 | Six months ended July 2, 2016 | Six months ended July 4, 2015 |
|---|---|---|---|---|
| Net sales | $8.83 million | $6.10 million | $16.16 million | $11.36 million |
| Gross profit | $4.13 million | $2.47 million | $7.58 million | $4.40 million |
| Gross margin | 46.7% | 40.5% | 46.9% | 38.7% |
| Operating income (loss) | $371,131 | ($184,060) | $825,197 | ($1.09 million) |
| Net income (loss) | ($82,667) | ($315,192) | $172,958 | ($1.34 million) |
| Operating cash flow | Not reported separately | Not reported separately | ($2.99 million) | ($497,176) |
Quarterly diluted loss per share was reported as $0.00; six-month diluted earnings per share were also reported as $0.00, reflecting rounding. Sales grew 45% for the quarter and 42% for the six-month period. Ingredients revenue rose 83% and 78%, respectively, principally from NIAGEN and PTEROPURE. Core standards and contract services sales increased more modestly, while scientific and regulatory consulting sales declined.
Financial position and material changes
- At July 2, 2016, cash was $3.37 million, current assets were $15.15 million, current liabilities were $4.79 million, and total assets were $17.78 million.
- The company repaid its Hercules loan in June 2016. No loan payable remained at quarter-end; capital lease obligations totaled approximately $556,000. The early payoff generated a $313,099 non-operating loss.
- Six-month operating cash use increased to $2.99 million, driven primarily by a $4.37 million increase in receivables and a $3.89 million reduction in accounts payable, partly offset by lower inventory.
- Financing activities provided $1.23 million net: equity offerings and option exercises raised funds, offset by loan and lease principal payments. The company issued shares in March and June offerings, raising approximately $5.72 million net in total. A 1-for-3 reverse stock split took effect in April; share data in the filing is adjusted for it.
- Inventory declined from $8.17 million at January 2 to $4.52 million at July 2. Receivables rose from $2.45 million to $6.79 million.
Management outlook, risks and unusual items
- Management expected available cash and cash generated from operations to support projected operating plans through at least August 12, 2017, while warning that additional financing might be needed and was not committed. Financing may be unavailable or dilutive; without it, the company could delay or curtail expansion.
- Management planned approximately $1.1 million of investment over the next six months in a Longmont, Colorado pilot plant, intended for process-scale manufacturing and cost-savings work. Further R&D expansion was subject to financial resources.
- Major customer concentration is material: one ingredients customer represented 34.5% of quarterly sales. The six-month concentration is stated as 31.3% in the segment note but 31.1% in the risk-factor discussion; verify the correct figure. The filing warns that disruption in this relationship could materially harm results.
- Management attributed margin improvement mainly to increased ingredient volumes and lower supplier prices, and to improved utilization in contract services. R&D expense rose substantially as the company focused on NIAGEN. Consulting sales and gross profit fell, partly due to project timing and increased internal support work.
- Other notable expenses included increased patent royalties and maintenance costs, approximately $89,000 of one-time NASDAQ listing costs in the quarter, and the debt-extinguishment loss. The company also reported lease commitments extending to 2021–2023.
- Risks include a history of annual losses and a $42.1 million accumulated deficit, dependence on a major customer and limited suppliers, product and regulatory risks, competition, and potential need for capital. Management reported disclosure controls effective at a reasonable assurance level and no material change in internal control over financial reporting. It reported no legal proceedings believed likely to have a material adverse effect.
Investor verification points
- Confirm the major customer’s six-month sales concentration (31.3% versus 31.1% in different filing sections) and assess customer dependence.
- Review receivables growth, collection timing, and cash conversion given the higher operating cash outflow.
- Assess whether the stated cash runway remains credible alongside planned pilot-plant spending and continuing R&D investment.
- Verify the effects of the Hercules loan payoff, including the $313,099 extinguishment loss, and remaining capital-lease obligations.
- Track ingredient-segment growth and margins, particularly NIAGEN and PTEROPURE sales, as well as the decline in consulting activity.