I've looked over as much as I can dig up and the SEC Filing naming a Customer C is where Chris Drose of Bleecker Street Research says there is smoke.
OK let's dig into the SA article allegations:
And more importantly, the supposed profitability appears to be engineered. It is likely fake.
We can see by reading the 10-Q that Q1 revenues increased by about $3 million from the previous quarter. But we can also see that:
That means that of the $3 million increase in revenues, $2 million came from a single undisclosed mystery customer. This is the only way ChromaDex able to post a profit. And even though that mystery customer purchased $2 million of product, the total profit shown for the quarter was just a mere $256,000. Something doesn't add up here. "During the three months ended April 2, 2016, Customer C in our ingredients segment accounted for 27.4% of the Company's total sales."
So who is customer C? This is where Chris Drose initially creates doubt with a "mystery customer" and he infers that these are engineered numbers and uses the word likely so if he's wrong it wont com back to bit him. He doesn't directly discount the academic studies, what he does is call into question the promotions arm of Barry Honig for their rise to success. As you read the article he doesn't directly connect ChromaDex to any wrong doing, he makes a case of association to other parties. One director Hugh Dunkerley who left ChromaDex in May was named in a federal case. Drose claimed ChromaDex swept this information under the rug. This Barry Honig has also being associated with 2 people trying to stay out of jail for SEC violations. That article also say's "Honig has never been arrested or charged by the SEC for his role in investing in microcap stocks."
I performed a PACER court documents search and found only one case: 8:11-cv-01273-CJC-MLG Chromadex Inc v. Biotavia Bioceuticals LLC they are not involved in anything else I can find and this case appears settled.
So what can you say its a loose framework of associations to people who have been arrested or are under investigation. This customer C constitutes a large piece of revenue and Chris Drose says these numbers are likely faked. So either way the damage is done after the last 2 days. Chris Drose could be way off base but he puts it in such a way that you can't prove he's wrong and you can't prove he's right. So in my estimation a ton of ChromaDex capital was swept into the hands of Bleecker Street Research, ChromaDex is also about to be swept under the debt of shareholder litigation.
So if your trading this stock don't take my cursory scan as enough information to make a trade. I find these company deformation practices for financial gain disgusting. First off if you're a stockholder you can't disprove the allegations fast enough so you sell your shares. Its not a pretty picture. I'd considered purchasing but as a OTC stock it was to thinly traded. Then as a NASDAQ stock the added liquidity set it up yesterdays short raid, plus I thought it was overvalued and was waiting for it to pull back.
Lets hope the product can continue past this.
This is confusing and I don’t claim to have it all or all correct but I see things that worry me. I acknowledge I am somewhat a babe in the woods when it comes to the details here and for all I know every small cap IPO is littered with messes like are claimed here but I see things that have me concerned. I don’t claim everything I have here is even correct and welcome any corrections. I have no position in ChromaDex at this point but do want NR to do well.
In my mind all ChromaDex needs to do is identify who is the Customer C to help blunt much of the attack. Was it an "Arms length" firm? How difficulty would it be to identify who this was and verify they made the purchase and used the product? I am concerned that this was not addressed. The report by the “college kid” was specific and in my mind it deserved a specific response, particularly to this point. If the sales figures can be verified beyond “customer C” then the rest can be far more easily dismissed as an inevitable result of how difficult and unglamorous OTC companies are funded and brought up.
I have read that Frank would not do anything that hurts the company he has run for so long, which has a product I know actually works for me. Also that they paid off debt. I was happy to see that. These are valid points but there are also valid questions involving the investment of Hoing and others and their perceived history. Again to me this is completely secondary once light is shed on who were the actual customers and who is customer C.
Yes board member Dunkerley left, and in the SEC document it stated that “the other Defendants used the proceeds for their personal benefit, including to purchase luxury goods, pay the criminal defense costs of John Galanis and Jason Galanis in a previously charged case, boost the net capital of two broker-dealers in which Archer and Cooney had interests, and finance the initial public offering of "Technology Company," a corporation in which Jason Galanis, Hirst, Cooney, Dunkerley and Archer held shares, and for which Jason Galanis served as an "advisor." Paragraph 7 on page 4 here https://www.sec.gov/...p-pr2016-85.pdf
Dunkerley, the ChromaDex board member who left it seems was involved with Code Rebel while acting as as Managing Director of Burnham Securities. Code Rebel’s stock seems to have come out of the gate at $40 and a year or so later is at .08. http://www.nasdaq.co...rbq/stock-chart
Paragraph 20 from SEC on page 8 "
Dunkerley, age 41, resides in Paris, France and Huntington Beach, California. At relevant times herein, he served as the Director, President, Executive Vice President and Secretary of Valor Group, Director of Wealth-Assurance, Director of Valor life and a Managing Director of Burnham Securities. He is currently Sole Director and President of W APCC and Managing Member of BFG Socially Responsible Investing Limited ("BFG Investments"), having been installed in each of these management positions by Jason Galanis. At all relevant times, Dunkerley acted at the direction of Jason Galanis or with his knowledge." https://www.sec.gov/...p-pr2016-85.pdf
Managing Director Dunkerley of Burnham Securities Dunkerley and Code Rebel dealings are partially listed here. https://www.lawinsid...ment/2015-05-14
Sitting ChromaDex board member Reid Dabney, 64, has served as a director of the Company and has chaired the Audit Committee since October 2007. Mr. Dabney is the Company’s audit committee financial expert. Since November 2014 to the present, he has served as the chief financial officer and secretary of Code Rebel Corporation (NASDAQ: CDRB) http://investors.chr...nN1YnNpZD01Nw==
Given what happened with Code Rebel, was having two board members involved with them (given their performance), a prudent move for Chromadex? I wish the SEC identified the unnamed “Technology Company” .
The ‘College Kid’s” report came out early yesterday, I didn’t see it as it was pulled by the time I saw the stock had moved massively, ChromaDex was rebounding at that point and I bought more. Mid-day the report was live again, I read it and saw enough that concerned me and I bailed and I lost money on the shares I bought yesterday but possibly not the ones I had for over a year. I am not sure if I am overall up or down on all my purchases but I definitely lost on those I bought yesterday.
Is me selling what the report by the college kid was intended to do, absolutely but that does not mean what was in it was wrong. I want ChromaDex to show me it is wrong, that the largest innuendo that Customer C is an ‘Arms Length and real customer, that they bought it and used it. Do that and I am more than willing to look past that some early investors may be colorful and chalk it all up to that this is the nature of small cap companies. I am willing to look past that ChromaDex had two board members involved with Code Rebel which spectacularly went from near $40 at their IPO to a trading halt and now 8 cents in a year, provided there is some sort of change in direction in how things are handled and ChromaDex. I want ChromaDex to be healthly and I want to be in the stock again but ChromaDex needs to do far more to respond than the very brief and unspecific statement yesterday which only discussed the motivations behind the author, not the content.
Don't trade on anything I write here because I don't claim to be an expert but a simple personal investor trying to figure it all out myself.
Edited by HappyPaul, 21 June 2016 - 11:40 PM.