Business Context and Reporting Period
This Form 8-K, filed on November 18, 2013, by ChromaDex Corp. (not Niagen Bioscience, Inc.), addresses a material weakness in internal controls requiring the restatement of previously issued financial statements. The filing covers the three-month periods ended March 30, 2013, and June 29, 2013, as well as the six-month period ended June 29, 2013. The company determined that prior reports should no longer be relied upon due to incorrect accounting treatment regarding the sale of BluScience assets to NeutriSci International, Inc. (NS).
Key Financial Metrics and Restatement Impact
The restatements are non-cash in nature and significantly alter the company's reported profitability and equity. The following tables summarize the adjustments:
| Period | Metric | Previously Reported | Restatement Adjustment | As Restated |
|---|---|---|---|---|
| Three Months Ended March 30, 2013 | Sales | $2,334,566 | $0 | $2,334,566 |
| Gross Profit | $672,840 | $0 | $672,840 | |
| Net Income (Loss) | $1,468,525 | $(2,892,597) | $(1,424,072) | |
| EPS (Basic) | $0.02 | $(0.03) | $(0.02) | |
| Three Months Ended June 29, 2013 | Sales | $2,706,896 | $0 | $2,706,896 |
| Gross Profit | $960,738 | $0 | $960,738 | |
| Net Loss | $(989,722) | $(31,144) | $(1,020,866) | |
| EPS (Basic/Diluted) | $(0.01) | $(0.00) | $(0.01) | |
| Six Months Ended June 29, 2013 | Sales | $5,041,462 | $0 | $5,041,462 |
| Gross Profit | $1,633,578 | $0 | $1,633,578 | |
| Net Income (Loss) | $478,803 | $(2,923,741) | $(2,444,938) | |
| EPS (Basic/Diluted) | $0.00 | $(0.03) | $(0.03) |
Balance Sheet Impact:
- March 30, 2013: Total assets reduced by $2,892,597 to $7,824,834; Stockholder's equity reduced by $2,892,597 to $3,841,677.
- June 29, 2013: Total assets reduced by $2,923,741 to $8,021,732; Stockholder's equity reduced by $2,923,741 to $4,268,514.
The filing does not provide specific data on cash flow, debt levels, or liquidity ratios for the current period.
Material Changes Versus Prior Periods
The most significant change is the reversal of a previously recognized gain on the sale of BluScience assets. Originally, the company recorded the transaction based on the stated value of equity and a senior secured convertible note received from NS. Management now applies the cost recovery method, deferring gain recognition until the cost basis is recovered. Additionally, the investment in NS is being reclassified from the cost method to the equity method. These changes turned reported net income into a net loss for the first quarter and increased the net loss for the second quarter and the six-month period.
Guidance, Outlook, Risks, and Contingencies
Internal Control Weakness: The company identified a material weakness in internal controls over financial reporting, specifically regarding the accounting for asset sales involving non-cash consideration. A remediation plan is underway, including redesigning procedures for identifying and recording contractual terms and seeking expert counsel for future unusual transactions.
Delays: Due to these issues, the company was unable to file its Form 10-Q for the period ended September 28, 2013, on a timely basis.
Future Actions: The company intends to file amendments to the previous Quarterly Reports as soon as practicable. The CFO and Audit Committee have discussed these matters with the independent auditor, McGladrey LLP.
Key Facts for Investor Verification
- Verify the timeline for the filing of amended 10-Q reports for the periods ended March 30, 2013, and June 29, 2013.
- Confirm the status of the remediation plan for the material weakness in internal controls.
- Review the updated financial statements to understand the impact of the cost recovery method on future earnings recognition from the NS transaction.
- Check for any subsequent filings regarding the delayed 10-Q for the period ended September 28, 2013.
- Monitor communications with the independent auditor, McGladrey LLP, regarding the restatement process.