ChromaDex Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended April 4, 2015; comparison period ended March 29, 2014. The filing is by ChromaDex Corporation, the registrant named in the report.
Business context and financial results
ChromaDex develops and commercializes ingredient technologies and provides reference standards, analytical and contract services, and scientific and regulatory consulting.
| Metric | Q1 2015 | Comparable 2014 period |
|---|---|---|
| Net sales | $5.261 million | $3.074 million |
| Gross profit / gross margin | $1.928 million / 36.6% | $0.985 million / 32.0% |
| Operating loss | $0.906 million | $1.839 million |
| Net loss | $1.026 million | $1.848 million |
| Loss per share, basic and diluted | $0.01 | $0.02 |
| Cash used in operating activities | $0.591 million | $1.405 million |
| Cash at period end | $3.216 million | $1.925 million |
Revenue by segment was $2.680 million for Ingredients, $2.300 million for Core Standards and Contract Services, and $0.281 million for Scientific and Regulatory Consulting. The company reported no segment sales eliminations.
Financial position and liquidity
- At April 4, 2015, total assets were $10.985 million, current assets $9.056 million, current liabilities $4.772 million, total liabilities $7.296 million, and stockholders’ equity $3.689 million. Working capital was approximately $4.284 million.
- Outstanding term-loan principal was $2.5 million. The balance sheet showed $2.247 million of loan payable, net of debt issuance costs and discount; capital lease obligations totaled approximately $0.818 million.
- The company reported $2.5 million of additional term-loan credit available for drawdown by July 31, 2015. The loan bears variable interest subject to a 9.35% minimum and has installments following an interest-only period through September 2015.
- Investing activities used $0.101 million, mainly for equipment and leasehold improvements. Financing activities used $0.057 million, mainly for capital-lease payments. Cash declined by $0.749 million during the quarter.
Changes versus the prior comparable period
- Sales increased 71%. Ingredients revenue rose 136%, Core Standards and Contract Services rose 32%, and Scientific and Regulatory Consulting rose 39%.
- Management attributed growth to higher sales across ingredients, including NIAGEN, PURENERGY and PTEROPURE; increased analytical testing and contract services; and more consulting projects completed.
- Gross margin improved from about 32% to 37%. Management cited improved supplier pricing and labor utilization; it also noted additional reserves for slow-moving and obsolete reference-standard inventory.
- Operating loss narrowed by approximately $0.933 million. General and administrative expense declined 4%, while sales and marketing expense rose 26%. Interest expense increased to $0.120 million from $0.010 million, primarily because of the term loan.
- Operating cash use declined by approximately $0.814 million year over year. The prior period’s investing cash inflow included proceeds from assignment of a NeutriSci note.
Outlook, risks and unusual items
- Management expected cash on hand, operating cash generation and available term-loan credit to fund projected operating plans through at least May 15, 2016. This is an expectation, not a guarantee; the company said it might seek additional financing and had no commitment for it. Inadequate financing could delay or curtail expansion and operations.
- The company planned to increase research and development for proprietary ingredients over the next two years, subject to available financial resources. The filing provides no clear numerical revenue or earnings guidance.
- Disclosed risks include demand and product-market acceptance, competition, intellectual-property protection, product development, regulation, customer transactions, production capacity, and the availability and terms of financing. The company warned that third-party production options might be unavailable or uneconomic.
- Inventory valuation allowance increased to $443,000 from $324,000 at year-end. Share-based compensation was $0.716 million, including $0.338 million of non-employee compensation.
- The company early adopted accounting guidance requiring debt issuance costs to be presented as a deduction from debt. The comparative January 3, 2015 balance sheet was adjusted by $91,361; this presentation change did not alter equity.
- A January 2015 laboratory-equipment financing arrangement was recorded as a capital lease of approximately $304,000, with monthly payments of about $7,000 for 48 months. Subsequent to quarter-end, a director resigned and another was appointed; the former director received 125,000 shares, and previously granted restricted shares and options vested.
- Management reported effective disclosure controls as of April 4, 2015, no material change in internal control, and no legal proceeding believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether revenue growth—particularly ingredient sales—continues and translates into sustainable gross-margin improvement.
- Actual operating cash use, receivables collection, inventory levels and valuation reserves relative to the company’s cash-runway forecast.
- Availability and terms of the remaining $2.5 million loan credit, its July 31, 2015 drawdown deadline, and the effect of variable interest and scheduled repayments.
- Potential dilution from outstanding options, warrants, convertible debt and share-based awards, as well as the cost of future financing.
- Regulatory, production-capacity, product-development and intellectual-property risks that could affect commercialization and customer demand.