Business context and reporting period
This is ChromaDex Corporation’s unaudited Form 10-Q for the quarter ended October 1, 2011, with year-to-date comparisons through October 1, 2011 versus October 2, 2010. The filing identifies the registrant as ChromaDex Corporation; the provided request metadata names Niagen Bioscience, Inc.
ChromaDex supplied phytochemical reference standards, analytical and contract services, and proprietary ingredients. It had also launched BluScience consumer products, including a line distributed in GNC corporate stores.
Financial results and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Sales | $1.83 million | $1.56 million | $6.30 million | $5.53 million |
| Gross profit | $466,467 | $502,726 | $2.07 million | $2.10 million |
| Gross margin | 25.5% | 32.2% | 32.8% | 37.9% |
| Operating expenses | $2.86 million | $1.38 million | $7.45 million | $3.22 million |
| Operating loss | $(2.40) million | $(874,000) | $(5.38) million | $(1.13) million |
| Net loss | $(2.40) million | $(883,000) | $(5.40) million | $(1.15) million |
| Loss per share | $(0.03) | $(0.01) | $(0.08) | $(0.03) |
At October 1, 2011, cash was $2.07 million, current assets $5.83 million, and current liabilities $2.39 million. Total assets were $7.31 million and stockholders’ equity $4.55 million. Capital lease obligations totaled approximately $219,000, including current maturities; the filing reports no other borrowings in the supplied text.
For the first nine months, operating cash use was $2.50 million, investing cash use $152,000, and financing cash provided $2.49 million, mainly from warrant exercises. Cash declined $157,000 from the beginning of the year to $2.07 million. Inventory increased by $1.08 million. The filing reports no dividends and no off-balance-sheet arrangements other than ordinary operating leases.
Material changes versus prior comparable periods
- Nine-month sales rose 14%, but gross profit edged down and gross margin fell about 5.1 percentage points. Management attributed margin pressure to more outsourced contract services and a higher mix of proprietary ingredients and bulk materials with higher input costs.
- Nine-month operating expenses more than doubled. Share-based compensation increased to $2.47 million from $706,000; management cited post-2010 private-placement option grants and restricted stock issued to employees and consultants. It expected significant share-based compensation expense to continue for about two years.
- Nine-month net loss widened to $5.40 million from $1.15 million. Sales and marketing expense also increased, reflecting promotion of proprietary ingredients and retail launches.
- Year-to-date cash used in operations increased to $2.50 million from $1.81 million. Financing cash inflows were lower than the prior year, when common-stock issuance also contributed.
- Shares outstanding were 72.94 million at October 1, 2011, compared with 60.88 million at January 1, 2011; the filing reports 74.61 million outstanding as of November 10, 2011.
Outlook, risks, and unusual items
Management believed available cash and cash from operations could support planned operations through March 2012, but said additional capital might be needed before then for operations beyond that date and longer-term plans. It cautioned that financing might not be available on acceptable terms or at all. Exercise of 8.55 million warrants at $0.21 could provide approximately $1.80 million, but exercise was not assured.
Management planned further investment in research and development, marketing, service capacity, chemical libraries, and small- to medium-scale production capability or a manufacturing collaboration. It reported a purchase order for a first-quarter company-wide rollout from one prospective retail chain and was pursuing additional retail channels. These plans and sales prospects were forward-looking, not guarantees.
Risks highlighted include cash needs and financing access, product demand and market acceptance, competition, intellectual-property protection and litigation, product development, regulatory changes, and manufacturing capacity. Management also discussed uncertainty over FDA enforcement and interpretation of dietary-supplement Good Manufacturing Practices. The company maintained a full valuation allowance against deferred tax assets and expected a zero effective tax rate for 2011. No legal proceedings were reported. Disclosure controls were deemed effective as of October 1, 2011.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for ChromaDex Corporation, while the request metadata names Niagen Bioscience, Inc.
- Track cash burn and whether the stated runway through March 2012 held, including any subsequent financing or changes to operating plans.
- Assess whether BluScience retail launches and proprietary-ingredient growth generated sales sufficient to offset lower gross margins and higher operating costs.
- Review the scale, timing, and potential dilution of outstanding warrants, options, and restricted-stock awards.
- Check subsequent disclosures on manufacturing capacity, FDA compliance, and the status of retail purchase orders and planned distribution.