Edgar Filing: ChromaDex Corp.

10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 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 every Interactive Data File required to be submitted 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 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 X
(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 November 6, 2018 there were 55,102,484 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 September 30, 2018 and December 30, 2017	1
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2018 and September 30, 2017	2
	Condensed Consolidated Statements of Operations for the nine months ended September 30, 2018 and September 30, 2017	3
	Condensed Consolidated Statements of Stockholders Equity for the nine months ended September 30, 2018	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and September 30, 2017	5
	Notes to Condensed Consolidated Financial Statements	6
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26
	ITEM 4. CONTROLS AND PROCEDURES	27

PART II – OTHER INFORMATION		28

	ITEM 1. LEGAL PROCEEDINGS	28
	ITEM 1A. RISK FACTORS	28
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES	44
	ITEM 4. MINE SAFETY DISCLOSURES	44
	ITEM 5. OTHER INFORMATION	44
	ITEM 6. EXHIBITS	45

	SIGNATURES	46

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PART I – FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

ChromaDex Corporation and Subsidiaries

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

	Sep. 30, 2018	Dec. 30, 2017
Assets

Current Assets
Cash	$28,214	$45,389
Trade receivables, net of allowances of $0.5 million and $0.7 million, respectively;
Receivables from Related Party: $0.7 million and $1.5 million, respectively	4,773	5,338
Contract assets	76	-
Receivable held at escrow	752	-
Inventories	7,079	5,796
Prepaid expenses and other assets	593	655
Total current assets	41,487	57,178

Leasehold Improvements and Equipment, net	3,745	2,872
Deposits	269	272
Receivable Held at Escrow	-	750
Intangible Assets, net	1,521	1,652

Total assets	$47,022	$62,724

Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable	$8,893	$3,719
Accrued expenses	3,587	3,645
Current maturities of capital lease obligations	183	196
Contract liabilities and customer deposits	155	314
Deferred rent, current	142	114
Due to officer	-	100
Total current liabilities	12,960	8,088

Capital Lease Obligations, Less Current Maturities	178	310
Deferred Rent, Less Current	482	492

Total liabilities	13,620	8,890

Commitments and Contingencies

Stockholders' Equity
Common stock, $.001 par value; authorized 150,000 shares;
issued and outstanding September 30, 2018 54,919 shares and
December 30, 2017 54,697 shares	55	55
Additional paid-in capital	114,882	110,380
Accumulated deficit	(81,535)	(56,601)
Total stockholders' equity	33,402	53,834

Total liabilities and stockholders' equity	$47,022	$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 September 30, 2018 and September 30, 2017
(In thousands, except per share data)

	Sep. 30, 2018	Sep. 30, 2017

Sales, net	$8,120	$6,084
Cost of sales	3,759	3,169

Gross profit	4,361	2,915

Operating expenses:
Sales and marketing	4,837	1,103
Research and development	1,350	1,040
General and administrative	6,770	3,948
Operating expenses	12,957	6,091

Operating loss	(8,596)	(3,176)

Nonoperating expense:
Interest expense, net	(9)	(45)
Nonoperating expenses	(9)	(45)

Loss from continuing operations	(8,605)	(3,221)

Loss from discontinued operations	-	(109)
Gain on sale of discontinued operations	-	5,467
Income from discontinued operations	-	5,358

Net (loss) income	$(8,605)	$2,137

Basic (loss) earnings per common share:
Loss from continuing operations	$(0.16)	$(0.07)
Earnings from discontinued operations	$-	$0.12

Basic (loss) earnings per common share	$(0.16)	$0.05

Diluted (loss) earnings per common share:
Loss from continuing operations	$(0.16)	$(0.07)
Earnings from discontinued operations	$-	$0.11

Diluted (loss) earnings per common share	$(0.16)	$0.04

Basic weighted average common shares outstanding	55,068	47,065

Diluted weighted average common shares outstanding	55,068	47,557

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Operations
For the Nine Month Periods Ended September 30, 2018 and September 30, 2017
(In thousands, except per share data)

	Sep. 30, 2018	Sep. 30, 2017

Sales, net	$22,490	$13,670
Cost of sales	11,146	7,028

Gross profit	11,344	6,642

Operating expenses:
Sales and marketing	11,879	2,058
Research and development	4,203	2,554
General and administrative	20,194	8,883
Other	-	746
Operating expenses	36,276	14,241

Operating loss	(24,932)	(7,599)

Nonoperating expense:
Interest expense, net	(101)	(109)
Other	(65)	-
Nonoperating expenses	(166)	(109)

Loss from continuing operations	(25,098)	(7,708)

Loss from discontinued operations	-	(315)
Gain on sale of discontinued operations	-	5,467
Income from discontinued operations	-	5,152

Net loss	$(25,098)	$(2,556)

Basic and diluted loss per common share:
Loss from continuing operations	$(0.46)	$(0.18)
Earnings from discontinued operations	$-	$0.12

Basic and diluted loss per common share	$(0.46)	$(0.06)

Basic and diluted weighted average common shares outstanding	54,940	42,406

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
For the Nine Month Period Ended September 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

Exercise of stock options	49	-	190	-	190

Share-based compensation	-	-	1,317	-	1,317

Net loss	-	-	-	(8,605)	(8,605)

Balance, September 30, 2018	54,919	$55	$114,882	$(81,535)	$33,402

See Notes to Consolidated Financial Statements.

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ChromaDex Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows
For the Nine Month Periods Ended September 30, 2018 and September 30, 2017
(In thousands)

	Sep. 30, 2018	Sep. 30, 2017

Cash Flows From Operating Activities
Net loss	$(25,098)	$(2,556)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of leasehold improvements and equipment	436	396
Amortization of intangibles	175	148
Share-based compensation expense	4,386	1,211
Allowance for doubtful trade receivables	(132)	(548)
Gain from disposal of assets	-	(5,467)
Loss from disposal of equipment	1	5
Non-cash financing costs	70	89
Other Non-cash expense	65	-
Changes in operating assets and liabilities:
Trade receivables	697	1,492
Contract assets	(21)	-
Inventories	(1,282)	1,358
Prepaid expenses and other assets	(53)	(480)
Accounts payable	5,174	(1,735)
Accrued expenses	(58)	(44)
Customer deposits and other	(50)	(61)
Deferred rent	18	188
Due to officer	(100)	(33)
Net cash used in operating activities	(15,772)	(6,037)

Cash Flows From Investing Activities
Proceeds from disposal of assets, net of transaction costs	-	5,953
Purchases of leasehold improvements and equipment	(1,311)	(872)
Purchases of intangible assets	(45)	(184)
Net cash (used in) provided by investing activities	(1,356)	4,897

Cash Flows From Financing Activities
Proceeds from issuance of common stock, net of issuance costs	-	23,714
Proceeds from exercise of stock options	520	395
Repurchase of common stock	(404)	-
Payment of debt issuance costs	(19)	(49)
Principal payments on capital leases	(144)	(562)
Net cash (used in) provided by financing activities	(47)	23,498

Net (decrease) increase in cash	(17,175)	22,358

Cash Beginning of Period	45,389	1,642

Cash Ending of Period	$28,214	$24,000

Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$33	$44

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	$-	$515
Receivable from disposal of assets held at escrow	$-	$750
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 September 30, 2018 and results of operations and cash flows for the three and nine months ended September 30, 2018 and September 30, 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 nine months ended September 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 $15.8 million for the nine-month period ended September 30, 2018. As of September 30, 2018, cash and cash equivalents totaled approximately $28.2 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 November 8, 2019. The Company may, however, seek additional capital prior to November 8, 2019, both to meet its projected operating plans after November 9, 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.

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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 7, Contract Assets and Contract Liabilities for additional disclosure regarding the opening balance adjustment.

For the nine-month period ended September 30, 2018, approximately $21.7 million of the Company's total revenue of $22.5 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 nine-month period ended September 30, 2018, our revenue from these streams was approximately $0.8 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

SEC Disclosure Update and Simplification: In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule was effective on November 5, 2018. The Company is evaluating the impact of this guidance on its condensed 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 nine months ended September 30, 2018 and September 30, 2017:

	Three Months Ended		Nine Months Ended
(In thousands, except per share data)	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017

Net (loss) income	$(8,605)	$2,137	$(25,098)	$(2,556)

Basic weighted average common shares outstanding (1):	55,068	47,065	54,940	42,406

Basic (loss) earnings per common share	$(0.16)	$0.05	$(0.46)	$(0.06)

Dilutive effect of stock options, net	-	474	-	-
Dilutive effect of warrants, net	-	18	-	-

Diluted weighted average common shares outstanding :	55,068	47,557	54,940	42,406

Diluted (loss) earnings per common share	$(0.16)	$0.04	$(0.46)	$(0.06)

Potentially dilutive securities, total (2):
Stock options	8,536	5,448	8,536	5,922
Warrants	470	452	470	470

(1)

Includes approximately 0.2 million weighted average nonvested shares of restricted stock for the three and nine month periodending September 30, 2018, respectively, and approximately 0.5 million weighted average nonvested shares or restricted stock for the three and nine month periods ending September 30, 2017, respectively. These shares are participating securities that feature voting and dividend rights.

(2)

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

Note 5. Related Party Transactions

Sale of consumer products

	Net sales Three months ended Sep. 30, 2018	Net sales Nine months ended Sep. 30, 2018	Net sales Three months ended Sep. 30, 2017	Net sales Nine months ended Sep. 30, 2017	Trade receivable at Sep. 30, 2018
Customer G*	$0.7 million	$1.8 million	$2.3 million	$2.3 million	$0.7 million
Customer H*	-	$0.4 million	-	-	-
Total	$0.7 million	$2.2 million	$2.3 million	$2.3 million	$0.7 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.

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Note 6. Inventories

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

(In thousands)	Sep. 30, 2018	Dec. 30, 2017
Bulk ingredients	$2,862	$4,159
Reference standards	930	1,027
Consumer Products - Finished Goods	1,324	503
Consumer Products - Work in Process	2,093	249
	7,209	5,938
Less valuation allowance	(130)	(142)
	$7,079	$5,796

Note 7. 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)	Sep. 30, 2018
Contract Assets	$-	$56	$56	$(263)	$283	$76
Contract Liabilities - Open Projects (3)	186	(108)	78	(116)	97	59
Contract Liabilities - Other Customer Deposits (4)	128	-	128	(121)	89	96
Net Contract Assets (Liabilities)	$(314)	$164	$(150)	$(26)	$97	$(79)

(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 nine months ended September 30, 2018, we recognized revenue of approximately $12,000 and $92,000 related to our adjusted contract liabilities at the beginning of the fiscal year 2018.

Note 8. 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 September 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 September 30, 2018 and changes during the nine 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	$3.47	6.6

Options Granted	2,468	4.55	10.0	$2.92
Options Classification from Employee to Non-Employee	(168)	4.17
Options Exercised	(126)	4.09			$102
Options Expired	(175)	4.50
Options Forfeited	(121)	4.24
Outstanding at Sep. 30, 2018	6,329	$3.82	7.4		$4,764*

Exercisable at Sep. 30, 2018	3,193	$3.44	5.7		$3,261*

*The aggregate intrinsic values in the table above are based on the Company’s stock price of $4.29, which is the closing price of the Company’s stock on the last day of business for the period ended September 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 nine months ended September 30, 2018.

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

As of September 30, 2018, there was approximately $9.5 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 2.2 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.

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Employee Share-Based Compensation

The Company recognized compensation expense of approximately $1.2 million and $4.2 million in the statement of operations for the three and nine months ended September 30, 2018, respectively, and approximately $0.4 million and $1.1 million for the three and nine months ended September 30, 2017, respectively.

Note 9. Business Segments

The Company has the following three reportable segments for the three- and nine-month periods ended September 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.

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Core standards and 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
September 30, 2018	Products	Ingredients	and Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$5,225	$1,859	$1,036	$-	$8,120
Cost of sales	1,975	955	829	-	3,759

Gross profit	3,250	904	207	-	4,361

Operating expenses:
Sales and marketing	4,597	75	165	-	4,837
Research and development	1,113	237	-	-	1,350
General and administrative	-	-	-	6,770	6,770
Operating expenses	5,710	312	165	6,770	12,957

Operating income (loss)	$(2,460)	$592	$42	$(6,770)	$(8,596)

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Three months ended	Consumer		Core Standards
September 30, 2017	Products	Ingredients	and Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$2,647	$2,460	$977	$-	$6,084
Cost of sales	1,095	1,384	690	-	3,169

Gross profit	1,552	1,076	287	-	2,915

Operating expenses:
Sales and marketing	549	391	163	-	1,103
Research and development	481	559	-	-	1,040
General and administrative	-	-	-	3,948	3,948
Operating expenses	1,030	950	163	3,948	6,091

Operating income (loss)	$522	$126	$124	$(3,948)	$(3,176)

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

Net sales	$11,988	$7,106	$3,396	$-	$22,490
Cost of sales	4,653	3,988	2,505	-	11,146

Gross profit	7,335	3,118	891	-	11,344

Operating expenses:
Sales and marketing	10,681	647	551	-	11,879
Research and development	2,790	1,413	-	-	4,203
General and administrative		-	-	20,194	20,194
Operating expenses	13,471	2,060	551	20,194	36,276

Operating income (loss)	$(6,136)	$1,058	$340	$(20,194)	$(24,932)

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Nine months ended	Consumer		Core Standards
September 30, 2017	Products	Ingredients	and Services	Corporate
(In thousands)	segment	segment	segment	and other	Total

Net sales	$2,803	$7,393	$3,474	$-	$13,670
Cost of sales	1,136	3,615	2,277	-	7,028

Gross profit	1,667	3,778	1,197	-	6,642

Operating expenses:
Sales and marketing	739	960	359	-	2,058
Research and development	532	2,022	-	-	2,554
General and administrative	-	-	-	8,883	8,883
Other	-	746	-	-	746
Operating expenses	1,271	3,728	359	8,883	14,241

Operating income (loss)	$396	$50	$838	$(8,883)	$(7,599)

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

Total assets	$5,901	$6,286	$1,263	$33,572	$47,022

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

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

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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 September 30, 2018 (In thousands)	Consumer Products Segment	Ingredients Segment	Core Standards and Services Segment	Total

TRU NIAGEN®, Consumer Product	$5,225	$-	$-	$5,225
NIAGEN® Ingredient	-	1,007	-	1,007
Subtotal NIAGEN Related	$5,225	$1,007	$-	$6,232

Other Ingredients	-	852	-	852
Reference Standards	-	-	790	790
Consulting and Other	-	-	246	246
Subtotal Other Goods and Services	$-	$852	$1,036	$1,888

Total Net Sales	$5,225	$1,859	$1,036	$8,120

Three Months Ended September 30, 2017 (In thousands)	Consumer Products Segment	Ingredients Segment	Core Standards and Services Segment	Total

TRU NIAGEN®, Consumer Product	$2,647	$-	$-	$2,647
NIAGEN® Ingredient	-	1,797	-	1,797
Subtotal NIAGEN Related	$2,647	$1,797	$-	$4,444

Other Ingredients	-	663	-	663