cdxc10qsept282013.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2013
Commission File Number: 000-53290
CHROMADEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 26-2940963
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
10005 Muirlands Blvd. Suite G, Irvine, California 92618
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 419-0288
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, non-accelerated filer or smaller reporting company. See definition of “large accelerated filer, accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ____ Accelerated filer____
Non-accelerated filer ____ Smaller reporting company X__
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
Number of shares of common stock of the registrant: 104,849,075 outstanding as of November 20, 2013.
CHROMADEX CORPORATION
2013 QUARTERLY REPORT ON FORM 10-Q
PART I – FINANCIAL INFORMATION (UNAUDITED)
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1 |
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2 |
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3 |
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4 |
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5 |
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6 |
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23 |
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31 |
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31 |
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PART II – OTHER INFORMATION
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32 |
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32 |
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32 |
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32 |
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32 |
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32 |
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33 |
PART I – FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
ChromaDex Corporation and Subsidiaries
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Condensed Consolidated Balance Sheets (Unaudited)
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September 28, 2013 and December 29, 2012
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September 28,
2013
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December 29,
2012
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Assets
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Current Assets
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Cash
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$ |
1,087,424 |
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$ |
520,000 |
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Trade receivables, less allowance for doubtful accounts and returns September 28, 2013 $10,000; December 29, 2012 $450,000
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1,025,619 |
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1,940,539 |
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Inventories
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2,217,698 |
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5,205,304 |
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Prepaid expenses and other assets
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346,962 |
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261,297 |
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Total current assets
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4,677,703 |
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7,927,140 |
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Leasehold Improvements and Equipment, net
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969,755 |
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936,426 |
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Other Noncurrent Assets
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Deposits
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43,343 |
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34,773 |
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Long-term investment in affiliate (Note 4)
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1,899,523 |
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- |
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Intangible assets, net
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188,363 |
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136,182 |
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Total other noncurrent assets
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2,131,229 |
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170,955 |
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Total assets
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$ |
7,778,687 |
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$ |
9,034,521 |
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Liabilities and Stockholders' Equity
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Current Liabilities
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Accounts payable
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$ |
2,347,222 |
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$ |
3,428,233 |
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Accrued expenses
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933,934 |
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876,158 |
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Current maturities of capital lease obligations
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113,846 |
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77,259 |
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Customer deposits and other
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659,645 |
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310,267 |
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Deferred rent, current
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56,026 |
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71,042 |
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Total current liabilities
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4,110,673 |
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4,762,959 |
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Capital lease obligations, less current maturities
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208,645 |
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148,374 |
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Deferred rent, less current
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190,536 |
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129,859 |
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Stockholders' Equity
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Common stock, $.001 par value; authorized 150,000,000 shares; issued and outstanding September 28, 2013 100,819,664 and December 29, 2012 92,140,062 shares
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100,820 |
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92,140 |
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Additional paid-in capital
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36,579,826 |
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33,617,801 |
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Accumulated deficit
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(33,411,813 |
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(29,716,612 |
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Total stockholders' equity
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3,268,833 |
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3,993,329 |
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Total liabilities and stockholders' equity
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$ |
7,778,687 |
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$ |
9,034,521 |
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See Notes to Condensed Consolidated Financial Statements.
ChromaDex Corporation and Subsidiaries
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Condensed Consolidated Statements of Operations (Unaudited)
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For the Three Month Periods Ended September 28, 2013 and September 29, 2012
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September 28,
2013
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September 29,
2012
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Sales
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$ |
2,718,207 |
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$ |
3,632,244 |
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Cost of sales
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1,968,020 |
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2,377,991 |
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Gross profit
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750,187 |
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1,254,253 |
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Operating expenses:
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Sales and marketing
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505,068 |
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802,171 |
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General and administrative
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1,453,611 |
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1,983,720 |
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Loss from investment in affiliate (Note 4)
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33,281 |
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- |
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Operating expenses
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1,991,960 |
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2,785,891 |
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Operating loss
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(1,241,773 |
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(1,531,638 |
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Nonoperating income (expense):
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Interest income
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179 |
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469 |
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Interest expense
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(8,669 |
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(6,865 |
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Nonoperating income (expenses)
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(8,490 |
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(6,396 |
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Net loss
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$ |
(1,250,263 |
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$ |
(1,538,034 |
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Basic and Diluted net loss per common share
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$ |
(0.01 |
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$ |
(0.02 |
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Basic and Diluted weighted average common shares outstanding
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101,309,939 |
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92,364,418 |
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See Notes to Condensed Consolidated Financial Statements.
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ChromaDex Corporation and Subsidiaries
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Condensed Consolidated Statements of Operations (Unaudited)
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For the Nine Month Periods Ended September 28, 2013 and September 29, 2012
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September 28,
2013
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September 29,
2012
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Sales
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$ |
7,759,668 |
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$ |
8,087,860 |
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Cost of sales
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5,375,903 |
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6,673,127 |
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Gross profit
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2,383,765 |
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1,414,733 |
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Operating expenses:
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Sales and marketing
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1,866,051 |
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4,529,251 |
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General and administrative
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4,155,792 |
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6,829,359 |
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Loss from investment in affiliate (Note 4)
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33,281 |
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- |
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Operating expenses
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6,055,124 |
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11,358,610 |
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Operating loss
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(3,671,359 |
) |
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(9,943,877 |
) |
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Nonoperating income (expense):
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Interest income
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679 |
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2,725 |
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Interest expense
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(24,521 |
) |
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(22,692 |
) |
Nonoperating income (expenses)
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(23,842 |
) |
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(19,967 |
) |
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Net loss
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$ |
(3,695,201 |
) |
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$ |
(9,963,844 |
) |
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Basic and Diluted net loss per common share
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$ |
(0.04 |
) |
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$ |
(0.11 |
) |
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Basic and Diluted weighted average common shares outstanding
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98,590,008 |
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89,477,758 |
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See Notes to Condensed Consolidated Financial Statements.
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ChromaDex Corporation and Subsidiaries
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Condensed Consolidated Statement of Stockholders' Equity (Unaudited)
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Nine Months Ended September 28, 2013
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Common Stock
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Additional
Paid-in
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Accumulated
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Shares
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Amount
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Capital
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Deficit
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Equity
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Balance, December 29, 2012
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|
92,140,062 |
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$ |
92,140 |
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|
$ |
33,617,801 |
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$ |
(29,716,612 |
) |
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$ |
3,993,329 |
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Exercise of stock options
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|
13,538 |
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14 |
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6,755 |
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- |
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6,769 |
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Exercise of warrants
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3,414,283 |
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3,414 |
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|
713,585 |
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- |
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|
716,999 |
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Share-based compensation
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440,000 |
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440 |
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548,212 |
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- |
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548,652 |
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Net loss, as restated (Note 2)
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- |
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- |
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- |
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(1,424,072 |
) |
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(1,424,072 |
) |
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Balance, March 30, 2013, as restated (Note 2)
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|
96,007,883 |
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|
$ |
96,008 |
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$ |
34,886,353 |
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|
$ |
(31,140,684 |
) |
|
$ |
3,841,677 |
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Exercise of stock options
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|
250,000 |
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|
250 |
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|
124,750 |
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|
- |
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|
125,000 |
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Exercise of warrants
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|
4,389,281 |
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|
4,389 |
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|
917,360 |
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|
- |
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|
921,749 |
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Share-based compensation
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|
160,000 |
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|
160 |
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|
400,794 |
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|
- |
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|
400,954 |
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Net loss, as restated (Note 2)
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|
- |
|
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|
- |
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|
|
- |
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|
(1,020,866 |
) |
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|
(1,020,866 |
) |
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|
Balance, June 29, 2013, as restated (Note 2)
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|
100,807,164 |
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|
$ |
100,807 |
|
|
$ |
36,329,257 |
|
|
$ |
(32,161,550 |
) |
|
$ |
4,268,514 |
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|
Exercise of stock options
|
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|
12,500 |
|
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|
13 |
|
|
|
6,587 |
|
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|
- |
|
|
|
6,600 |
|
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|
|
Share-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
243,982 |
|
|
|
- |
|
|
|
243,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,250,263 |
) |
|
|
(1,250,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 28, 2013
|
|
|
100,819,664 |
|
|
$ |
100,820 |
|
|
$ |
36,579,826 |
|
|
$ |
(33,411,813 |
) |
|
$ |
3,268,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See Notes to Condensed Consolidated Financial Statements.
|
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|
ChromaDex Corporation and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
For the Nine Month Periods Ended September 28, 2013 and September 29, 2012
|
|
|
|
|
|
|
|
|
September 28,
2013
|
|
|
September 29,
2012
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$ |
(3,695,201 |
) |
|
$ |
(9,963,844 |
) |
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of leasehold improvements and equipment
|
|
|
187,667 |
|
|
|
247,227 |
|
Amortization of intangibles
|
|
|
16,819 |
|
|
|
11,277 |
|
Share-based compensation expense
|
|
|
1,059,653 |
|
|
|
2,189,917 |
|
Loss from disposal of equipment
|
|
|
68,378 |
|
|
|
1,879 |
|
Loss from investment in affiliate (Note 4)
|
|
|
33,281 |
|
|
|
- |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
931,904 |
|
|
|
(479,763 |
) |
Inventories
|
|
|
(479,924 |
) |
|
|
(2,530,839 |
) |
Prepaid expenses and other assets
|
|
|
(50,991 |
) |
|
|
644,296 |
|
Accounts payable
|
|
|
(712,138 |
) |
|
|
588,747 |
|
Accrued expenses
|
|
|
72,336 |
|
|
|
(91,196 |
) |
Customer deposits and other
|
|
|
349,378 |
|
|
|
57,311 |
|
Deferred rent
|
|
|
45,661 |
|
|
|
(44,883 |
) |
Net cash used in operating activities
|
|
|
(2,173,177 |
) |
|
|
(9,369,871 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of leasehold improvements and equipment
|
|
|
(117,523 |
) |
|
|
(13,764 |
) |
Purchase of intangible assets
|
|
|
(69,000 |
) |
|
|
(52,000 |
) |
Proceeds from sale of assets
|
|
|
1,000,000 |
|
|
|
- |
|
Proceeds from investment in affiliate |
|
|
225,000 |
|
|
|
- |
|
Net cash provided by (used in) investing activities
|
|
|
1,038,477 |
|
|
|
(65,764 |
) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs
|
|
|
- |
|
|
|
10,159,838 |
|
Proceeds from exercise of stock options
|
|
|
138,369 |
|
|
|
3,059 |
|
Proceeds from exercise of warrants
|
|
|
1,638,748 |
|
|
|
157,500 |
|
Principal payments on capital leases
|
|
|
(74,993 |
) |
|
|
(67,843 |
) |
Net cash provided by financing activities
|
|
|
1,702,124 |
|
|
|
10,252,554 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
567,424 |
|
|
|
816,919 |
|
|
|
|
|
|
|
|
|
|
Cash Beginning of Period
|
|
|
520,000 |
|
|
|
420,152 |
|
|
|
|
|
|
|
|
|
|
Cash Ending of Period
|
|
$ |
1,087,424 |
|
|
$ |
1,237,071 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$ |
24,521 |
|
|
$ |
22,692 |
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Investing Activity
|
|
|
|
|
|
|
|
|
Capital lease obligation incurred for the purchase of equipment
|
|
$ |
171,851 |
|
|
$ |
50,786 |
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Share-based Compensation
|
|
|
|
|
|
|
|
|
Stock awards issued for services prior to the period
|
|
$ |
14,560 |
|
|
$ |
- |
|
Changes in stock and warrant awards issued for future services
|
|
$ |
119,375 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Noncash Activities Related to
|
|
|
|
|
|
|
|
|
Sale of BluScience Consumer Product Line
|
|
|
|
|
|
|
|
|
Assets transferred
|
|
$ |
3,526,677 |
|
|
$ |
- |
|
Liabilities transferred
|
|
$ |
368,873 |
|
|
$ |
- |
|
Carrying value of long-term investment in affiliate, net of $1,000,000 cash proceeds
|
|
$ |
2,157,804 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
Note 1. Interim Financial Statements
The accompanying financial statements of ChromaDex Corporation (the “Company”) and its wholly owned subsidiaries, ChromaDex, Inc., ChromaDex Analytics, Inc. and Spherix Consulting, Inc. include all adjustments, consisting of normal recurring adjustments and accruals, that, in the opinion of the management of the Company, are necessary for a fair presentation of the Company's financial position as of September 28, 2013 and results of operations and cash flows for the three and nine months ended September 28, 2013 and September 29, 2012. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 29, 2012 appearing in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 29, 2013. Operating results for the nine months ended September 28, 2013 are not necessarily indicative of the results to be achieved for the full year ending on December 28, 2013. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
The balance sheet at December 29, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
Note 2. Restatement of Previously Issued Financial Statements
On November 18, 2013, during the review of the interim financial statements, the Company determined that the previously issued financial statements for the three month period and the six month period ending March 30, 2013 and June 29, 2013, respectively, contained in the Company’s Quarterly Reports on Form 10-Q (“ Quarterly Reports”) for the period ended March 30, 2013 (as filed with the Securities and Exchange Commission on May 10, 2013) and June 29, 2013 (as filed with the Securities and Exchange Commission on August 13, 2013), respectively, should no longer be relied upon because of certain non-cash errors in the Quarterly Reports and that those financial statements (the "Financial Statements") would be restated to make the necessary accounting adjustments.
The financial statements filed for the three month period ended March 30, 2013 and the six month period ended June 29, 2013 contained a misstatement pertaining to the accounting treatment of the sale of the BluScience assets to NeutriSci International, Inc. (“NeutriSci”) (See Note 4). The value of the equity and the senior secured convertible note that the Company received from NeutriSci as part of the purchase price were originally accounted for at their stated values which resulted in the Company recognizing a gain on the sale of the BluScience assets. Due to the inability to make a reliably determinable estimate of the fair value of the NeutriSci equity securities and the ultimate collectability of the note received as consideration, management has determined that the proper accounting for the sale transaction is the cost recovery method. Under the cost recovery method, no gain on the sale will be recognized until the Company’s cost basis in the net assets sold has been recovered. In addition, the Company originally accounted for its investment in NeutriSci under the cost method where it has now be determined that the equity method should have been used. The Company expects all amendments and restatements to the Financial Statements affected to be non-cash in nature.
The Company has determined that the restatements of its Financial Statements resulted from a material weakness in its internal control over financial reporting, specifically related to its process and procedures related to the accounting for sale of assets in exchange for non-cash consideration. More information regarding the Company’s controls and procedures is set forth in Part I, Item 4 of this Form 10-Q.
The necessary accounting adjustments have been made to the Company’s financial statements for the nine month period ended September 28, 2013 presented in this Form 10-Q.
The Company will restate the Financial Statements to correct the errors noted above and file amendments to the previous periods Quarterly Reports with the Securities and Exchange Commission as soon as practicable. The correction of the errors will restate the previously issued Financial Statements as follows:
Statement of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
For the Three Month Period Ended March 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
|
Restatement
Adjustments
|
|
|
As Restated
|
|
Sales
|
|
$ |
2,334,566 |
|
|
$ |
- |
|
|
$ |
2,334,566 |
|
Gross profit
|
|
|
672,840 |
|
|
|
- |
|
|
|
672,840 |
|
Net income (loss)
|
|
$ |
1,468,525 |
|
|
$ |
(2,892,597 |
) |
|
$ |
(1,424,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$ |
0.02 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$ |
0.01 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month Period Ended June 29, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
|
Restatement
Adjustments
|
|
|
As Restated
|
|
Sales
|
|
$ |
2,706,896 |
|
|
$ |
- |
|
|
$ |
2,706,896 |
|
Gross profit
|
|
|
960,738 |
|
|
|
- |
|
|
|
960,738 |
|
Net loss
|
|
$ |
(989,722 |
) |
|
$ |
(31,144 |
) |
|
$ |
(1,020,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted net loss per common share
|
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Month Period Ended June 29, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
|
Restatement
Adjustments
|
|
|
As Restated
|
|
Sales
|
|
$ |
5,041,462 |
|
|
$ |
- |
|
|
$ |
5,041,462 |
|
Gross profit
|
|
|
1,633,578 |
|
|
|
- |
|
|
|
1,633,578 |
|
Net income (loss)
|
|
$ |
478,803 |
|
|
$ |
(2,923,741 |
) |
|
$ |
(2,444,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet (Unaudited)
March 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
|
Restatement
Adjustments
|
|
|
As Restated
|
|
Total assets
|
|
$ |
10,717,431 |
|
|
$ |
(2,892,597 |
) |
|
$ |
7,824,834 |
|
Total liabilities
|
|
|
3,983,157 |
|
|
|
- |
|
|
|
3,983,157 |
|
Total stockholder's equity
|
|
$ |
6,734,274 |
|
|
$ |
(2,892,597 |
) |
|
$ |
3,841,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previously Reported
|
|
|
Restatement
Adjustments
|
|
|
As Restated
|
|
Total assets
|
|
$ |
10,945,473 |
|
|
$ |
(2,923,741 |
) |
|
$ |
8,021,732 |
|
Total liabilities
|
|
|
3,753,218 |
|
|
|
- |
|
|
|
3,753,218 |
|
Total stockholder's equity
|
|
$ |
7,192,255 |
|
|
$ |
(2,923,741 |
) |
|
$ |
4,268,514 |
|
Note 3. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a natural products company that discovers, acquires, develops and commercializes proprietary-based ingredient technologies through its business model that utilizes its wholly owned business units, including ingredient technologies, natural product fine chemicals, chemistry and analytical testing services, and product regulatory and safety consulting. The Company provides science-based solutions to the nutritional supplement, food and beverage, animal health, cosmetic and pharmaceutical industries at various terms.
Basis of presentation: The financial statements and accompanying notes have been prepared on a consolidated basis and reflect the consolidated financial position of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated from these financial statements. The Company's fiscal year ends on the Saturday closest to December 31, and the Company’s normal fiscal quarters end on the Saturday 13 weeks after the last fiscal year end or fiscal quarter end. Every fifth or sixth fiscal year, the inclusion of an extra week occurs due to the Company’s floating year-end date. The fiscal year 2014 will include 53 weeks instead of the normal 52 weeks.
Trade accounts receivable: Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on monthly and quarterly reviews of all outstanding amounts. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. The allowances for doubtful accounts for the periods ended September 28, 2013 and December 29, 2012 were $10,000 and $450,000, respectively. Of the allowance amount of $450,000 for the period ended December 29, 2012, $433,000 represents a hold on the receivables placed by a retailer that carried the BluScience consumer product line. The hold was placed by the retailer as an offset in the event of future returns of the Company's products and the hold was treated as a reduction of revenue. On March 28, 2013, the Company sold the BluScience retail consumer line to NeutriSci International Inc. (“NeutriSci”) and the related trade accounts receivable including the allowance have been transferred to NeutriSci. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.
Inventories: Inventories are comprised of raw materials, work-in-process and finished goods. They are stated at the lower of cost, determined by the first-in, first-out method (FIFO) method, or market. The inventory on the balance sheets is recorded net of valuation allowances of $227,000 and $366,000 for the periods ended September 28, 2013 and December 29, 2012, respectively. Labor and overhead has been added to inventory that was manufactured or characterized by the Company. On March 28, 2013, the Company sold the BluScience retail consumer line to NeutriSci and related dietary supplements inventory have been transferred to NeutriSci. The amounts of major classes of inventory as of September 28, 2013 and December 29, 2012 are as follows:
|
|
September 28, 2013
|
|
|
December 29, 2012
|
|
Natural product fine chemicals
|
|
$ |
1,708,606 |
|
|
$ |
1,614,755 |
|
Bulk ingredients
|
|
|
736,092 |
|
|
|
432,230 |
|
Dietary supplements – raw materials
|
|
|
- |
|
|
|
401,809 |
|
Dietary supplements – work in process
|
|
|
- |
|
|
|
465,253 |
|
Dietary supplements – finished goods
|
|
|
- |
|
|
|
2,657,257 |
|
|
|
|
2,444,698 |
|
|
|
5,571,304 |
|
Less valuation allowance
|
|
|
227,000 |
|
|
|
366,000 |
|
|
|
$ |
2,217,698 |
|
|
$ |
5,205,304 |
|
Earnings per share: Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of common stock options and warrants for all periods. For the three- and nine-month periods ended September 28, 2013 and September 29, 2012, the basic and diluted shares reported are equal because the common share equivalents are anti-dilutive due to the net loss. Below is a tabulation of the potentially dilutive securities that were “in the money” for the three- and nine-month periods ended September 28, 2013 and September 29, 2012.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 28, 2013
|
|
|
September 29, 2012
|
|
|
September 28, 2013
|
|
|
September 29, 2012
|
|
Basic weighted average common shares outstanding
|
|
|
101,309,939 |
|
|
|
92,364,418 |
|
|
|
98,590,008 |
|
|
|
89,477,758 |
|
Warrants and options in the money, net
|
|
|
577,190 |
|
|
|
5,994,067 |
|
|
|
312,531 |
|
|
|
5,908,491 |
|
Weighted average common shares outstanding assuming dilution
|
|
|
101,887,129 |
|
|
|
98,358,485 |
|
|
|
98,902,539 |
|
|
|
95,386,249 |
|
Total warrants and options that were not “in the money” at September 28, 2013 and September 29, 2012 were 10,775,361 and 15,214,767, respectively.
Long-term investment in affiliate: The Company accounts for its investment in affiliate under the equity method. The Company records equity method adjustments in gains (losses) on equity method investments, net, and may do so with up to a three-month lag, pending on the timely availability of financial information of the investee. Equity method adjustments include: our proportionate share of investee income or loss, gains or losses resulting from investee capital transactions, and other adjustments required by the equity method. The long-term investment in affiliate is subject to a periodic impairment review and is considered to be impaired when a decline in carrying value is judged to be other-than-temporary. Evidence of a loss in value might include (i) absence of an ability recover the carrying amount of the investment or (ii) inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.
Note 4. Sale of Product Line and Investment in Affiliate
On March 28, 2013, the Company entered into an asset purchase and sale agreement with NeutriSci and consummated the sale of the BluScience consumer product line to NeutriSci. The Company is using the cost recovery method to account for the sale transaction, which is estimated at approximately $3,157,804. The consideration received consists of following: (a) a $250,000 cash payment, which NeutriSci paid as a deposit in February 2013; (b) an additional $250,000 cash payment, which was paid at the closing of the sale; (c) an additional cash payment of $500,000 due no later than 60 days after the closing of the sale, which has been fully paid as of September 28, 2013; (d) a $2,500,000 senior convertible secured note (convertible into 625,000 shares Series I Preferred Stock as described below) payable in quarterly installments of $416,667 beginning August 15, 2013, which a partial payment of $225,000 was received for the first installment as of September 28, 2013 and an amendment to extend the repayment schedule was executed subsequent to September 28, 2013; and (e) 669,708 shares of Series I Preferred Shares that are convertible into 2,678,832 Class “A” common shares of NeutriSci, representing an aggregate of 19% of the NeutriSci shares at a deemed price for each Class A common share of $1.00 per share at March 28, 2013. The transaction documents contain certain equity blockers that preclude the Company’s ownership in NeutriSci in excess of 9.99% and 19% without obtaining a waiver from NeutriSci. The Company will continue to generate revenue through a royalty on 6% of future net sales of BluScience products as well as a supply agreement with NeutriSci for the Company’s patented pTeroPure pterostilbene. As of September 28, 2013, the Company did not have any sales to NeutriSci under this supply agreement for pTeroPure pterostilbene.
The Company has applied the equity method of accounting for the 669,708 shares of Series I Preferred Shares that are convertible into 2,678,832 Class “A” common shares of NeutriSci and the carrying value, which includes the senior convertible secured note, is reflected as long-term investment in affiliate in the Company’s consolidated balance sheet as of September 28, 2013. The initial carrying value of this investment recognized, as restated, as of March 28, 2013 was $2,157,804, which is the Company’s unrecovered cost or the difference between the net assets transferred to NeutriSci and the initial monetary consideration received. Although, (i) other contemporaneous third party investments in NeutriSci’s Class “A” common shares were $1.00 per share and (ii) the face value of the senior convertible secured note was $2,500,000, management believed that $2,157,804 was the appropriate aggregate carrying value for the investment in affiliate, considering the fact that NeutriSci is a start-up company and has historically recorded significant operating losses. The Company is unable to determine NeutriSci’s likelihood of repaying the note, and because of this significant uncertainty, the amount of collectability of the senior convertible secured note is not ascertainable. There is a significant uncertainty in the realization of value of the Series I Preferred Shares as well. Consequently, management deemed it appropriate to consider that both the 669,708 shares of Series I Preferred Shares and the senior convertible secured note as one long term investment in affiliate. Under the cost recovery method, no gain on the sale will be recognized until the Company’s cost basis in the net assets transferred has been recovered. The fair value of the senior secured convertible note was not reliably determinable as the prospective collection of payments was significantly uncertain. Prospective collection of payments under the note will be charged against the carrying value of the long-term investment in affiliate. The below table illustrates how the carrying value was determined.
|
|
At March 28, 2013
|
|
Assets transferred
|
|
|
|
|
|
|
|
Trade receivables, less allowance for returns
|
|
$ |
(16,984 |
) |
Inventories
|
|
|
3,467,530 |
|
Prepaid expenses and other assets
|
|
|
76,131 |
|
Total assets transferred
|
|
|
3,526,677 |
|
|
|
|
|
|
Liabilities transferred
|
|
|
|
|
Accounts payable
|
|
|
368,873 |
|
Total liabilities transferred
|
|
|
368,873 |
|
|
|
|
|
|
Total net assets transferred
|
|
$ |
3,157,804 |
|
|
|
|
|
|
Initial monetary consideration received
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
500,000 |
|
Non-trade receivable
|
|
|
500,000 |
|
|
|
|
|
|
Total initial monetary consideration received
|
|
$ |
1,000,000 |
|
|
|
|
|
|
Carrying Value of Long Term Investment in Affiliate
|
|
$ |
2,157,804 |
|
The Company has elected to record equity method adjustments in gains (losses) on the investment in NeutriSci, with a three-month lag, as the financial information of NeutriSci was not available in a timely manner. At such, for the Company’s three- and nine-month periods ended September 28, 2013, the Company is using NeutriSci’s financial statements for the three-month period from April 1, 2013 through June 30, 2013 to record equity method adjustments for the Company’s ownership since March 28, 2013 as these were the most recent available financial information. As a result, the Company did not record equity method adjustments for the three months ended June 29, 2013. For the nine months ended September 28, 2013, the Company included only the three months of operating results ending in June 30, 2013 of NeutriSci, corresponding to the three-month lag after closing the investment on March 28, 2013. NeutriSci's financial statements for the period from April 1, 2013 through June 30, 2013 do not cover the three-day period from March 28, 2013 to March 30, 2013, which is also a portion of the Company’s investment period since the Company’s investment started from March 28, 2013. However, the Company has determined that the amount of any impact to the Company for the three day period not covered was immaterial as NeutriSci did not have any significant transactions.
Unaudited sales, gross profit, net loss of NeutriSci for the three months ended June 30, 2013 and the changes in carrying value and the Company’s ownership percentage through September 28, 2013 are summarized as follows:
|
|
June 30, 2013
|
|
|
|
|
Sales
|
|
$ |
31,669 |
|
|
|
|
Gross profit
|
|
|
12,895 |
|
|
|
|
Net loss
|
|
$ |
(165,579 |
) |
|
|
|
|
|
|
|
|
|
|
|
Changes in Carrying Value and Ownership Percentage for ChromaDex Corporation
|
|
|
|
|
|
|
Carrying Value
|
|
|
Ownership
Percentage
|
|
At March 28, 2013
|
|
$ |
2,157,804 |
|
|
|
20.1 |
% |
|
|
|
|
|
|
|
|
|
Company's share of NeutriSci's loss through June 30, 2013
|
|
|
(33,281 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Proceeds from investment in affiliate
|
|
|
(225,000 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
At September 28, 2013
|
|
$ |
1,899,523 |
|
|
|
20.1 |
% |
|
|
|
|
|
|
|
|
|
The Company's September 28, 2013 ownership percentage presented in the above table is derived using NeutriSci’s financial information through June 30, 2013.
As of September 28, 2013, the Company fully received the $500,000 cash payment that was reflected as non-trade receivable as of March 28, 2013. During the three months ended September 28, 2013, the Company received a partial payment of $225,000 for the first installment of $416,667 that was due on August 15, 2013 under the senior secured convertible note.
Subsequent to the nine-month period ended September 28, 2013, an amendment to this note was executed in light of NeutriSci’s expected cash flow in the year 2014 and 2015. The amendment extends the repayment schedule of the outstanding balance with a 6% per annum interest. The amended repayment schedule is as follows:
Payable on
|
|
Amount
|
|
December 31, 2013
|
|
$ |
34,125 |
|
January 31, 2014
|
|
|
201,375 |
|
March 31, 2014
|
|
|
281,275 |
|
June 30, 2014
|
|
|
270,850 |
|
September 30, 2014
|
|
|
273,775 |
|
December 31, 2014
|
|
|
275,025 |
|
March 31, 2015
|
|
|
286,200 |
|
June 30, 2015
|
|
|
282,150 |
|
September 30, 2015
|
|
|
278,100 |
|
December 31, 2015
|
|
|
274,050 |
|
|
|
|
|
|
Total
|
|
$ |
2,456,925 |
|
The senior secured convertible note is secured by the Security Agreement, dated March 28, 2013 entered into between ChromaDex and NeutriSci whereby NeutriSci granted ChromaDex a security interest in substantially all of NeutriSci’s assets, including inventory, to secure its obligations pursuant to the note. In the event of default, the note can also be convertible into Series I Preferred Shares of NeutriSci at the option of ChromaDex. Each Series I Preferred Share can be convertible into 4 Class A common shares of NeutriSci. The conversion price will be (a) $4.00 per Series I Preferred Share prior to a Public Offering (as defined in the note); or (b) the closing price of Series I Preferred Share or four times the closing price of Class A common share on a stock exchange immediately prior to the conversion date.
Under the asset purchase and sale agreement entered into as of March 28, 2013 with the Company, NeutriSci is obligated to file an initial public offering prospectus with a securities commission in Canada no later than January 31, 2014 and to concurrently seek approval of the listing of its common shares on the TSX Venture Exchange or similar stock exchange in Canada.
As of September 28, 2013, the Company has determined that there is no other-than-temporary impairment, as the Company is not aware of any other-than-temporary impairment triggering events or indicators. The Company will continue to monitor NeutriSci’s performance and evaluate if there are any such events or indicators to consider.
Note 5. Leasehold Improvements and Equipment
Leasehold improvements and equipment consisted of the following:
|
|
September 28, 2013
|
|
|
December 29, 2012
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
$ |
2,570,567 |
|
|
$ |
2,439,688 |
|
Leasehold improvements
|
|
|
491,125 |
|
|
|
403,971 |
|
Computer equipment
|
|
|
372,851 |
|
|
|
363,739 |
|
Furniture and fixtures
|
|
|
18,313 |
|
|
|
18,313 |
|
Office equipment
|
|
|
7,877 |
|
|
|
7,877 |
|
Construction in progress
|
|
|
99,931 |
|
|
|
106,080 |
|
|
|
|
3,560,664 |
|
|
|
3,339,668 |
|
Less accumulated depreciation
|
|
|
2,590,909 |
|
|
|
2,403,242 |
|
|
|
$ |
969,755 |
|
|
$ |
936,426 |
|
In September 2013, the Company decided to abandon the development of certain modules of the Laboratory Information Management System (or “LIMS”). In an effort to automate and better track its laboratory services operations, the Company has been trying to implement LIMS since 2008. From June 2008 through June 2012, the Company has incurred a total cost of $106,080 for the development and implementation of LIMS and this cost has been capitalized as a long term asset in the books, categorized as “Construction in progress.” The Company did not incur additional costs since June 2012. The Company decided to abandon certain modules of LIMS as the additional costs expected to complete the development was greater than the anticipated future benefits from the operation efficiency. The carrying value of these abandoned modules was $68,378 and was recognized as loss from disposal of equipment in general and administrative expenses in the statement of operations for the three and the nine months ended September 28, 2013.
Note 6. Employee Share-Based Compensation
Stock Option Plans
At the discretion of the Company’s compensation committee (the “Compensation Committee”), and with the approval of the Company’s board of directors (the “Board of Directors”), the Company may grant options to purchase the Company’s common stock to certain individuals from time to time. Management and the Compensation Committee determine the terms of awards which include the exercise price, vesting conditions and expiration dates at the time of grant. Expiration dates for stock options are not to exceed 10 years from their date of issuance. The Company, under its Second Amended and Restated 2007 Equity Incentive Plan, is authorized to issue stock options that total no more than 20% of the shares of common stock issued and outstanding, as determined on a fully diluted basis. Beginning in 2007, stock options were no longer issuable under the Company’s 2000 Non-Qualified Incentive Stock Plan. The remaining amount available for issuance under the Second Amended and Restated 2007 Equity Incentive Plan totaled 5,876,180 at September 28, 2013. The stock option awards generally vest ratably over a four-year period following grant date after a passage of time. However, some stock option awards are performance based and vest based on the achievement of certain criteria established by the Compensation Committee, subject to approval by the Board of Directors.
The fair value of the Company’s stock options was estimated at the date of grant using the Black-Scholes based option valuation model. The table below outlines the weighted average assumptions for options granted to employees during the nine months ended September 28, 2013.
Nine Months Ended September 28, 2013
|
|
|
|
Volatility
|
|
|
32.78 |
% |
Expected dividends
|
|
|
0.00 |
% |
Expected term
|
|
6.0 years
|
|
Risk-free rate
|
|
|
1.48 |
% |
The Company calculated expected volatility from the volatility of publicly held companies in similar industries, as the historical volatility of the Company’s common stock does not cover the period equal to the expected life of the options. The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. The estimation process for the fair value of performance based stock options was the same as for service period based options.
1) Service Period Based Stock Options
The majority of options granted by the Company are comprised of service based options granted to employees. These options vest ratably over a defined period following grant date after a passage of a service period.
The following table summarizes service period based stock options activity at September 28, 2013 and changes during the nine months then ended:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at December 29, 2012
|
|
|
12,202,558 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
715,000 |
|
|
|
0.75 |
|
|
|
|
|
|
|
Options Exercised
|
|
|
(26,038 |
) |
|
|
0.51 |
|
|
|
|
|
|
|
Options Expired
|
|
|
(75,000 |
) |
|
|
0.50 |
|
|
|
|
|
|
|
Options Forfeited
|
|
|
(354,120 |
) |
|
|
1.21 |
|
|
|
|
|
|
|
Outstanding at September 28, 2013
|
|
|
12,462,400 |
|
|
$ |
1.07 |
|
|
|
7.68 |
|
|
$ |
431,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 28, 2013
|
|
|
7,784,724 |
|
|
$ |
1.16 |
|
|
|
6.88 |
|
|
$ |
283,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above are before income taxes, based on the Company’s closing stock price of $0.81 on the last day of business for the period ended September 28, 2013. The weighted average fair value of options granted during the three and nine months ended September 28, 2013 was $0.28 and $0.26, respectively. The weighted average fair value of options granted during the three and nine months ended September 29, 2012 was $0.28 and $0.27, respectively. The aggregate intrinsic value for options exercised during the three and nine months ended September 28, 2013 was $4,775 and $7,212, respectively. The aggregate intrinsic value for options exercised during the three and nine months ended September 29, 2012 was $765 for both periods as there were no options exercised during the six months ended June 30, 2012.
2) Performance Based Stock Options
The Company also grants stock option awards that are performance based and vest based on the achievement of certain criteria established from time to time by the Compensation Committee. If these performance criteria are not met, the compensation expenses are not recognized and the expenses that have been recognized will be reversed.
The following table summarizes performance based stock options activity at September 28, 2013 and changes during the nine months then ended:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at December 29, 2012
|
|
|
145,834 |
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
200,000 |
|
|
|
0.63 |
|
|
|
|
|
|
|
Options Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Options Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Options Forfeited
|
|
|
(45,834 |
) |
|
|
1.59 |
|
|
|
|
|
|
|
Outstanding at September 28, 2013
|
|
|
300,000 |
|
|
$ |
0.95 |
|
|
|
8.75 |
|
|
$ |
36,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 28, 2013
|
|
|
58,334 |
|
|
$ |
1.59 |
|
|
|
7.60 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above are before income taxes, based on the Company’s closing stock price of $0.81 on the last day of business for the period ended September 28, 2013. The weighted average fair value of options granted during the nine months ended September 28, 2013 was $0.22. The Company did not grant any performance based stock options during the three months ended September 28, 2013 and the three and nine months ended September 29, 2012.
As of September 28, 2013, there was $1,806,718 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans for employee stock options. That cost is expected to be recognized over a weighted average period of 2.53 years as of September 28, 2013. The realized tax benefit from stock options for the nine months ended September 28, 2013, and September 29, 2012 was $0, based on the Company’s full valuation allowance against its deferred tax assets.
Restricted Stock
Restricted stock awards granted by the Company to employees have vesting conditions that are unique to each award.
The following table summarizes activity of restricted stock awards granted to employees at September 28, 2013 and changes during the nine months then ended:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Award-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested shares at December 29, 2012
|
|
|
500,000 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
- |
|
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Unvested shares at September 28, 2013
|
|
|
500,000 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
Expected to Vest as of September 28, 2013
|
|
|
500,000 |
|
|
$ |
0.69 |
|
|
|
|
|
|
|
|
|
|
As of September 28, 2013, the Company did not have any unrecognized compensation expense related to restricted stock awards to employees.
For employee share-based compensation, the Company recognized share-based compensation expense of $243,981 and $816,932 in general and administrative expenses in the statement of operations for the three and nine months ended September 28, 2013, respectively. The Company recognized $455,403 and $1,099,228 in share-based compensation expense for the three and nine months ended September 29, 2012, respectively.
Note 7 Non-Employee Share-Based Compensation
Stock Option Plans
At the discretion of management, working with the Compensation Committee, and with approval of the Board of Directors, the Company may grant options to purchase the Company’s common stock to certain individuals from time to time who are not employees of the Company. These options are granted under the Second Amended and Restated 2007 Equity Incentive Plan of the Company and are granted on the same terms as those being issued to employees. Stock options granted to non-employees are accounted for using the fair value approach. The fair value of non-employee option grants are estimated using the Black-Scholes option-pricing model and are re-measured over the vesting term until earned. The estimated fair value is expensed over the applicable service period.
The following table summarizes activity of stock options granted to non-employees at September 28, 2013 and changes during the nine months then ended:
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at December 29, 2012
|
|
|
1,097,300 |
|
|
$ |
1.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Options Exercised
|
|
|
(250,000 |
) |
|
|
0.50 |
|
|
|
|
|
|
|
Options Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Outstanding at September 28, 2013
|
|
|
847,300 |
|
|
$ |
1.44 |
|
|
|
5.98 |
|
|
$ |
13,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 28, 2013
|
|
|
847,300 |
|
|
$ |
1.44 |
|
|
|
5.98 |
|
|
$ |
13,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above are before income taxes, based on the Company’s closing stock price of $0.81 on the last day of business for the period ended September 28, 2013. The aggregate intrinsic value for options exercised during the nine months ended September 28, 2013 was $35,000. There were no options exercised during the three months ended September 28, 2013. There were no options exercised during the three and nine months ended September 29, 2012.
As of September 28, 2013, the Company did not have any unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans for non-employee stock options.
Stock Awards
From time to time, the Company awards shares of its common stock to non-employees for services provided or to be provided. If the fair value of services received is more reliably measurable than the fair value of the stock awarded, the fair value of the services received is used to measure the award. In contrast, if the fair value of the stock issued is more reliably measurable, than the fair value of services received, the award is measured based on the fair value of the stock awarded. Since these stock awards are fully vested and non-forfeitable, upon issuance the measurement date for the award is usually reached on the date of the award. The measured fair value of the award is amortized over the period the service is provided.
During the nine months ended September 28, 2013, the Company awarded an aggregate of 600,000 shares of the Company’s common stock to non-employees. The Company did not award any shares to non-employees during the three months ended September 28, 2013. The fair values of the awards were based on the trading price of the Company’s stock on the date of issuance. The expense the Company recognized for stock awards was $87,322 and $237,571 for the three and nine months ended September 28, 2013, respectively. As of September 28, 2013, there was $142,953 of total unrecognized compensation expense related to stock awarded to the non-employees. During the three and nine months ended September 29, 2012, the Company awarded an aggregate of 780,294 and 1,234,851 shares, respectively, and recognized a total expense of $372,721 and $680,897, respectively.
Warrant Awards
During the nine months ended September 28, 2013, the Company recognized an expense of $4,094 for the warrants that were previously awarded during the year ended December 29, 2012. The Company did not recognize any expense during the three months ended September 28, 2013. The Company did not award any new warrants during the three and nine months ended September 28, 2013. As of September 28, 2013, the Company did not have any unrecognized compensation expense related to warrants awarded to the non-employee.
For non-employee share-based compensation, the Company recognized share-based compensation expense of $87,322 and $242,721 in general and administrative expenses in the statement of operations for the three and nine months ended September 28, 2013, respectively. The Company recognized $469,989 and $1,090,689 in share-based compensation expense for the three and nine months ended September 29, 2012, respectively.
Note 8. Warrants
During the nine months ended September 28, 2013, 7,803,564 warrants with an exercise price of $0.21 per share were exercised and the Company received proceeds of $1,638,748 from exercise of these warrants. These warrants were issued during the year ended January 1, 2011 pursuant to a subscription agreement entered into by the holders of such warrants and the Company on April 22, 2010. There were no warrants exercised during the three months ended September 28, 2013.
In addition, during the three and nine months ended September 28, 2013, 404,047 and 1,718,350 warrants issued during the year 2008 with an exercise price of $3.00 per share expired, respectively.
At September 28, 2013, the following warrants were outstanding and exercisable:
Warrants granted
in connection with :
|
|
Weighted Average
Exercise Prices
|
|
|
Number Outstanding
And Exercisable
At September 28, 2013
|
|
Weighted Average
Remaining Contractual Life
|
2012 Placement agent commission
|
|
$ |
0.85 |
|
|
|
285,000 |
|
10.2 months
|
2012 Non-employee award
|
|
$ |
0.75 |
|
|
|
250,000 |
|
9.9 months
|
|
|
$ |
0.80 |
|
|
|
535,000 |
|
10.0 months
|
Note 9. Business Segmentation
Since the year ended December 29, 2012, the Company began segregating its financial results for Spherix Consulting, Inc. (“Spherix”), which the Company acquired on December 3, 2012. Spherix provides scientific and regulatory consulting. The Company has following three reportable segments.
·
|
Core standards, contract services and ingredients segment includes supply of phytochemical reference standards, which are small quantities of plant-based compounds typically used to research an array of potential attributes, and reference materials, related contract services, and proprietary ingredients.
|
·
|
Scientific and regulatory consulting segment which consist of providing scientific and regulatory consulting to the clients in the food, supplement and pharmaceutical industries to manage potential health and regulatory risks.
|
·
|
Retail dietary supplement products segment which consist of the supply of the BluScience line of dietary supplement products containing the Company's proprietary ingredients to various retail distribution channels. On March 28, 2013, the Company entered into an asset purchase and sale agreement with NeutriSci and consummated the sale of BluScience consumer product line to NeutriSci.
|
The “Other” classification includes corporate items not allocated by the Company to each reportable segment. Further, there are no intersegment sales that require elimination. The Company evaluates performance and allocates resources based on reviewing gross margin by reportable segment.
Three months ended
|
|
Core Standards,
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
September 28, 2013
|
|
Contract Services and
|
|
|
Scientific and
Regulatory
|
|
|
Dietary Supplement
|
|
|
|
|
|
|
|
|
|
Ingredients segment
|
|
|
Consulting segment
|
|
|
Products segment
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
2,355,458 |
|
|
$ |
362,749 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,718,207 |
|
Cost of sales
|
|
|
1,794,073 |
|
|
|
173,947 |
|
|
|
- |
|
|
|
- |
|
|
|
1,968,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
561,385 |
|
|
|
188,802 |
|
|
|
- |
|
|
|
- |
|
|
|
750,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
493,068 |
|
|
|
12,000 |
|
|
|
- |
|
|
|
- |
|
|
|
505,068 |
|
General and administrative
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,453,611 |
|
|
|
1,453,611 |
|
Loss from investment in affiliate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
33,281 |
|
|
|
33,281 |
|
Operating expenses
|
|
|
493,068 |
|
|
|
12,000 |
|
|
|
- |
|
|
|
1,486,892 |
|
|
|
1,991,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
68,317 |
|
|
$ |
176,802 |
|
|
$ |
- |
|
|
$ |
(1,486,892 |
) |
|
$ |
(1,241,773 |
) |
Three months ended
|
|
Core Standards,
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
September 29, 2012
|
|
Contract Services and
|
|
|
Scientific and
Regulatory
|
|
|
Dietary Supplement
|
|
|
|
|
|
|
|
|
|
Ingredients segment
|
|
|
Consulting segment
|
|
|
Products segment
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,989,910 |
|
|
$ |
- |
|
|
$ |
1,642,334 |
|
|
$ |
- |
|
|
$ |
3,632,244 |
|
Cost of sales
|
|
|
1,539,118 |
|
|
|
- |
|
|
|
838,873 |
|
|
|
- |
|
|
|
2,377,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
450,792 |
|
|
|
- |
|
|
|
803,461 |
|
|
|
- |
|
|
|
1,254,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
514,029 |
|
|
|
- |
|
|
|
288,142 |
|
|
|
- |
|
|
|
802,171 |
|
General and administrative
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,983,720 |
|
|
|
1,983,720 |
|
Operating expenses
|
|
|
514,029 |
|
|
|
- |
|
|
|
288,142 |
|
|
|
1,983,720 |
|
|
|
2,785,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(63,237 |
) |
|
$ |
- |
|
|
$ |
515,319 |
|
|
$ |
(1,983,720 |
) |
|
$ |
(1,531,638 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
Core Standards,
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
September 28, 2013
|
|
Contract Services and
|
|
|
Scientific and
Regulatory
|
|
|
Dietary Supplement
|
|
|
|
|
|
|
|
|
|
Ingredients segment
|
|
|
Consulting segment
|
|
|
Products segment
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
7,011,343 |
|
|
$ |
808,610 |
|
|
$ |
(60,285 |
) |
|
$ |
- |
|
|
$ |
7,759,668 |
|
Cost of sales
|
|
|
4,922,469 |
|
|
|
452,479 |
|
|
|
955 |
|
|
|
- |
|
|
|
5,375,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
2,088,874 |
|
|
|
356,131 |
|
|
|
(61,240 |
) |
|
|
- |
|
|
|
2,383,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,720,292 |
|
|
|
14,600 |
|
|
|
131,159 |
|
|
|
- |
|
|
|
1,866,051 |
|
General and administrative
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,155,792 |
|
|
|
4,155,792 |
|
Loss from investment in affiliate
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
33,281 |
|
|
|
33,281 |
|
Operating expenses
|
|
|
1,720,292 |
|
|
|
14,600 |
|
|
|
131,159 |
|
|
|
4,189,073 |
|
|
|
6,055,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
368,582 |
|
|
$ |
341,531 |
|
|
$ |
(192,399 |
) |
|
$ |
(4,189,073 |
) |
|
$ |
(3,671,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
Core Standards,
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
September 29, 2012
|
|
Contract Services and
|
|
|
Scientific and
Regulatory
|
|
|
Dietary Supplement
|
|
|
|
|
|
|
|
|
|
Ingredients segment
|
|
|
Consulting segment
|
|
|
Products segment
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
5,995,243 |
|
|
$ |
- |
|
|
$ |
2,092,617 |
|
|
$ |
- |
|
|
$ |
8,087,860 |
|
Cost of sales
|
|
|
4,413,943 |
|
|
|
- |
|
|
|
2,259,184 |
|
|
|
- |
|
|
|
6,673,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
1,581,300 |
|
|
|
- |
|
|
|
(166,567 |
) |
|
|
- |
|
|
|
1,414,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,525,545 |
|
|
|
- |
|
|
|
3,003,706 |
|
|
|
- |
|
|
|
4,529,251 |
|
General and administrative
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,829,359 |
|
|
|
6,829,359 |
|
Operating expenses
|
|
|
1,525,545 |
|
|
|
- |
|
|
|
3,003,706 |
|
|
|
6,829,359 |
|
|
|
11,358,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
55,755 |
|
|
$ |
- |
|
|
$ |
(3,170,273 |
) |
|
$ |
(6,829,359 |
) |
|
$ |
(9,943,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Standards,
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
At September 28, 2013
|
|
Contract Services and
|
|
|
Scientific and
Regulatory
|
|
|
Dietary Supplement
|
|
|
|
|
|
|
|
|
|
Ingredients segment
|
|
|
Consulting segment
|
|
|
Products segment
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|