Edgar Filing: ChromaDex Corp.

cdxc10q_july2016.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 July 2, 2016

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 X

Non-accelerated filer ____ Smaller reporting company ____

(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

As of August 10, 2016 there were 37,856,584 shares of the registrant’s common stock issued and outstanding.

CHROMADEX CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of July 2, 2016 (Unaudited) and January 2, 2016			1
Condensed Consolidated Statements of Operations for the three months ended July 2, 2016 and July 4, 2015 (Unaudited)			2
Condensed Consolidated Statements of Operations for the six months ended July 2, 2016 and July 4, 2015 (Unaudited)			3
Condensed Consolidated Statements of Stockholders Equity for the six months ended July 2, 2016 (Unaudited)			4
Condensed Consolidated Statements of Cash Flows for the six months ended July 2, 2016 and July 4, 2015 (Unaudited)			5
Notes to Condensed Consolidated Financial Statements (Unaudited)			6
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			13
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			17
ITEM 4.CONTROLS AND PROCEDURES			18
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS			19
ITEM 1A.RISK FACTORS			19
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			27
ITEM 3.DEFAULTS UPON SENIOR SECURITIES			27
ITEM 4.MINE SAFETY DISCLOSURES			27
ITEM 5.OTHER INFORMATION			27
ITEM 6.EXHIBITS			28
SIGNATURES

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ChromaDex Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

July 2, 2016 and January 2, 2016

	July 2, 2016			January 2, 2016
	(Unaudited)
Assets
Current assets
Cash	$	3,370,219		$	5,549,672
Trade receivables, net of allowances of $397,000 and $367,000, respectively		6,793,779			2,450,591
Inventories		4,524,803			8,173,799
Prepaid expenses and other assets		465,711			373,567
Total current assets		15,154,512			16,547,629

Leasehold improvements and equipment, net		1,860,476			1,788,645
Deposits		233,570			58,883
Intangible assets, net		510,637			354,052
Longterm investment		20,318			-
Total assets	$	17,779,513		$	18,749,209

Liabilities and stockholders' equity

Current liabilities
Accounts payable	$	2,331,376		$	6,223,958
Accrued expenses		1,937,427			1,302,865
Current maturities of loan payable		-			1,528,578
Current maturities of capital lease obligations		218,126			219,689
Customer deposits and other		262,852			272,002
Deferred rent, current		38,350			39,529
Total current liabilities		4,788,131			9,586,621

Loan payable, less current maturities, net		-			3,345,335
Capital lease obligations, less current maturities		337,903			444,589
Deferred rent, less current		205,826			97,990
Total liabilities		5,331,860			13,474,535

Commitments and contingencies

Stockholders' equity
Common stock, $.001 par value; authorized 50,000,000 shares; issued and outstanding
July 2, 2016 37,489,914 and January 2, 2016 36,003,589 shares		37,490			36,004
Additional paid-in capital		54,532,594			47,534,059
Accumulated deficit		(42,122,431	)		(42,295,389	)
Total stockholders' equity		12,447,653			5,274,674

Total liabilities and stockholders' equity	$	17,779,513		$	18,749,209

See Notes to Condensed Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

For the Three Month Periods Ended July 2, 2016 and July 4, 2015

	July 2, 2016			July 4, 2015

Sales, net	$	8,829,579		$	6,101,380
Cost of sales		4,702,132			3,630,688
Gross profit		4,127,447			2,470,692

Operating expenses:
Sales and marketing		698,031			639,748
Research and development		751,726			175,410
General and administrative		2,306,559			1,839,594
Operating expenses		3,756,316			2,654,752

Operating income (loss)		371,131			(184,060	)

Nonoperating income (expense):
Interest income		638			645
Interest expense		(145,424	)		(131,777	)
Loss on debt extinguishment		(313,099	)		-
Nonoperating expenses		(457,885	)		(131,132	)

Loss before taxes		(86,754	)		(315,192	)
Provision for taxes		4,087			-

Net loss	$	(82,667	)	$	(315,192	)

Basic and diluted loss per common share	$	(0.00	)	$	(0.01	)

Basic and diluted weighted average common shares outstanding		36,990,032			35,803,298

See Notes to Condensed Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

For the Six Month Periods Ended July 2, 2016 and July 4, 2015

	July 2, 2016			July 4, 2015

Sales, net	$	16,161,524		$	11,362,351
Cost of sales		8,582,658			6,964,035

Gross profit		7,578,866			4,398,316

Operating expenses:
Sales and marketing		1,242,753			1,225,525
Research and development		1,215,798			296,505
General and administrative		4,295,118			3,966,430
Operating expenses		6,753,669			5,488,460

Operating income (loss)		825,197			(1,090,144	)

Nonoperating income (expense):
Interest income		1,432			1,363
Interest expense		(333,919	)		(251,926	)
Loss on debt extinguishment		(313,099	)		-
Nonoperating expenses		(645,586	)		(250,563	)

Income (loss) before taxes		179,611			(1,340,707	)
Provision for taxes		(6,653	)		-

Net income (loss)	$	172,958		$	(1,340,707	)

Basic earnings (loss) per common share	$	0.00		$	(0.04	)

Diluted earnings (loss) per common share	$	0.00		$	(0.04	)

Basic weighted average common shares outstanding		36,702,037			35,768,082

Diluted weighted average common shares outstanding		37,470,666			35,768,082

See Notes to Condensed Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statement of Stockholders' Equity (Unaudited)

For the Six Month Period Ended July 2, 2016

	Common Stock				Additional			Accumulated			Total Stockholders'
	Shares		Amount		Paid-in Capital			Deficit			Equity

Balance, January 2, 2016		36,003,589	$	36,004	$	47,534,059		$	(42,295,389	)	$	5,274,674

Issuance of common stock, net of		128,205		128		479,872			-			480,000
offering costs of $20,000

Exercise of stock options		47,055		47		93,825			-			93,872

Share-based compensation		-		-		324,035			-			324,035

Vested restricted stock		2,000		2		(2	)		-			-

Net income		-		-		-			255,625			255,625

Balance, April 2, 2016		36,180,849	$	36,181	$	48,431,789		$	(42,039,764	)	$	6,428,206

1 for 3 reverse stock split, isssuance
due to fractional shares round up		1,632		2		(2	)		-			-

Issuance of common stock, net of		1,117,022		1,117		5,238,883			-			5,240,000
offering costs of $10,000

Exercise of stock options		185,081		185		528,327			-			528,512

Share-based compensation		-		-		333,602			-			333,602

Vested restricted stock		5,330		5		(5	)		-			-

Net loss		-		-		-			(82,667	)		(82,667	)

Balance, July 2, 2016		37,489,914	$	37,490	$	54,532,594		$	(42,122,431	)	$	12,447,653

See Notes to Condensed Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Six Month Periods Ended July 2, 2016 and July 4, 2015

	July 2, 2016			July 4, 2015
Cash Flows From Operating Activities
Net income (loss)	$	172,958		$	(1,340,707	)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation of leasehold improvements and equipment		159,370			137,279
Amortization of intangibles		38,415			20,541
Share-based compensation expense		657,637			1,223,177
Allowance for doubtful trade receivables		29,649			3,365
Loss from disposal of equipment		-			18,226
Non-cash loss on debt extinguishment		32,007			-
Non-cash financing costs		94,080			92,143
Changes in operating assets and liabilities:
Trade receivables		(4,372,837	)		(1,195,891	)
Inventories		3,628,678			645,308
Prepaid expenses and other assets		(266,831	)		(134,482	)
Accounts payable		(3,892,582	)		(357,065	)
Accrued expenses		634,562			427,913
Customer deposits and other		(9,150	)		(5,251	)
Deferred rent		106,657			(31,732	)
Net cash used in operating activities		(2,987,387	)		(497,176	)


Cash Flows From Investing Activities
Purchases of leasehold improvements and equipment		(231,201	)		(139,162	)
Purchases of intangible assets		(195,000	)		(22,500	)
Net cash used in investing activities		(426,201	)		(161,662	)


Cash Flows From Financing Activities
Proceeds from issuance of common stock, net of issuance costs		5,720,000			-
Proceeds from exercise of stock options		622,384			15,601
Proceeds from loan payable		-			2,500,000
Payment of debt issuance cost		-			(15,000	)
Principal payments on loan payable		(5,000,000	)		-
Principal payments on capital leases		(108,249	)		(107,265	)
Net cash provided by financing activities		1,234,135			2,393,336

Net (decrease) increase in cash		(2,179,453	)		1,734,498

Cash Beginning of Period		5,549,672			3,964,750

Cash Ending of Period	$	3,370,219		$	5,699,248

Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$	239,839		$	73,202

Supplemental Schedule of Noncash Investing Activity
Capital lease obligation incurred for purchases of equipment	$	-		$	303,933
Inventory supplied to Healthspan Research, LLC for equity interest, at cost	$	20,318		$	-
Retirement of fully depreciated equipment - cost	$	28,083		$	-
Retirement of fully depreciated equipment - accumulated depreciation	$	(28,083	)	$	-

See Notes to Condensed Consolidated Financial Statements.

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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 July 2, 2016 and results of operations and cash flows for the three and six months ended July 2, 2016 and July 4, 2015. 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 January 2, 2016 appearing in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 17, 2016. Operating results for the six months ended July 2, 2016 are not necessarily indicative of the results to be achieved for the full year ending on December 31, 2016. 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 January 2, 2016 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. Nature of Business and Liquidity

Nature of business: The Company leverages its complementary business units to discover, acquire, develop and commercialize patented and proprietary ingredient technologies that address the dietary supplement, food, beverage, skin care and pharmaceutical markets. In addition to our ingredient technologies unit, we also have business units focused on natural product fine chemicals (known as "phytochemicals"), chemistry and analytical testing services, and product regulatory and safety consulting (known as Spherix Consulting). As a result of our relationships with leading universities and research institutions, we are able to discover and license early stage, Intellectual Property-backed ingredient technologies. We then utilize our in-house chemistry, regulatory and safety consulting business units to develop commercially viable ingredients. Our ingredient portfolio is backed with clinical and scientific research, as well as extensive Intellectual Property protection.

Liquidity: The Company generated income from operations of approximately $825,000 and net income of approximately $173,000 for the six-month period ended July 2, 2016. As of July 2, 2016, the cash and cash equivalents totaled approximately $3,370,000.

While we anticipate that our current cash, cash equivalents and cash to be generated from operations will be sufficient to meet our projected operating plans through at least August 12, 2017, we may require additional funds, either through additional equity or debt financings or collaborative agreements or from other sources. We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all. If adequate financing is not available, the Company will further delay, postpone or terminate product and service expansion and curtail certain selling, general and administrative operations. The inability to raise additional financing may have a material adverse effect on the future performance of the Company.

Note 3. Significant Accounting Policies

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. 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 2015 ended on January 2, 2016 consisted of normal 52 weeks. The fiscal year 2016 ending on December 31, 2016 will also include the normal 52 weeks.

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. Labor and overhead has been added to inventory that was manufactured or characterized by the Company. The amounts of major classes of inventory as of July 2, 2016 and January 2, 2016 are as follows:

	July 2, 2016			January 2, 2016

Natural product fine chemicals	$	1,031,287		$	1,239,338
Bulk ingredients		3,601,516			7,195,461
		4,632,803			8,434,799
Less valuation allowance		(108,000	)		(261,000	)

	$	4,524,803		$	8,173,799

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Note 4. Reverse Stock Split

On April 13, 2016, the Company effected a 1-for-3 reverse stock split. All information presented herein has been retrospectively adjusted to reflect the reverse stock split as if they took place as of the earliest period presented. An additional 1,632 shares were issued to round up fractional shares as a result of the reverse stock split.

Note 5. Earnings Per Share Applicable to Common Stockholders

The following table sets forth the computations of earnings per share amounts applicable to common stockholders for the three and six months ended July 2, 2016 and July 4, 2015:

	Three Months Ended						Six Months Ended
	July 2, 2016			July 4, 2015			July 2, 2016		July 4, 2015

Net income (loss)	$	(82,667	)	$	(315,192	)	$	172,958	$	(1,340,707	)

Basic weighted average common shares outstanding (1):		36,990,032			35,803,298			36,702,037		35,768,082

Basic earnings (loss) per common share	$	(0.00	)	$	(0.01	)	$	0.00	$	(0.04	)

Dilutive effect of stock options, net		-			-			726,879		-
Dilutive effect of warrants, net		-			-			41,750		-

Diluted weighted average common shares outstanding :		36,990,032			35,803,298			37,470,666		35,768,082

Diluted earnings (loss) per common share	$	(0.00	)	$	(0.01	)	$	0.00	$	(0.04	)

Potentially dilutive securities, total (2):
Stock options		5,126,943			4,706,705			4,400,064		4,706,705
Warrants		487,111			156,340			445,361		156,340
Convertible debt		-			257,798			-		257,798

__________________

(1) Includes 369,220 and 410,161 weighted average nonvested shares of restricted stock for the three months ended July 2, 2016 and July 4, 2015, respectively, and 370,923 and 464,095 weighted average nonvested shares or restricted stock for the six months ended July 2, 2016 and July 4, 2015, respectively, which are participating securities that feature voting and dividend rights.

(2) Excluded from the computation of diluted loss per share for the three months ended July 2, 2016, and the three and six months ended July 4, 2015 as their impact is antidilutive.

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Note 6. Loan Payable

On June 14, 2016, the Company repaid $4,851,542 owed to Hercules Funding II LLC (“Hercules”), under the Company’s loan and security agreement with Hercules dated as of September 29, 2014 (the “Loan Agreement”).

The payoff amount was comprised of the following:

Payoff Amount

Principal	$	4,554,659
Accrued interest		15,790
End of term charge		187,500
Prepayment fee		91,093
Other fees		2,500
Total	$	4,851,542

Upon Hercules’ receipt of the Payoff Amount, the Loan Agreement terminated.

The Loan Agreement initially provided the Company with access to a term loan of up to $5 million. The first $2.5 million of the term loan was funded at the closing of the Loan Agreement, and was repayable in installments over 30 months, following an initial interest-only period of twelve months after closing. The Company drew down the remaining $2.5 million of the term loan on June 17, 2015 and the interest-only period was extended to March 31, 2016. In connection with the loan, the Company paid an aggregate of $65,000 in facility charges to Hercules and granted Hercules first priority liens and a security interest in substantially all of its assets.

The Loan Agreement also provided (i) a borrower option to repay principal in common stock up to an aggregate amount of $500,000 at a conversion price of $3.879 per share and (ii) a lender option to receive principal repayments in common stock up to an aggregate amount of $500,000 at a conversion price of $3.879 per share, subject to certain conditions. However, no principal was repaid in common stock. On the commitment date, no separate accounting was required for the conversion feature.

In connection with the termination of the Loan Agreement, Hercules’s commitments to extend further credit to the Company terminated, all obligations, covenants, debts and liabilities of the Company under the Loan Agreement were satisfied and discharged in full, all documents entered into in connection with the Loan Agreement, other than a warrant issued pursuant to the Loan Agreement, were terminated, all liens or security interests granted to secure the obligations under the Loan Agreement terminated and all guaranties of the Company’s obligations under the Loan Agreement terminated.

The payoff amount, excluding the accrued interest to date, was $4,835,752 and the net carrying amount of the debt on the extinguishment date was $4,522,653. The difference of $313,099 was recognized as a non-operating loss in the statement of operations during the three months ended July 2, 2016.

Net Carrying Amount				Payoff Amount (Excluding Interest)

Principal	$	4,554,659		Principal	$	4,554,659
Accrued end of term charge		103,909		End of term charge		187,500
Deferred financing cost		(45,606	)	Prepayment fee		91,093
Warrant discount		(90,309	)	Other fees		2,500
Total	$	4,522,653		Total	$	4,835,752
	(A)				(B)

Loss on debt extinguishment	$	(313,099	)
	(A) - (B)

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Note 7. Employee Share-Based Compensation

Service Period Based Stock Options

The following table summarizes activity of service period based stock options granted to employees at July 2, 2016 and changes during the six months then ended:

				Weighted Average
						Remaining				Aggregate
	Number of			Exercise		Contractual		Fair		Intrinsic
	Shares			Price		Term		Value		Value
Outstanding at January 2, 2016		4,314,264		$	3.50		6.44

Options Granted		151,669			4.99		10.00	$	3.16
Options Exercised		(190,473	)		2.85
Options Forfeited		(37,699	)		3.49
Outstanding at July 2, 2016		4,237,761		$	3.58		6.04			$	3,150,000

Exercisable at July 2, 2016		3,436,494		$	3.50		5.41			$	2,817,082

The aggregate intrinsic values in the table above are based on the Company’s stock price of $4.11, which is the closing price of the Company’s stock on the last day of business for the period ended July 2, 2016. The aggregate intrinsic values for options exercised during the six months ended July 2, 2016 was approximately $433,000.

The fair value of the Company’s stock options was estimated at the date of grant using the Black-Scholes option pricing model. The table below outlines the weighted average assumptions for options granted to employees during the six months ended July 2, 2016

Six Months Ended July 2, 2016
Expected term	6.1 years
Expected volatility		73	%
Expected dividends		0.00	%
Risk-free rate		1.50	%

As of July 2, 2016, there was approximately $1,594,000 of total unrecognized compensation expense under the plans for all employee stock options. That cost is expected to be recognized over a weighted average period of 2.70 years.

Employee Share-Based Compensation

The Company recognized compensation expense of approximately $314,000 and $621,000 in general and administrative expenses in the statement of operations for the three and six months ended July 2, 2016, respectively, and approximately $442,000 and $820,000 for the three and six months ended July 4, 2015, respectively.

Note 8. Stock Issuance

On March 11, 2016, the Company entered into a Securities Purchase Agreement (“SPA”) to raise $500,000 in a registered direct offering. Pursuant to the SPA, the Company sold a total of 128,205 Units at a purchase price of $3.90 per Unit, with each Unit consisting of one share of the Company’s common stock and a warrant to purchase one half of a share of common stock (64,103 total) with an exercise price of $4.80 and a term of 3 years. The estimated fair value of the warrant was approximately $108,000 and the warrant was determined to be classified as equity. The fair value was estimated at the date of issuance using the Black-Scholes based valuation model. The table below outlines the assumptions for the warrant issued.

	March 11, 2016
Fair value of common stock	$	4.41
Contractual term	3.0 years
Volatility		60.00	%
Risk-free rate		1.16	%
Expected dividends		0.00	%

On June 3, 2016, the Company entered into additional SPAs to raise $5,250,000 in a registered direct offering. Pursuant to the SPAs, the Company sold a total of 1,117,022 shares of the Company’s common stock at a purchase price of $4.70 per share.

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Note 9. Business Segments

The Company has the following three reportable segments:

Ingredients segment develops and commercializes proprietary-based ingredient technologies and supplies these ingredients to the manufacturers of consumer products in various industries including the nutritional supplement, food and beverage and animal health industries.

Core standards and contract services segment includes supply of phytochemical reference standards, which are small quantities of plant-based compounds typically used to research an array of potential attributes, reference materials and related contract services.

Scientific and regulatory consulting segment which provides scientific and regulatory consulting to the clients in the food, supplement and pharmaceutical industries to manage potential health and regulatory risks.

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 July 2, 2016	Ingredients segment		Core Standards and Contract Services segment		Scientific and Regulatory Consulting segment		Other			Total

Net sales	$	6,241,749	$	2,474,982	$	112,848	$	-		$	8,829,579
Cost of sales		3,034,389		1,561,287		106,456		-			4,702,132

Gross profit		3,207,360		913,695		6,392		-			4,127,447

Operating expenses:
Sales and marketing		399,700		294,531		3,800		-			698,031
Research and development		736,726		15,000		-		-			751,726
General and administrative		-		-		-		2,306,559			2,306,559
Operating expenses		1,136,426		309,531		3,800		2,306,559			3,756,316

Operating income (loss)	$	2,070,934	$	604,164	$	2,592	$	(2,306,559	)	$	371,131

Three months ended July 4, 2015	Ingredients segment		Core Standards and Contract Services segment		Scientific and Regulatory Consulting segment		Other			Total

Net sales	$	3,411,636	$	2,371,477	$	318,267	$	-		$	6,101,380
Cost of sales		1,869,205		1,635,294		126,189		-			3,630,688

Gross profit		1,542,431		736,183		192,078		-			2,470,692

Operating expenses:
Sales and marketing		298,281		336,392		5,075		-			639,748
Research and development		175,410		-		-		-			175,410
General and administrative		-		-		-		1,839,594			1,839,594
Operating expenses		473,691		336,392		5,075		1,839,594			2,654,752

Operating income (loss)	$	1,068,740	$	399,791	$	187,003	$	(1,839,594	)	$	(184,060	)

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Six months ended July 2, 2016	Ingredients segment		Core Standards and Contract Services segment		Scientific and Regulatory Consulting segment		Other			Total

Net sales	$	10,842,375	$	5,058,648	$	260,501	$	-		$	16,161,524
Cost of sales		5,133,551		3,233,271		215,836		-			8,582,658

Gross profit		5,708,824		1,825,377		44,665		-			7,578,866

Operating expenses:
Sales and marketing		731,443		503,910		7,400		-			1,242,753
Research and development		1,200,798		15,000		-		-			1,215,798
General and administrative		-		-		-		4,295,118			4,295,118
Operating expenses		1,932,241		518,910		7,400		4,295,118			6,753,669

Operating income (loss)	$	3,776,583	$	1,306,467	$	37,265	$	(4,295,118	)	$	825,197

Six months ended July 4, 2015	Ingredients segment		Core Standards and Contract Services segment		Scientific and Regulatory Consulting segment		Other			Total

Net sales	$	6,091,977	$	4,671,520	$	598,854	$	-		$	11,362,351
Cost of sales		3,472,381		3,209,078		282,576		-			6,964,035

Gross profit		2,619,596		1,462,442		316,278		-			4,398,316

Operating expenses:
Sales and marketing		572,905		647,336		5,284		-			1,225,525
Research and development		296,505		-		-		-			296,505
General and administrative		-		-		-		3,966,430			3,966,430
Operating expenses		869,410		647,336		5,284		3,966,430			5,488,460

Operating income (loss)	$	1,750,186	$	815,106	$	310,994	$	(3,966,430	)	$	(1,090,144	)

At July 2, 2016	Ingredients segment		Core Standards and Contract Services segment		Scientific and Regulatory Consulting segment		Other		Total

Total assets	$	10,072,279	$	3,443,044	$	71,512	$	4,192,678	$	17,779,513

At January 2, 2016	Ingredients segment		Core Standards and Contract Services segment		Scientific and Regulatory Consulting segment		Other		Total

Total assets	$	9,105,502	$	3,306,624	$	111,765	$	6,225,318	$	18,749,209

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Disclosure of major customers

Major customers who accounted for more than 10% of the Company’s total sales were as follows:

Percentage of the Company's Total Sales

Three Months Ended

Six Months Ended

Major Customers

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Customer C (ingredients segment)

34.5

31.3

Customer B (ingredients segment)

11.8

10.8

* Represents less than 10%.

Note 10. Related-Party Transactions

On August 28, 2015, the Company entered into an Exclusive Supply Agreement (the “Supply Agreement”) with Healthspan Research, LLC (“Healthspan”). Under the terms of the Supply Agreement, Healthspan agreed to purchase NIAGEN® from the Company and the Company granted to Healthspan worldwide rights for resale of specific dietary supplements containing NIAGEN® in certain direct response channels.

Pursuant to the terms of the Supply Agreement, in exchange for a 4% equity interest in Healthspan, the Company agreed to initially supply NIAGEN® to Healthspan free of charge up to a certain amount on a buy-one-get-one-free basis and thereafter at a fixed price and, in exchange for an additional 5% equity interest in Healthspan, the Company will grant to Healthspan certain exclusive rights to resell NIAGEN®. Healthspan will pay the Company royalties on the cumulative worldwide net sales of its finished products containing NIAGEN®. The exclusivity rights will remain for so long as Healthspan meets certain minimum purchase requirements. In the event that, during the initial term, the Company terminates the exclusivity rights due to failure to meet the minimum purchase requirements or for any reason other than a material breach of the Supply Agreement by Healthspan, then the 5% equity interest shall be automatically redeemed for a purchase price of $1.00 effective upon the date of termination of the exclusivity rights.

In connection with the foregoing, also on August 28, 2015, the Company and Healthspan entered into an interest purchase agreement and limited liability company agreement pursuant to which the Company was issued 9% of the outstanding equity interests of Healthspan. Rob Fried, a director of the Company, is the manager of Healthspan and owns 91% of the outstanding equity interests of Healthspan. The Supply Agreement, interest purchase agreement and limited liability company agreement were unanimously approved by the independent directors of the Company.

During the six months ended July 2, 2016, the Company shipped NIAGEN® to Healthspan on a buy-one-get-one-free basis. Our cost of NIAGEN® supplied free of charge was approximately $20,000 and this was recorded as a long-term investment at our cost.

The Company accounts for its ownership interest under the cost method of accounting as the Company does not have an ability to exercise significant influence on Healthspan.

Note 11. Commitments and Contingencies

On February 29, 2016, the Company entered into a lease amendment to extend the term of the lease for its laboratory facility located in Boulder, Colorado through April 2023. Pursuant to the lease amendment, the Company will make monthly lease payments ranging from $23,472 to $27,210, as the payments escalate during the term of the lease.

On March 4, 2016, the Company entered into a lease amendment to lease an office space located in Rockville, Maryland through April 2021. Pursuant to the lease amendment, the Company will make monthly lease payments ranging from $3,450 to $3,883, as the payments escalate during the term of the lease.

On April 14, 2016, the Company entered into a lease to lease an office and laboratory space located in Longmont, Colorado through September 2023. Pursuant to the lease, the Company will make monthly lease payments ranging from $8,586 to $11,518, as payments escalate during the term of the lease. Subsequent to the period ended July 2, 2016, the Company agreed to pay additional lease payments of approximately $800 per month as the landlord will provide additional improvements to the leased premises.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this Management's Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “would,” “expect,” “intend,” “could,” “estimate,” “should,” “anticipate,” or “believe,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors and related notes set forth below in Part II, Item 1A, “Risk Factors” and included under Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended January 2, 2016 filed with the Securities and Exchange Commission on March 17, 2016 (our “Annual Report”).

The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Growth and percentage comparisons made herein generally refer to the three and six months ended July 2, 2016 compared with the three and six months ended July 4, 2015 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” and similar expressions refer to ChromaDex Corp., and depending on the context, its subsidiaries.

Overview

The Company leverages its complementary business units to discover, acquire, develop and commercialize patented and proprietary ingredient technologies that address the dietary supplement, food, beverage, skin care and pharmaceutical markets. In addition to the Company’s ingredient technologies unit, the Company also has business units focused on natural product fine chemicals, chemistry and analytical testing services, and product regulatory and safety consulting. As a result of the Company’s relationships with leading universities and research institutions, the Company is able to discover and license early stage, Intellectual Property-backed ingredient technologies. We utilize our in-house chemistry, regulatory and safety consulting business units to develop commercially viable ingredients. The Company’s ingredient portfolio is backed with clinical and scientific research, as well as extensive Intellectual Property protection.

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues, if any, and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

As of July 2, 2016, the Company had approximately $3,370,000 cash and cash equivalents on hand. We anticipate that our current cash and cash equivalents on hand, and cash generated from operations will be sufficient to meet our projected operating plans through at least August 12, 2017. We may, however, seek additional capital prior to August 12, 2017, both to meet our projected operating plans after August 12, 2017 and/or to fund our longer term strategic objectives.

Additional capital may come from public and/or private stock or debt offerings, borrowings under lines of credit or other sources. These additional funds may not be available on favorable terms, or at all. Further, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution and the new equity or debt securities we issue may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products or proprietary technologies, or to grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, obtain the required regulatory clearances or approvals, achieve long term strategic objectives, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. Any of these events could adversely affect our ability to achieve our development and commercialization goals, which could have a material and adverse effect on our business, results of operations and financial condition. If we are unable to establish small to medium scale production capabilities through our own plant or though collaboration, we may be unable to fulfill our customers’ requirements. This may cause a loss of future revenue streams as well as require us to look for third-party vendors to provide these services. These vendors may not be available, or charge fees that prevent us from pricing competitively within our markets.

Some of our operations are subject to regulation by various state and federal agencies. In addition, we expect a significant increase in the regulation of our target markets. Dietary supplements are subject to FDA, FTC and U.S. Department of Agriculture regulations relating to composition, labeling and advertising claims. These regulations may in some cases, particularly with respect to those applicable to new ingredients, require a notification that must be submitted to the FDA along with evidence of safety. There are similar regulations related to food additives.

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Results of Operations

Our net sales and net income (loss) for the three- and six-month periods ending on July 2, 2016 and July 4, 2015 were as follows:

	Three months ending						Six months ending
	July 2, 2016			July 4, 2015			July 2, 2016		July 4, 2015

Net sales	$	8,830,000		$	6,101,000		$	16,162,000	$	11,362,000
Net income (loss)		(83,000	)		(315,000	)		173,000		(1,341,000	)

Basic earnings (loss) per common share	$	(0.00	)	$	(0.01	)	$	0.00	$	(0.04	)
Diluted earnings (loss) per common share	$	(0.00	)	$	(0.01	)	$	0.00	$	(0.04	)

Over the next six months, we plan to invest approximately $1.1 million in a pilot plant facility in Longmont, Colorado, which the Company recently entered into a lease for, effective from July 2016 through September 2023. The pilot plant facility will have the capability of manufacturing, at a process scale products that we are planning to take to market as well as enable us to explore cost savings processes for existing products. In addition, subject to available financial resources, we plan to continue to increase research and development efforts for our line of proprietary ingredients.

Net Sales

Net sales consist of gross sales less discounts and returns.

	Three months ending							Six months ending
	July 2, 2016		July 4, 2015		Change			July 2, 2016		July 4, 2015		Change
Net sales:
Ingredients	$	6,242,000	$	3,412,000		83	%	$	10,842,000	$	6,092,000		78	%
Core standards and contract services		2,475,000		2,371,000		4	%		5,059,000		4,671,000		8	%
Scientific and regulatory consulting		113,000		318,000		-64	%		261,000		599,000		-56	%

Total net sales	$	8,830,000	$	6,101,000		45	%	$	16,162,000	$	11,362,000		42	%

The increase in sales for the ingredients segment is mainly due to increased sales of “NIAGEN®” and “PTEROPURE®.”

The increase in sales for the core standards and contract services segment is primarily due to increased sales of analytical testing and contract services.

The decrease in sales for the scientific and regulatory consulting segment is due to the timing of completion of consulting projects for customers and a further emphasis on intercompany work supporting our ingredients segment.

Cost of Sales

Cost of sales include raw materials, labor, overhead, and delivery costs.

	Three months ending										Six months ending
	July 2, 2016					July 4, 2015					July 2, 2016					July 4, 2015
	Amount		% of net sales			Amount		% of net sales			Amount		% of net sales			Amount		% of net sales
Cost of sales:
Ingredients	$	3,035,000		49	%	$	1,869,000		55	%	$	5,134,000		47	%	$	3,472,000		57	%
Core standards and contract services		1,561,000		63	%		1,636,000		69	%		3,233,000		64	%		3,209,000		69	%
Scientific and regulatory consulting		106,000		94	%		126,000		40	%		216,000		83	%		283,000		47	%

Total cost of sales	$	4,702,000		53	%	$	3,631,000		60	%	$	8,583,000		53	%	$	6,964,000		61	%

The cost of sales, as a percentage of net sales, decreased 7% and 8% for the three- and six-month periods ended July 2, 2016, respectively, compared to the comparable periods in 2015.

The decrease in cost of sales, as a percentage of net sales, for the ingredients segment is largely due to price reductions from our suppliers through increased purchase volumes.

The cost of sales, as a percentage of net sales for the core standards and contract services segment, decreased 6% and 5% for the three- and six-month periods ended July 2, 2016, respectively, compared to the comparable periods in 2015. The increase in analytical testing and contract services sales led to a higher labor utilization rate, which resulted in lowering our cost of sales as a percentage of net sales.

The percentage increase in cost of sales for the scientific and regulatory consulting segment is largely due to completing less consulting projects and a further emphasis on intercompany work. Fixed labor costs make up the majority of costs for the consulting segment.

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Gross Profit

Gross profit is net sales less the cost of sales and is affected by a number of factors including product mix, competitive pricing and costs of products and services.

	Three months ending							Six months ending
	July 2, 2016		July 4, 2015		Change			July 2, 2016		July 4, 2015		Change
Gross profit:
Ingredients	$	3,207,000	$	1,543,000		108	%	$	5,709,000	$	2,620,000		118	%
Core standards and contract services		914,000		736,000		24	%		1,825,000		1,462,000		25	%
Scientific and regulatory consulting		6,000		192,000		-97	%		45,000		316,000		-86	%

Total gross profit	$	4,127,000	$	2,471,000		67	%	$	7,579,000	$	4,398,000		72	%

The increased gross profits for the ingredients segment is due to the increased sales of the ingredient portfolio we offer, coupled with lower prices from our suppliers due to increased purchase volumes.

The increased gross profit for the core standards and contract services segment is largely due to the increased sale of analytical testing and contract services. Fixed labor costs make up the majority of costs for analytical testing and contract services and these fixed labor costs did not increase in proportion to sales, hence yielding higher profit margin.

The decreased gross profit for the scientific and regulatory consulting segment is largely due to the decrease in sales and a greater focus on intercompany work supporting our ingredients segment.

Operating Expenses-Sales and Marketing

Sales and Marketing Expenses consist of salaries, advertising and marketing expenses.

	Three months ending							Six months ending
	July 2, 2016		July 4, 2015		Change			July 2, 2016		July 4, 2015		Change
Sales and marketing expenses:
Ingredients	$	400,000	$	298,000		34	%	$	732,000	$	573,000		28	%
Core standards and contract services		294,000		337,000		-13	%		504,000		648,000		-22	%
Scientific and regulatory consulting		4,000		5,000		-20	%		7,000		5,000		40	%

Total sales and marketing expenses	$	698,000	$	640,000		9	%	$	1,243,000	$	1,226,000		1	%

For the ingredients segment, the increase is largely due to increased marketing efforts for our line of proprietary ingredients as well as hiring additional marketing staff.

For the core standards and contract services segment, the decrease is largely due to making certain operational changes as certain personnel who were previously assigned to sales and marketing group were moved to an administrative group. We do anticipate increased expenses going forward as we increase marketing efforts and hire additional staff.

For the scientific and regulatory consulting segment, we had very little sales and marketing expenses.

Operating Expenses-Research and Development

Research and Development Expenses mainly consist of clinical trials and process development expenses.

	Three months ending							Six months ending
	July 2, 2016		July 4, 2015		Change			July 2, 2016		July 4, 2015		Change
Research and development expenses:
Ingredients	$	737,000	$	175,000		321	%	$	1,201,000	$	297,000		304	%
Core standards and contract services		15,000		-					15,000		-

Total research and development expenses	$	752,000	$	175,000		330	%	$	1,216,000	$	297,000		309	%

For the ingredients segment, we increased our research and development efforts with a focus on our “NIAGEN®” brand. Subject to available financial resources, we plan to continue to increase research and development efforts for our line of proprietary ingredients.

For the core standards and contract services segment, we explored processes to develop certain compounds at a larger scale during the three months ended July 2, 2016.

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Operating Expenses-General and Administrative

General and Administrative Expenses consist of general company administration, IT, accounting and executive management.

	Three months ending							Six months ending
	July 2, 2016		July 4, 2015		Change			July 2, 2016		July 4, 2015		Change

General and administrative	$	2,307,000	$	1,840,000		25	%	$	4,295,000	$	3,966,000		8	%

One of the factors that contributed to the increase in general and administrative expense was an increase in royalties we pay to patent holders as the sales for licensed products increased in 2016. For the six-month period ended July 2, 2016, royalty expense increased to approximately $446,000, compared to approximately $261,000 for the comparable period in 2015.

Another factor that contributed to the increase was an increase in patent maintenance expense. For the six-month period ended July 2, 2016, our patent maintenance expense increased to approximately $343,000, compared to approximately $156,000 for the comparable period in 2015.

Another factor that contributed to the increase for the six-month period ended July 2, 2016 was an increase of approximately $254,000 in expenses associated with administrative staff. We made certain operational changes as certain personnel who were previously assigned to our sales and marketing group were moved to an administrative group in 2016.

Also, during the three-month period ended July 2, 2016, there were one-time expenses of approximately $89,000 associated with the initial listing of the Company’s stock in the NASDAQ Capital Market.

These increases in expenses were offset by the decrease in share-based compensation expense. For the six-month period ended July 2, 2016, our share-based compensation expense decreased to approximately $658,000, compared to approximately $1,223,000 for the comparable period in 2015.

Non-operating income- Interest Income

Interest income consists of interest earned on money market accounts. Interest income for the six-month period ended July 2, 2016 was approximately $1,000, identical compared to approximately $1,000 for the six-month period ended July 4, 2015.

Non-operating Expenses- Interest Expense

Interest expense consists of interest on loan payable and capital leases.

Three months ending

Six months ending

July 2, 2016

July 4, 2015