SEC Connect
 

 
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 October 1, 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 November 9, 2016 there were 37,904,534 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 (UNAUDITED)
 
 
 
 
 
 1
 
 
 
 
 1
 
 2
 
 4
 
 5
 
 6
 
 
 
 
 16
 
 
 
 
 23
 
 
 
 
 24
 
 
 
PART II –
OTHER INFORMATION
 
 
 
 
 
 25
 
 
 
 
 25
 
 
 
 
 38
 
 
 
 
 38
 
 
 
 
 38
 
 
 
 
 38
 
 
 
 
 39
 
 
 
 
 40
 
 
 
-i-
PART I – FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
ChromaDex Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
 
 
October 1, 2016 and January 2, 2016
 
 
 
 
 
 
 
 
October 1, 2016
 
 
January 2, 2016
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash
 $2,264,756 
 $5,549,672 
Trade receivables, net of allowances of $603,000 and $367,000, respectively
  6,511,439 
  2,450,591 
Inventories
  6,312,909 
  8,173,799 
Prepaid expenses and other assets
  401,902 
  373,567 
Total current assets
  15,491,006 
  16,547,629 
 
    
    
Leasehold improvements and equipment, net
  2,495,215 
  1,788,645 
Deposits and other
  261,215 
  58,883 
Intangible assets, net
  495,936 
  354,052 
Longterm investment
  20,318 
  - 
 
    
    
Total assets
 $18,763,690 
 $18,749,209 
 
    
    
Liabilities and stockholders' equity
    
    
 
    
    
Current liabilities
    
    
Accounts payable
 $4,098,778 
 $6,223,958 
Accrued expenses
  1,709,662 
  1,302,865 
Current maturities of loan payable
  - 
  1,528,578 
Current maturities of capital lease obligations
  217,308 
  219,689 
Customer deposits and other
  277,615 
  272,002 
Deferred rent, current
  52,734 
  39,529 
Total current liabilities
  6,356,097 
  9,586,621 
 
    
    
Loan payable, less current maturities, net
  - 
  3,345,335 
Capital lease obligations, less current maturities
  282,820 
  444,589 
Deferred rent, less current
  267,419 
  97,990 
 
    
    
Total liabilities
  6,906,336 
  13,474,535 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders' equity
    
    
Common stock, $.001 par value; authorized 50,000,000 shares;
    
    
  issued and outstanding October 1, 2016 37,543,198 and
    
    
  January 2, 2016 36,003,589 shares
  37,543 
  36,004 
Additional paid-in capital
  54,896,632 
  47,534,059 
Accumulated deficit
  (43,076,821)
  (42,295,389)
Total stockholders' equity
  11,857,354 
  5,274,674 
 
    
    
Total liabilities and stockholders' equity
 $18,763,690 
 $18,749,209 
 
    
    
See Notes to Condensed Consolidated Financial Statements.          
 
 
-1-
 
ChromaDex Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Operations
 
 
 
 
 
 
For the Three Month Periods Ended October 1, 2016 and October 3, 2015
 
 
 
 
 
October 1, 2016
 
 
October 3, 2015
 
 
 
 
 
 
 
 
Sales, net
 $5,007,450 
 $6,287,309 
Cost of sales
  2,964,980 
  3,805,679 
 
    
    
Gross profit
  2,042,470 
  2,481,630 
 
    
    
Operating expenses:
    
    
Sales and marketing
  447,985 
  550,878 
Research and development
  772,799 
  188,690 
General and administrative
  1,768,402 
  1,564,932 
Operating expenses
  2,989,186 
  2,304,500 
 
    
    
Operating income (loss)
  (946,716)
  177,130 
 
    
    
Nonoperating income (expense):
    
    
Interest income
  565 
  976 
Interest expense
  (11,392)
  (181,822)
Nonoperating expenses
  (10,827)
  (180,846)
 
    
    
Loss before taxes
  (957,543)
  (3,716)
Provision for taxes
  3,153 
  - 
 
    
    
Net loss
 $(954,390)
 $(3,716)
 
    
    
Basic and diluted loss per common share
 $(0.03)
 $(0.00)
 
    
    
Basic and diluted weighted average common shares outstanding
  37,868,672 
  35,814,305 
 
    
    
See Notes to Condensed Consolidated Financial Statements.          
 
 
-2-
 
ChromaDex Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Operations
 
 
 
 
 
 
For the Nine Month Periods Ended October 1, 2016 and October 3, 2015
 
 
 
 
 
October 1, 2016
 
 
October 3, 2015
 
 
 
 
 
 
 
 
Sales, net
 $21,168,974 
 $17,649,660 
Cost of sales
  11,547,638 
  10,769,714 
 
    
    
Gross profit
  9,621,336 
  6,879,946 
 
    
    
Operating expenses:
    
    
Sales and marketing
  1,690,738 
  1,776,403 
Research and development
  1,988,597 
  485,195 
General and administrative
  6,063,520 
  5,531,362 
Operating expenses
  9,742,855 
  7,792,960 
 
    
    
Operating loss
  (121,519)
  (913,014)
 
    
    
Nonoperating income (expense):
    
    
Interest income
  1,997 
  2,339 
Interest expense
  (345,311)
  (433,748)
Loss on debt extinguishment
  (313,099)
  - 
Nonoperating expenses
  (656,413)
  (431,409)
 
    
    
Loss before taxes
  (777,932)
  (1,344,423)
Provision for taxes
  (3,500)
  - 
 
    
    
Net loss
 $(781,432)
 $(1,344,423)
 
    
    
Basic and diluted loss per common share
 $(0.02)
 $(0.04)
 
    
    
Basic and diluted weighted average common shares outstanding
  37,090,916 
  35,783,490 
 
    
    
See Notes to Condensed Consolidated Financial Statements.          
 
 
-3-
 
 
ChromaDex Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statement of Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
For the Nine Month Period Ended October 1, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
Additional Paid-In
 
Accumulated
Total Stockholder's
 
 
Shares
 
 
 Amount
 
 
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 offering costs of $20,000
  128,205 
  128 
  479,872 
  - 
  480,000 
 
    
    
    
    
    
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, issuance due to fractional shares round up
  1,632 
  2 
  (2)
  - 
  - 
 
    
    
    
    
    
Issuance of common stock, net of offering costs of $10,000
  1,117,022 
  1,117 
  5,238,883 
  - 
  5,240,000 
 
    
    
    
    
    
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 
 
    
    
    
    
    
Reconciliation of offering costs
  - 
  - 
  (2,526)
  - 
  (2,526)
 
    
    
    
    
    
Exercise of stock options
  47,950 
  48 
  94,180 
  - 
  94,228 
 
    
    
    
    
    
Share-based compensation
  - 
  - 
  272,389 
  - 
  272,389 
 
    
    
    
    
    
Vested restricted stock
  5,334 
  5 
  (5)
  - 
  - 
 
    
    
    
    
    
Net loss
  - 
  - 
  - 
  (954,390)
  (954,390)
 
    
    
    
    
    
Balance, October 1, 2016
  37,543,198 
 $37,543 
 $54,896,632 
 $(43,076,821)
 $11,857,354 
 
    
    
    
    
    
 
  See Notes to Condensed Consolidated Financial Statements.                 
 
 
 
-4-
 
ChromaDex Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
 
For the Nine Month Periods Ended October 1, 2016 and October 3, 2015
 
 
 
 
 
October 1, 2016
 
 
October 3, 2015
 
 
 
 
 
 
 
 
Cash Flows From Operating Activities
 
 
 
 
 
 
  Net loss
 $(781,432)
 $(1,344,423)
  Adjustments to reconcile net loss to net cash used in operating activities:
    
    
    Depreciation of leasehold improvements and equipment
  234,408 
  209,754 
    Amortization of intangibles
  63,116 
  32,236 
    Share-based compensation expense
  930,026 
  1,656,504 
    Allowance for doubtful trade receivables
  235,591 
  5,429 
    Loss from disposal of equipment
  - 
  19,643 
    Loss on debt extinguishment
  313,099 
  - 
    Non-cash financing costs
  94,080 
  139,780 
  Changes in operating assets and liabilities:
    
    
    Trade receivables
  (4,296,439)
  (1,883,261)
    Inventories
  1,840,572 
  (429,287)
    Prepaid expenses and other assets
  (230,667)
  (86,183)
    Accounts payable
  (2,125,180)
  108,961 
    Accrued expenses
  406,797 
  361,481 
    Customer deposits and other
  5,613 
  2,393 
    Deferred rent
  182,634 
  (50,589)
Net cash used in operating activities
  (3,127,782)
  (1,257,562)
 
    
    
Cash Flows From Investing Activities
    
    
  Purchases of leasehold improvements and equipment
  (940,978)
  (242,765)
  Purchases of intangible assets
  (205,000)
  (107,500)
Net cash used in investing activities
  (1,145,978)
  (350,265)
 
    
    
Cash Flows From Financing Activities
    
    
  Proceeds from issuance of common stock, net of issuance costs
  5,717,474 
  - 
  Proceeds from exercise of stock options
  716,612 
  25,266 
  Proceeds from loan payable
  - 
  2,500,000 
  Payment of debt issuance cost
  - 
  (15,000)
  Principal payments on loan payable
  (5,000,000)
  - 
  Cash paid for debt extinguishment costs
  (281,092)
  - 
  Principal payments on capital leases
  (164,150)
  (158,547)
Net cash provided by financing activities
  988,844 
  2,351,719 
 
    
    
Net (decrease) increase in cash
  (3,284,916)
  743,892 
 
    
    
Cash Beginning of Period
  5,549,672 
  3,964,750 
 
    
    
Cash Ending of Period
 $2,264,756 
 $4,708,642 
 
    
    
Supplemental Disclosures of Cash Flow Information
    
    
  Cash payments for interest
 $251,231 
 $293,968 
 
    
    
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 
 $8,181 
  Retirement of fully depreciated equipment - accumulated depreciation
 $(28,083)
 $(8,181)
 
    
    
See Notes to Condensed Consolidated Financial Statements.          
 
 
-5-
 
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 October 1, 2016 and results of operations and cash flows for the three and nine months ended October 1, 2016 and October 3, 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 nine months ended October 1, 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 has incurred loss from operations of approximately $122,000 and net loss of approximately $781,000 for the nine-month period ended October 1, 2016. As of October 1, 2016, the cash and cash equivalents totaled approximately $2,265,000.
Subsequent to the period ended October 1, 2016, the Company entered into a business financing agreement with Western Alliance Bank, in order to establish a formula based revolving credit line up to $5.0 million. While we anticipate that our current cash, cash equivalents, cash to be generated from operations and the established $5.0 million revolving credit line will be sufficient to meet our projected operating plans through at least November 11, 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.
 
-6-
 
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.
Changes in accounting principle: In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The ASU is issued to clarify whether certain items, including debt prepayments and extinguishment costs, should be categorized as operating, investing or financing in the statement of cash flows, The amendments in this ASU clarify that debt extinguishment costs should be classified as financing cash outflows.
The Company early adopted the amendments in this ASU effective as of October 1, 2016. For the nine-month period ended October 1, 2016, the Company incurred loss of approximately $313,000 on debt extinguishment and approximately $281,000 were paid in cash. The Company had previously presented these cash paid costs as operating cash outflows in its consolidated statement of cash flows for the six-month period ended July 2, 2016 in the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 11, 2016. The early adoption has resulted in adjustments to the Company’s consolidated statement of cash flows for the six-month period ended July 2, 2016, by reclassifying the cash paid for debt extinguishment costs as financing cash outflows.
Below are the effects of the change on the consolidated statement of cash flows for the six-month period ended July 2, 2016.
ChromaDex Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
 
 
 
For the Six Month Period Ended July 2, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Previously
Reported
 
 
Adjustments
 
 
As Adjusted
 
 
 
 
 
 
 
 
 
 
 
Cash Flows From Operating Activities
 
 
 
 
 
 
 
 
 
  Net income
 $172,958 
 $- 
 $172,958 
  Adjustments to reconcile net income to net cash used in operating activities:
  1,011,158 
  281,092 
  1,292,250 
  Changes in operating assets and liabilities:
  (4,171,503)
  - 
  (4,171,503)
Net cash used in operating activities
  (2,987,387)
  281,092 
  (2,706,295)
 
    
    
    
Cash Flows From Investing Activities
    
    
    
  Purchases of leasehold improvements and equipment
  (231,201)
  - 
  (231,201)
  Purchases of intangible assets
  (195,000)
  - 
  (195,000)
Net cash used in investing activities
  (426,201)
  - 
  (426,201)
 
    
    
    
Cash Flows From Financing Activities
    
    
    
  Proceeds from issuance of common stock, net of issuance costs
  5,720,000 
  - 
  5,720,000 
  Proceeds from exercise of stock options
  622,384 
  - 
  622,384 
  Principal payments on loan payable
  (5,000,000)
  - 
  (5,000,000)
  Cash paid for debt extinguishment costs
  - 
  (281,092)
  (281,092)
  Principal payments on capital leases
  (108,249)
  - 
  (108,249)
Net cash provided by financing activities
  1,234,135 
  (281,092)
  953,043 
 
    
    
    
Net decrease in cash
  (2,179,453)
  - 
  (2,179,453)
 
    
    
    
Cash Beginning of Period
  5,549,672 
  - 
  5,549,672 
 
    
    
    
Cash Ending of Period
 $3,370,219 
 $- 
 $3,370,219 
 
 
-7-
 
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 October 1, 2016 and January 2, 2016 are as follows:
 
 
 
October 1, 2016
 
 
January 2, 2016
 
Natural product fine chemicals
 $1,024,213 
 $1,239,338 
Bulk ingredients
  5,388,696 
  7,195,461 
 
  6,412,909 
  8,434,799 
Less valuation allowance
  (100,000)
  (261,000)
 
 $6,312,909 
 $8,173,799 
 
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 nine months ended October 1, 2016 and October 3, 2015:
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 $(954,390)
 $(3,716)
 $(781,432)
 $(1,344,423)
 
    
    
    
    
Basic and diluted loss per common share
 $(0.03)
 $(0.00)
 $(0.02)
 $(0.04)
 
    
    
    
    
Weighted average common shares outstanding (1):
  37,868,672 
  35,814,305 
  37,090,916 
  35,783,490 
 
    
    
    
    
Potentially dilutive securities, total (2):
    
    
    
    
  Stock options
  5,217,508 
  5,279,868 
  5,217,508 
  5,279,868 
  Warrants
  487,111 
  156,340 
  487,111 
  156,340 
  Convertible debt
  - 
  257,798 
  - 
  257,798 
 
    
    
    
    
 (1) Includes approximately 0.4 million nonvested restricted stock for all periods presented, which are participating securities that feature voting and dividend rights.            
 
    
    
    
    
 
(2) Excluded from the computation of loss per share as their impact is antidilutive.
 
    
    
 
 
-8-
 
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 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 nine months ended October 1, 2016.
 
-9-
 
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) 
 
 
    
 
 
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 October 1, 2016 and changes during the nine 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
  579,148 
  4.27 
  10.00 
 $2.71 
 
 
 
Options Exercised
  (238,423)
  2.67 
    
    
 $502,000 
Options Forfeited
  (326,663)
  4.15 
    
    
    
Outstanding at October 1, 2016
  4,328,326 
 $3.60 
  6.20 
    
 $684,000 
 
    
    
    
    
    
Exercisable at October 1, 2016
  3,314,918 
 $3.46 
  5.31 
    
 $668,000 
 
The aggregate intrinsic values in the table above are based on the Company’s stock price of $2.98, which is the closing price of the Company’s stock on the last day of business for the period ended October 1, 2016.
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 nine months ended October 1, 2016.
Nine Months Ended October 1, 2016
 
 
 
Expected term
  
  6.0 years
 
Expected volatility
  73%
Expected dividends
  0.00%
Risk-free rate
  1.33%
 
 
-10-
 
As of October 1, 2016, there was approximately $2,271,000 of total unrecognized compensation expected to be recognized over a weighted average period of 3.0 years.
Employee Share-Based Compensation
The Company recognized compensation expense of approximately $260,000 and $881,000 in general and administrative expenses in the statement of operations for the three and nine months ended October 1, 2016, respectively, and approximately $418,000 and $1,238,000 for the three and nine months ended October 3, 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%
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.
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.
 
-11-
 
Three months ended
October 1, 2016
 
 
 
 
Core Standards and
 
 
Scientific and
 
 
 
 
 
 
 

 
Ingredients
 
 
Contract
Services
 
 
Regulatory
Consulting
 
 
 
 
 
 
 
 
 
segment
 
 
segment
 
 
segment
 
 
Other
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 $2,663,095 
 $2,052,135 
 $292,220 
 $- 
 $5,007,450 
Cost of sales
  1,287,421 
  1,548,268 
  129,291 
  - 
  2,964,980 
 
    
    
    
    
    
Gross profit
  1,375,674 
  503,867 
  162,929 
  - 
  2,042,470 
 
    
    
    
    
    
Operating expenses:
    
    
    
    
    
Sales and marketing
  199,130 
  245,255 
  3,600 
  - 
  447,985 
Research and development
  760,299 
  12,500 
  - 
  - 
  772,799 
General and administrative
  - 
  - 
  - 
  1,768,402 
  1,768,402 
Operating expenses
  959,429 
  257,755 
  3,600 
  1,768,402 
  2,989,186 
 
    
    
    
    
    
Operating income (loss)
 $416,245 
 $246,112 
 $159,329 
 $(1,768,402)
 $(946,716)
 
Three months ended
October 3, 2015
 
 
 
 
Core Standards and
 
 
Scientific and
 
 
 
 
 
 
 

 
Ingredients
 
 
Contract Services
 
  
Regulatory
Consulting
 
 
 
 
 
 
 
 
 
segment
 
 
segment
 
 
  segment
 
 
Other
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 $4,146,597 
 $1,875,296 
 $265,416 
 $- 
 $6,287,309 
Cost of sales
  2,157,183 
  1,533,402 
  115,094 
  - 
  3,805,679 
 
    
    
    
    
    
Gross profit
  1,989,414 
  341,894 
  150,322 
  - 
  2,481,630 
 
    
    
    
    
    
Operating expenses:
    
    
    
    
    
Sales and marketing
  259,874 
  287,901 
  3,103 
  - 
  550,878 
Research and development
  188,690 
  - 
  - 
  - 
  188,690 
General and administrative
  - 
  - 
  - 
  1,564,932 
  1,564,932 
Operating expenses
  448,564 
  287,901 
  3,103 
  1,564,932 
  2,304,500 
 
    
    
    
    
    
Operating income (loss)
 $1,540,850 
 $53,993 
 $147,219 
 $(1,564,932)
 $177,130 
 
Nine months ended
October 1, 2016
 
 
 
 
Core Standards and
 
 
Scientific and
 
 
 
 
 
 
 

 
Ingredients
 
 
Contract
Services
 
 
RegulatoryConsulting
 
 
 
 
 
 
 
 
 
segment
 
 
segment
 
 
segment
 
 
Other
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 $13,505,470 
 $7,110,783 
 $552,721 
 $- 
 $21,168,974 
Cost of sales
  6,420,972 
  4,781,539 
  345,127 
  - 
  11,547,638 
 
    
    
    
    
    
Gross profit
  7,084,498 
  2,329,244 
  207,594 
  - 
  9,621,336 
 
    
    
    
    
    
Operating expenses:
    
    
    
    
    
Sales and marketing
  930,573 
  749,165 
  11,000 
  - 
  1,690,738 
Research and development
  1,961,097 
  27,500 
  - 
  - 
  1,988,597 
General and administrative
  - 
  - 
  - 
  6,063,520 
  6,063,520 
Operating expenses
  2,891,670 
  776,665 
  11,000 
  6,063,520 
  9,742,855 
 
    
    
    
    
    
Operating income (loss)
 $4,192,828 
 $1,552,579 
 $196,594 
 $(6,063,520)
 $(121,519)
 
 
-12-
 
Nine months ended
October 3, 2015
 
 
 
 
Core Standards and
 
 
Scientific and
 
 
 
 
 
 
 

 
Ingredients
 
 
Contract
Services
 
 
Regulatory
Consulting
 
 
 
 
 
 
 
 
 
segment
 
 
segment
 
 
segment
 
 
Other
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 $10,238,574 
 $6,546,816 
 $864,270 
 $- 
 $17,649,660 
Cost of sales
  5,629,564 
  4,742,480 
  397,670 
  - 
  10,769,714 
 
    
    
    
    
    
Gross profit
  4,609,010 
  1,804,336 
  466,600 
  - 
  6,879,946 
 
    
    
    
    
    
Operating expenses:
    
    
    
    
    
Sales and marketing
  832,779 
  935,237 
  8,387 
  - 
  1,776,403 
Research and development
  485,195 
  - 
  - 
  - 
  485,195 
General and administrative
  - 
  - 
  - 
  5,531,362 
  5,531,362 
Operating expenses
  1,317,974 
  935,237 
  8,387 
  5,531,362 
  7,792,960 
 
    
    
    
    
    
Operating income (loss)
 $3,291,036 
 $869,099 
 $458,213 
 $(5,531,362)
 $(913,014)
 
 
 
 
 
 
Core Standards and
 
 
Scientific and
 
 
 
 
 
 
 
At October 1, 2016
 
Ingredients
 
 
Contract
Services
 
 
Regulatory
Consulting
 
 
 
 
 
 
 
 
 
segment
 
 
segment
 
 
segment
 
 
Other
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 $12,051,865 
 $3,645,554 
 $166,027 
 $2,900,244 
 $18,763,690 
 
 
 
 
 
 
 
Core Standards and
 
 
Scientific and
 
 
 
 
 
 
 
At January 2, 2016
 
Ingredients
 
 
Contract
Services
 
 
Regulatory
Consulting
 
 
 
 
 
 
 
 
 
segment
 
 
segment
 
 
segment
 
 
Other
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 $9,105,502 
 $3,306,624 
 $111,765 
 $6,225,318 
 $18,749,209 
 
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       
 
 
        Nine Months Ended 
 
Major Customers
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer D (Ingredients and Core segment)
  12.3%
  * 
  * 
  * 
Customer C (Ingredients segment)
  * 
  * 
  24.5%
  * 
Customer B (Ingredients segment)
  * 
  19.1%
  * 
  13.8%
 
 
 
    
    
    
* Represents less than 10%.
    
    
    
    
 
Major customers who accounted for more than 10% of the Company’s total trade receivables were as follows:
 
 
Percentage of the Company's Total Trade Receivables
 
Major Customers
 
At October 1, 2016
 
 
At January 2, 2016
 
 
 
 
 
 
 
 
Customer D (Ingredients and Core segment)
  * 
  22.8%
Customer C (Ingredients segment)
  48.8%
  * 
Customer A (Ingredients segment)
  * 
  14.7%
 
    
    
* Represents less than 10%.
 
    
    
 
-13-
 
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 up to a certain amount, 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 nine months ended October 1, 2016, the Company shipped NIAGEN® to Healthspan to satisfy part of our obligation to supply a certain amount of NIAGEN® in exchange for the 4% equity interest in Healthspan, which our cost was approximately $20,000. 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
Operating Leases
 
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. The Company also agreed to pay additional lease payments of approximately $800 per month as the landlord will provide additional improvements to the leased premises.
 
Payments and future commitments for these leases entered in 2016 are as follows:
 
 
 
Payments due by period
 
 
2016
 
 
2017
 
 
2018
 
 
2019
 
 
2020
 
 
Thereafter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $241,000 
 $439,000 
 $451,000 
 $466,000 
 $481,000 
 $1,146,000 
 
 
 
-14-
 
Note 12.                       Subsequent Events
Subsequent to the period ended October 1, 2016, the Company entered into a business financing agreement (“Financing Agreement”) with Western Alliance Bank (“Western Alliance”), in order to establish a formula based revolving credit line pursuant to which the Company may borrow an aggregate principal amount of up to $5,000,000, subject to the terms and conditions of the Financing Agreement. Upon execution of the Financing Agreement, the Company paid a $25,000 facility fee and a $900 due diligence fee to Western Alliance.
The interest rate will be calculated at a floating rate per month equal to (a) the greater of (i) 3.50% per year or (ii) the Prime Rate published in the Money Rates section of the Western Edition of The Wall Street Journal, or such other rate of interest publicly announced by Lender as its Prime Rate, plus (b) 2.50 percentage points, plus an additional 5.00 percentage points during any period that an event of default has occurred and is continuing. The Company’s obligations under the Financing Agreement are secured by a security interest in substantially all of the Company’s current and future personal property assets, including intellectual property.
Any borrowings, interest or other fees or obligations that the Company owes Western Alliance pursuant to the Financing Agreement (the “Obligations”) will be become due and payable on November 4, 2018. If the Financing Agreement is terminated prior to November 4, 2017, the Company will pay a termination fee of $50,000 to Western Alliance, provided that such termination fee will be waived in the event that the Company refinances with Western Alliance.
The Financing Agreement includes quick ratio, EBDAS and minimum revenue financial covenants.
Pursuant to an exclusive placement and advisory agreement by and among the Company, Trump Securities LLC (“Trump”) and Credo 180, LLC, the Company paid Trump a consulting fee of $100,000 in connection with the execution of the Financing Agreement.
 
-15-
 
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 nine months ended October 1, 2016 compared with the three and nine months ended October 3, 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.
 
 
-16-
 
As of October 1, 2016, the Company had approximately $2,265,000 cash and cash equivalents on hand. Subsequent to the period ended October 1, 2016, the Company entered into a business financing agreement with Western Alliance Bank, in order to establish a formula based revolving credit line up to $5.0 million. We anticipate that our current cash, cash equivalents, cash to be generated from operations and the established $5.0 million revolving credit line will be sufficient to meet our projected operating plans through at least November 11, 2017. We may, however, seek additional capital prior to November 11, 2017, both to meet our projected operating plans after November 11, 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.
 
Results of Operations
 
Our net sales and net loss for the three- and nine-month periods ending on October 1, 2016 and October 3, 2015 were as follows:
 
 
 
Three months ending
 
 
Nine months ending
 
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 $5,007,000 
 $6,287,000 
 $21,169,000 
 $17,650,000 
Net loss
  (954,000)
  (4,000)
  (781,000)
  (1,344,000)
 
    
    
    
    
Basic and diluted loss per common share
 $(0.03)
 $(0.00)
 $(0.02)
 $(0.04)
 
During the nine months ended October 1, 2016, we have invested approximately $629,000 in a pilot plant facility in Longmont, Colorado, which the Company recently entered into a lease for, effective from July 2016 through September 2023. Over the next six months, we plan to invest approximately additional $600,000 in this pilot plant facility. 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.
 
 
-17-
 
Net Sales
 
Net sales consist of gross sales less discounts and returns.
 
 
 
Three months ending
 
 
Nine months ending
 
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
Change
 
 
Oct. 1, 2016
 
 
Oct. 3, 2015
 
 
Change
 
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Ingredients
 $2,663,000 
 $4,147,000