Edgar Filing: ChromaDex Corp.

Blueprint

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 June 30, 2018

Commission File Number: 001-37752

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 (Address of Principal Executive Offices)		92618 (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, smaller reporting company or emerging growth company. See definition of “large accelerated filer, accelerated filer, smaller reporting company and emerging growth 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)	Emerging growth company ___

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 8, 2018 there were 55,055,435 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)

	ITEM 1. FINANCIAL STATEMENTS:	1
	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 30, 2017	1
	Condensed Consolidated Statements of Operations for the three months ended June 30, 2018 and July 1, 2017	2
	Condensed Consolidated Statements of Operations for the six months ended June 30, 2018 and July 1, 2017	3
	Condensed Consolidated Statements of Stockholders Equity for the six months ended June 30, 2018	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and July 1, 2017	5
	Notes to Condensed Consolidated Financial Statements	6
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	27
	ITEM 4. CONTROLS AND PROCEDURES	28

PART II – OTHER INFORMATION		29

	ITEM 1. LEGAL PROCEEDINGS	29
	ITEM 1A. RISK FACTORS	29
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	45
	ITEM 4. MINE SAFETY DISCLOSURES	45
	ITEM 5. OTHER INFORMATION	45
	ITEM 6. EXHIBITS	46

	SIGNATURES	48

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PART I – FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

ChromaDex Corporation and Subsidiaries

Condensed Consolidated Balance Sheets
June 30, 2018 and December 30, 2017
(In thousands, except per share data)

	June 30, 2018	December 30, 2017
Assets

Current Assets
Cash	$33,389	$45,389
Trade receivables, net of allowances of $0.5 million and $0.7 million, respectively;
Receivables from Related Party: $0.9 million and $1.5 million, respectively	5,130	5,338
Contract assets	62	-
Receivable held at escrow	751	-
Inventories	6,526	5,796
Prepaid expenses and other assets	627	655
Total current assets	46,485	57,178

Leasehold Improvements and Equipment, net	3,878	2,872
Deposits	269	272
Receivable Held at Escrow	-	750
Intangible Assets, net	1,536	1,652

Total assets	$52,168	$62,724

Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable	$6,757	$3,719
Accrued expenses	3,684	3,645
Current maturities of capital lease obligations	191	196
Contract liabilities and customer deposits	185	314
Deferred rent, current	139	114
Due to officer	-	100
Total current liabilities	10,956	8,088

Capital Lease Obligations, Less Current Maturities	219	310
Deferred Rent, Less Current	493	492

Total liabilities	11,668	8,890

Commitments and Contingencies

Stockholders' Equity
Common stock, $.001 par value; authorized 150,000 shares;
issued and outstanding June 30, 2018 54,870 shares and
December 30, 2017 54,697 shares	55	55
Additional paid-in capital	113,375	110,380
Accumulated deficit	(72,930)	(56,601)
Total stockholders' equity	40,500	53,834
Total liabilities and stockholders' equity	$52,168	$62,724

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Operations
For the Three Month Periods Ended June 30, 2018 and July 1, 2017
(In thousands, except per share data)

	June 30, 2018	July 1, 2017

Sales, net	$7,803	$4,218
Cost of sales	3,957	2,109

Gross profit	3,846	2,109

Operating expenses:
Sales and marketing	3,773	550
Research and development	1,414	850
General and administrative	6,596	2,613
Other	-	746
Operating expenses	11,783	4,759

Operating loss	(7,937)	(2,650)

Nonoperating expense:
Interest expense, net	(48)	(36)
Other	(65)	-
Nonoperating expenses	(113)	(36)

Loss from continuing operations	(8,050)	(2,686)

Loss from discontinued operations	-	(78)

Net loss	$(8,050)	$(2,764)

Basic and diluted loss per common share:
Loss from continuing operations	$(0.15)	$(0.06)
Loss from discontinued operations	$-	$(0.01)

Basic and diluted loss per common share	$(0.15)	$(0.07)

Basic and diluted weighted average common shares outstanding	54,892	42,121

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Operations
For the Six Month Periods Ended June 30, 2018 and July 1, 2017
(In thousands, except per share data)

	June 30, 2018	July 1, 2017

Sales, net	$14,370	$7,586
Cost of sales	7,387	3,859

Gross profit	6,983	3,727

Operating expenses:
Sales and marketing	7,042	955
Research and development	2,853	1,514
General and administrative	13,424	4,935
Other	-	746
Operating expenses	23,319	8,150

Operating loss	(16,336)	(4,423)

Nonoperating expense:
Interest expense, net	(92)	(64)
Other	(65)	-
Nonoperating expenses	(157)	(64)

Loss from continuing operations	(16,493)	(4,487)

Loss from discontinued operations	-	(206)

Net loss	$(16,493)	$(4,693)

Basic and diluted loss per common share:
Loss from continuing operations	$(0.30)	$(0.11)
Loss from discontinued operations	$-	$(0.01)

Basic and diluted loss per common share	$(0.30)	$(0.12)

Basic and diluted weighted average common shares outstanding	54,875	40,076

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
For the Six Month Period Ended June 30, 2018
(In thousands)

					Total
	Common Stock		Additional	Accumulated	Stockholders'
	Shares	Amount	Paid-in Capital	Deficit	Equity
Balance, December 30, 2017	54,697	$55	$110,380	$(56,601)	53,834

Adjustment to retained earnings:
cumulative effect of initially applying ASC 606	-	-	-	164	164

Exercise of stock options	57	-	255	-	255

Repurchase of common stock	(75)	-	(404)	-	(404)

Vested restricted stock	2	-	-	-	-

Share-based compensation	-	-	1,258	-	1,258

Net loss	-	-	-	(8,443)	(8,443)

Balance, March 31, 2018	54,681	$55	$111,489	$(64,880)	$46,664

Exercise of stock options	22	-	75	-	75

Share-based compensation	167	-	1,811	-	1,811

Net loss	-	-	-	(8,050)	(8,050)

Balance, June 30, 2018	54,870	$55	$113,375	$(72,930)	$40,500

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 2018 and July 1, 2017
(In thousands)

	June 30, 2018	July 1, 2017

Cash Flows From Operating Activities
Net loss	$(16,493)	$(4,693)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of leasehold improvements and equipment	267	264
Amortization of intangibles	116	90
Share-based compensation expense	3,069	720
Allowance for doubtful trade receivables	(127)	(344)
Loss from disposal of equipment	1	1
Non-cash financing costs	70	57
Other Non-cash expense	65	-
Changes in operating assets and liabilities:
Trade receivables	335	1,628
Contract assets	(7)	-
Inventories	(730)	179
Prepaid expenses and other assets	(85)	(555)
Accounts payable	3,038	(2,950)
Accrued expenses	39	(62)
Customer deposits and other	(21)	115
Deferred rent	26	20
Due to officer	(100)	(32)
Net cash used in operating activities	(10,537)	(5,562)

Cash Flows From Investing Activities
Purchases of leasehold improvements and equipment	(1,274)	(295)
Purchases of intangible assets	-	(184)
Net cash used in investing activities	(1,274)	(479)

Cash Flows From Financing Activities
Proceeds from issuance of common stock, net of issuance costs	-	18,706
Proceeds from exercise of stock options	330	12
Repurchase of common stock	(404)	-
Payment of debt issuance costs	(19)	(42)
Principal payments on capital leases	(96)	(138)
Net cash (used in) provided by financing activities	(189)	18,538

Net (decrease) increase in cash	(12,000)	12,497

Cash Beginning of Period	45,389	1,642

Cash Ending of Period	$33,389	$14,139

Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$22	$27

Supplemental Schedule of Noncash Operating Activity
Adjustment to retained earnings - cumulative effect of initially applying ASC 606	$164	$-

Supplemental Schedule of Noncash Investing Activity
Noncash consideration transferred for the acquisition of Healthspan Research LLC	$-	$1,187
Capital lease obligation incurred for the purchase of equipment	$-	$232
Retirement of fully depreciated equipment - cost	$-	$56
Retirement of fully depreciated equipment - accumulated depreciation	$-	$(56)

See Notes to Consolidated Financial Statements.

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Note 1. Interim Financial Statements

The accompanying financial statements of ChromaDex Corporation and its wholly owned subsidiaries, ChromaDex, Inc., Healthspan Research, LLC and ChromaDex Analytics, Inc. (collectively referred to herein as “ChromaDex” or the “Company” or, in the first person as “we”, “us” and “our”) 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 June 30, 2018 and results of operations and cash flows for the three and six months ended June 30, 2018 and July 1, 2017. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 30, 2017 appearing in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 15, 2018. Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results to be achieved for the full year ending on December 31, 2018. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

The balance sheet at December 30, 2017 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 is an integrated, global nutraceutical company devoted to improving the way people age. ChromaDex scientists partner with leading universities and research institutions worldwide to uncover the full potential of NAD and identify and develop novel, science-based ingredients. Its flagship ingredient, NIAGEN® nicotinamide riboside, sold directly to consumers as TRU NIAGEN®, is backed with clinical and scientific research, as well as extensive intellectual property protection.

Liquidity: The Company's net cash outflow from operating activities was approximately $10.5 million for the six-month period ended June 30, 2018. As of June 30, 2018, cash and cash equivalents totaled approximately $33.4 million.

The Company anticipates that its current cash, cash equivalents and cash to be generated from operations will be sufficient to meet its projected operating plans through at least August 10, 2019. The Company may, however, seek additional capital prior to August 10, 2019, both to meet its projected operating plans after August 10, 2019 and/or to fund its longer term strategic objectives.

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 December 31.

Recently adopted accounting standards: Effective the first day of our fiscal year 2018, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 ("ASC 606"). ASC 606 supersedes nearly all existing revenue recognition guidance under U.S. Generally Accepted Accounting Principles ("GAAP"). The core principle of ASC 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

The Company adopted ASC 606 using the modified retrospective transition method. Under this method, the Company elected to apply the modified retrospective method to contracts that are not complete as of the first day of our fiscal year 2018. The adoption of ASC 606 resulted in an adjustment to opening retained earnings of $164,000. See Note 8, Contract Assets and Contract Liabilities for additional disclosure regarding the opening balance adjustment.

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For the six-month period ended June 30, 2018, approximately $13.8 million of the Company's total revenue of $14.4 million, or 96% of the total revenue, was as a result of shipping physical goods to the customers. For such revenue streams, the performance obligations are typically satisfied upon shipment of physical goods. Typical payment terms for such revenue streams are upon shipment or net 30 to 60 days. We require customers that are not creditworthy to make advance payments prior to shipment. The Company is taking the practical expedient on not adjusting the promised amount of consideration for the effects of a significant financing component, since the Company expects the customer to pay for the transferred goods within one year. There are obligations for the Company to accept returns and provide refunds for the goods that are shipped, if the customer claims that the Company has not fully fulfilled the performance obligations. Returns, refunds and allowances related to sales including a reserve for estimated variable consideration for the returns, refunds and allowances are recorded as reduction of revenue. The Company uses historical rates when estimating returns, refunds and allowances. The Company also elected to account for shipping and handling activities performed as cost of sales under a fulfillment cost and any fee received for shipping and handling as part of the transaction price and recognize revenue when control of the good transfers. The related fulfillment costs are accrued at the time of revenue recognition.

The Company also has revenue streams for providing consulting services to its clients. For the six-month period ended June 30, 2018, our revenue from these streams was approximately $0.6 million, or 4% of the total revenue. For these consulting services, the performance obligations are typically satisfied over time as the consulting services are performed. Payment terms for these projects vary based on the nature of the projects, from advance payment at the beginning of the project to net 30 days from the completion of the project. The Company typically requires advance payments from customers for large-scale consulting projects that have a contract duration of 30 days or longer. The original expected duration of these contracts are typically one year or less. As such, the Company is applying an optional exemption from ASC 606 to not make the disclosures related to the remaining performance obligations. The Company is also taking the practical expedient on not adjusting the promised amount of consideration for the effects of a significant financing component, since the Company expects the customer to pay for the transferred services within one year. If contracts are terminated prior to the completion, the Company typically has a right to bill the customer for all services that have been performed through the termination date.

These consulting projects typically have one common performance obligation for our clients, thus the Company typically does not allocate the transaction price over many performance obligations. Some of these consulting projects require measurement of the progress toward complete satisfaction of the performance obligation. The Company uses a cost-to-cost method to measure such progress, which is an input method that recognizes revenue on the bases of direct measurements for the costs incurred to date in relation to the total estimated costs to complete the performance obligation. Any costs that do not depict the Company's performance in transferring control of the consulting services to the customer have been excluded.

Recently issued accounting standards: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our consolidated financial statements.

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In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the ASU 2018-07, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees. For public business entities, the amendments in ASU 2018-07 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact of our pending adoption of ASU 2018-07 on our consolidated financial statements.

Note 4. 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 June 30, 2018 and July 1, 2017:

	Three Months Ended		Six Months Ended
(In thousands, except per share data)	June 30, 2018	July 1, 2017	June 30, 2018	July 1, 2017

Net loss	$(8,050)	$(2,764)	$(16,493)	$(4,693)

Basic and diluted loss per common share	$(0.15)	$(0.07)	$(0.30)	$(0.12)

Basic and diluted weighted average
common shares outstanding (1):	54,892	42,121	54,875	40,076

Potentially dilutive securities (2):
Stock options	8,559	5,965	8,559	5,965
Warrants	470	470	470	470

(1) Includes approximately 0.2 million weighted average nonvested shares of restricted for the three and six month periods ending June 30, 2018, respectively, and approximately 0.5 million nonvested shares of restricted stock for the three and six month periods ending July 1, 2017, respectively. These shares are participating securities that feature voting and dividend rights.

(2) Excluded from the computation of loss per share as their impact is antidilutive.

Note 5. Line of Credit

On November 4, 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. In June 2018, the Company notified Western Alliance that it did not intend to draw from the line of credit established by the Financing Agreement. The Company previously did not have any outstanding loan payable from this line of credit arrangement.

The Company incurred debt issuance costs of approximately $272,000 in connection with this line of credit arrangement and had an unamortized balance of approximately $65,000 as of the termination date. For the line of credit arrangement, the Company elected a policy to keep the debt issuance costs as an asset, regardless of whether an amount is drawn. The unamortized deferred asset was expensed immediately on the termination date as other non-operating expense.

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Note 6. Related Party Transactions

Sale of consumer products

	Net sales Three months ended June 30, 2018	Net sales Six months ended June 30, 2018	Net sales Three months ended July 1, 2017	Net sales Six months ended July 1, 2017	Trade receivable at June 30, 2018
Customer G*	$0.3 million	$1.1 million	-	-	$0.9 million
Customer H*	-	$0.4 million	-	-	-
Total	$0.3 million	$1.5 million	-	-	$0.9 million

*Customer G & H are related parties through common ownership of an enterprise that owns beneficially more than 10% of the common stock of the Company.

Note 7. Inventories

The amounts of major classes of inventory as of June 30, 2018 and December 30, 2017 are as follows:

(In thousands)	June 30, 2018	Dec. 30, 2017
Bulk ingredients	$2,048	$4,159
Reference standards	1,023	1,027
Consumer Products - Finished Goods	1,686	503
Consumer Products - Work in Process	1,917	249
	6,674	5,938
Less valuation allowance	(148)	(142)
	$6,526	$5,796

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Note 8. Contract Assets and Contract Liabilities

Our contract assets consist of unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. Our contract liabilities consist of advance payments and billings in excess of costs incurred and deferred revenue.

Net contract assets (liabilities) consisted of the following:

(In thousands)	Dec. 30, 2017	Opening Balance Adjustment	FY 2018 Opening Balance	Reductions (1)	Additions (2)	June 30, 2018
Contract Assets	$-	$56	$56	$(202)	$208	$62
Contract Liabilities - Open Projects (3)	186	(108)	78	(69)	64	73
Contract Liabilities - Other Customer Deposits (4)	128	-	128	(45)	29	112
Net Contract Assets (Liabilities)	$(314)	$164	$(150)	$(88)	$115	$(123)

(1) For contract assets, the amount represents amount billed to the customer.
For contract liabilities, the amount represents reductions for revenue recognized.
(2) For contract assets, the amount represents revenue recognized during the period using the cost-to-cost method.
For contract liabilities, the amount represents advance payments received during the period.
(3) Contract liablities from ongoing consulting projects.
(4) Other customer deposts include payments received for orders not fulfilled and other advance payments.

In the three and six months ended June 30, 2018, we recognized revenue of approximately $35,000 and $80,000 related to our adjusted contract liabilities at the beginning of the fiscal year 2018.

Note 9. Employee Share-Based Compensation

Stock Option Plans

On June 20, 2017, the stockholders of the Company approved the ChromaDex Corporation 2017 Equity Incentive Plan (the "2017 Plan"). The Company's Board of Directors amended the 2017 Plan in January 2018 to increase the number of shares reserved for issuance under the 2017 plan by 500,000 shares (the "Inducement Shares"). On June 22, 2018, the stockholders of the Company approved an increase of 6,000,000 in the number of shares reserved for issuance under the 2017 Plan. The 2017 Plan is the successor to the ChromaDex Corporation Second Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan"). Under the 2017 Plan, the Company is authorized to issue stock options that total no more than the sum of (i) 9,000,000 new shares, (ii) approximately 384,000 unallocated shares remaining available for the grant of new awards under the 2007 Plan, (iii) any returning shares from the 2007 Plan or the 2017 Plan, such as forfeited, cancelled, or expired shares and (iv) the 500,000 Inducement Shares.

Under both 2007 Plan and 2017 Plan, the total number of shares the Company may grant, excluding returned shares, was approximately 17.3 million shares. The remaining amount available for issuance under the 2017 Plan totaled approximately 5.7 million shares at June 30, 2018.

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Service Period Based Stock Options

The following table summarizes activity of service period based stock options granted to employees at June 30, 2018 and changes during the six months then ended (in thousands except per share data and remaining contractual term):

		Weighted Average
			Remaining		Aggregate
	Number of	Exercise	Contractual	Fair	Intrinsic
	Shares	Price	Term (Years)	Value	Value
Outstanding at Dec. 30, 2017	4,451	$3.46	6.7

Options Granted	2,457	4.55	10.0	$2.93
Options Classification from Employee to Non-Employee	(168)	4.17
Options Exercised	(77)	4.22			$69
Options Expired	(175)	4.50
Options Forfeited	(111)	4.28
Outstanding at June 30, 2018	6,377	$3.82	7.8		$2,292*

Exercisable at June 30, 2018	3,001	$3.41	5.7		$1,810*

*The aggregate intrinsic values in the table above are based on the Company’s stock price of $3.71, which is the closing price of the Company’s stock on the last day of business for the period ended June 30, 2018.

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 June 30, 2018.

Six Months Ended June 30, 2018
Expected term	6 years
Expected volatility	69% - 70%
Expected dividends	0%
Risk-free rate	2% - 3%

As of June 30, 2018, there was approximately $10.7 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans for employee stock options. That cost is expected to be recognized over a weighted average period of 2.4 years.

Performance Stock Award

On June 22, 2018, the Compensation Committee of the Board of Directors of the Company approved a grant of 166,667 shares of fully-vested restricted stock to Robert Fried, the Company's Chief Executive Officer. The shares were granted pursuant to his employment agreement, which provided for the restricted stock grant upon the achievement of certain performance goals. The expense for the awarded shares was approximately $0.6 million and was recognized during the second quarter of 2018.

Employee Share-Based Compensation

The Company recognized compensation expense of approximately $1.8 million and $3.0 million in the statement of operations for the three and six months ended June 30, 2018, respectively, and approximately $0.4 million and $0.7 million for the three and six months ended July 1, 2017, respectively.

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Note 10. Business Segments

The Company has the following three reportable segments for the three- and six-month periods ended June 30, 2018:

●

Consumer products segment: provides finished dietary supplement products that contain the Company's proprietary ingredients directly to consumers as well as to distributors.

●

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

●

Core standards and contract services segment: includes (i) supply of phytochemical reference standards, (ii) scientific and regulatory consulting and (iii) other research and development services.

The “Corporate and 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. The discontinued operations are not included in following statement of operations for business segments.

Three months ended	Consumer		Core Standards and
June 30, 2018	Products	Ingredients	Contract Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$3,732	$2,879	$1,192	$-	$7,803
Cost of sales	1,570	1,536	851	-	3,957

Gross profit	2,162	1,343	341	-	3,846

Operating expenses:
Sales and marketing	3,357	256	160	-	3,773
Research and development	848	566	-	-	1,414
General and administrative	-	-	-	6,596	6,596
Operating expenses	4,205	822	160	6,596	11,783

Operating income (loss)	$(2,043)	$521	$181	$(6,596)	$(7,937)

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Three months ended	Consumer		Core Standards and
July 1, 2017	Products	Ingredients	Contract Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$142	$2,863	$1,213	$-	$4,218
Cost of sales	38	1,320	751	-	2,109

Gross profit	104	1,543	462	-	2,109

Operating expenses:
Sales and marketing	181	273	96	-	550
Research and development	51	799	-	-	850
General and administrative	-	-	-	2,613	2,613
Other	-	746	-	-	746
Operating expenses	232	1,818	96	2,613	4,759

Operating income (loss)	$(128)	$(275)	$366	$(2,613)	$(2,650)

Six months ended	Consumer		Core Standards and
June 30, 2018	Products	Ingredients	Contract Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$6,763	$5,247	$2,360	$-	$14,370
Cost of sales	2,678	3,033	1,676	-	7,387

Gross profit	4,085	2,214	684	-	6,983

Operating expenses:
Sales and marketing	6,084	572	386	-	7,042
Research and development	1,677	1,176	-	-	2,853
General and administrative		-	-	13,424	13,424
Operating expenses	7,761	1,748	386	13,424	23,319

Operating income (loss)	$(3,676)	$466	$298	$(13,424)	$(16,336)

- 13 -

Six months ended	Consumer		Core Standards and
July 1, 2017	Products	Ingredients	Contract Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$156	$4,933	$2,497	$-	$7,586
Cost of sales	41	2,231	1,587	-	3,859

Gross profit	115	2,702	910	-	3,727

Operating expenses:
Sales and marketing	190	569	196	-	955
Research and development	51	1,463	-	-	1,514
General and administrative	-	-	-	4,935	4,935
Other	-	746	-	-	746
Operating expenses	241	2,778	196	4,935	8,150

Operating income (loss)	$(126)	$(76)	$714	$(4,935)	$(4,423)

	Consumer		Core Standards and
At June 30, 2018	Products	Ingredients	Contract Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Total assets	$6,144	$5,736	$1,388	$38,900	$52,168

	Consumer		Core Standards and
At December 30, 2017	Products	Ingredients	Contract Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Total assets	$3,399	$9,742	$2,559	$47,024	$62,724

- 14 -

Disaggregation of revenue

We disaggregate our revenue from contracts with customers by type of goods or services for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.

Three Months Ended June 30, 2018 (In thousands)	Consumer Products Segment	Ingredients Segment	Core Standards and Contract Services Segment	Total

TRU NIAGEN®, Consumer Product	$3,732	$-	$-	$3,732
NIAGEN® Ingredient	-	1,934	-	1,934
Subtotal NIAGEN Related	$3,732	$1,934	$-	$5,666

Other Ingredients	-	945	-	945
Reference Standards	-	-	820	820
Consulting and Other	-	-	372	372
Subtotal Other Goods and Services	$-	$945	$1,192	$2,137

Total Net Sales	$3,732	$2,879	$1,192	$7,803

Three Months Ended July 1, 2017 (In thousands)	Consumer Products Segment	Ingredients Segment	Core Standards and Contract Services Segment	Total

TRU NIAGEN®, Consumer Product	$142	$-	$-	$142
NIAGEN® Ingredient	-	1,973	-	1,973
Subtotal NIAGEN Related	$142	$1,973	$-	$2,115

Other Ingredients	-	890	-	890
Reference Standards	-	-	767	767
Consulting and Other	-	-	446	446
Subtotal Other Goods and Services	$-	$890	$1,213	$2,103

Total Net Sales	$142	$2,863	$1,213	$4,218

- 15 -

Six Months Ended June 30, 2018 (In thousands)	Consumer Products Segment	Ingredients Segment	Core Standards and Contract Services Segment	Total

TRU NIAGEN®, Consumer Product	$6,763	$-	$-	$6,763
NIAGEN® Ingredient	-	3,197	-	3,197
Subtotal NIAGEN Related	$6,763	$3,197	$-	$9,960

Other Ingredients	-	2,050	-	2,050
Reference Standards	-	-	1,739	1,739
Consulting and Other	-	-	621	621
Subtotal Other Goods and Services	$-	$2,050	$2,360	$4,410

Total Net Sales	$6,763	$5,247	$2,360	$14,370

Six Months Ended July 1, 2017 (In thousands)	Consumer Products Segment	Ingredients Segment	Core Standards and Contract Services Segment	Total

TRU NIAGEN®, Consumer Product	$156	$-	$-	$156
NIAGEN® Ingredient	-	2,941	-	2,941
Subtotal NIAGEN Related	$156	$2,941	$-	$3,097

Other Ingredients	-	1,992	-	1,992
Reference Standards	-	-	1,600	1,600
Consulting and Other	-	-	897	897
Subtotal Other Goods and Services	$-	$1,992	$2,497	$4,489

Total Net Sales	$156	$4,933	$2,497	$7,586

Disclosure of major customers

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

	Three months ended		Six months ended
Major Customers