Niagen Bioscience, Inc. 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2024 , as well as subsequent reports we may file from time to time on Form 10-Q and Form 8-K, for additional information. All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are approximate. Growth and percentage comparisons made herein generally refer to the three and nine months ended September 30, 2025 compared with the three and nine months ended September 30, 2024 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” “Niagen Bioscience” and similar expressions refer to Niagen Bioscience, Inc., and depending on the context, its subsidiaries. Special Note Regarding Forward Looking Statements Certain statements in this 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, as amended, 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 “expects,” “anticipates,” “intends,” “estimates,” “plans,” “potential,” “possible,” “probable,” “believes,” “seeks,” “may,” “will,” “should,” “could,” “predicts,” “projects,” “continue,” “would” or the negative of such terms or other 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 set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission on March 4, 2025 (Annual Report). Company Overview We are a global bioscience company dedicated to promoting healthy aging. Our team, which includes world-renowned scientists, is pioneering research on nicotinamide adenine dinucleotide (NAD+), an essential coenzyme that regulates cellular metabolism and is present in every cell of the human body. NAD+ levels naturally decline with age, by up to 65% between ages 30 and 70, and can also be impacted by poor diet, excess alcohol consumption, and certain disease states. Increasing NAD+ levels through NAD+ precursors, calorie restriction, or moderate exercise has been shown to support healthy cellular function. We are at the forefront of developing and commercializing effective methods to support NAD+ levels and promote healthy aging. In 2013, we commercialized food-grade Niagen®, a proprietary form of nicotinamide riboside chloride (NRC), a novel form of vitamin B3, as both a dietary and food ingredient. In 2017, we expanded our offerings with the launch of Tru Niagen®, a finished dietary supplement featuring Niagen®, available directly to consumers. In 2024, we launched Niagen Plus, a product line for healthcare practitioners and clinics, featuring pharmaceutical-grade Niagen®. We also supply pharmaceutical-grade Niagen® to U.S. FDA-registered 503B outsourcing facilities, which compound and distribute Niagen® intravenous (Niagen IV) and injectable Niagen® formulations for use under prescription. Food-grade Niagen® is authorized for human consumption as a dietary supplement and is generally recognized as safe (GRAS), while pharmaceutical-grade Niagen® is authorized by the FDA for compounding by 503B outsourcing facilities. NRC is one of the most well-studied and efficient NAD+ precursors available. Data from numerous preclinical studies and human clinical trials demonstrate that orally administered food-grade NRC significantly increases NAD+ levels in blood and tissue. Food-grade Niagen® has twice been successfully reviewed under the FDA’s New Dietary Ingredient (NDI) program, has been successfully notified to the FDA as GRAS, and has received approvals or authorizations from Health Canada, the European Commission, the Turkish Ministry of Agriculture, and the Therapeutic Goods Administration (TGA) of Australia. Food-grade Niagen® has also been approved for inclusion in medical foods by the Brazilian Health Regulatory Agency (ANVISA) and Food Standards Australia New Zealand (FSANZ). Clinical studies of oral Niagen® have shown outcomes including increased NAD+ levels, improved cellular metabolism, and enhanced energy production. Niagen® and other NAD+ precursors are protected by a robust portfolio of owned and exclusively licensed patents. 26 Table of Contents To date, there are more than 525 published human clinical studies related to NAD+ and its impact on health. These areas of study include understanding NAD+’s role in Alzheimer’s disease, Parkinson’s disease, neuropathy, sarcopenia, liver disease and heart failure. We are among the world leaders in the emerging NAD+ space. Through our ChromaDex External Research Program (CERP®), we have built more than 300 research collaborations with leading universities and research institutions, including the National Institutes of Health, Cornell, Dartmouth, Harvard, MIT, University of Cambridge, the Mayo Clinic, Chiba University, and Sun Yat-sen University. Research from CERP® partners has produced peer-reviewed publications that continue to advance understanding of NAD+ biology, including in health, diseases, and aging, and support the science behind Niagen®. Our Scientific Advisory Board, chaired by Dr. Roger Kornberg, Nobel Laureate and Stanford Professor, includes distinguished scientists such as Dr. Charles Brenner, discoverer of NR as an NAD+ precursor, and experts from Harvard, UC Davis, USC, Scripps Research, and the NIH. Together, our research partnerships and advisory board form a key part of our innovation platform in healthy aging and NAD+ science. Recent Developments Employee Stock Purchase Plan On June 24, 2025, our stockholders approved the Niagen Bioscience, Inc. Employee Stock Purchase Plan (“ESPP”), pursuant to which 650,000 of our common stock were reserved for issuance. The ESPP allows eligible officers and employees to purchase designated shares of the Company’s common stock through payroll deductions, up to 10% of their base salary or wages. The price of common stock purchased under the ESPP is equal to 85% of the lesser of (i) the closing price of a share common stock on the purchase date, or (ii) the closing price of a share of common stock on the offering date. Offering periods under the ESPP will generally be in six month increments, commencing on January 1 and July 1 of each calendar year, with the administrator having the right to establish different offering periods. We have not yet extended our first offering period and 650,000 shares remained available for issuance as of September 30, 2025. Purchase Commitments On July 25, 2025, we executed a Sales Agreement (the “Grace Supply Agreement”) with W. R. Grace & Co.-Conn (“Grace”) with an effective date of April 1, 2025. In January 2019, Grace was issued patents related to the crystalline form of NR chloride which limit our ability to source alternative suppliers (Grace Patents). Pursuant to the Grace Supply Agreement, Grace will exclusively supply us with Nicotinamide-beta-Riboside Chloride (“NRCL”) meeting certain specifications as defined in a previously executed Quality Agreement. In addition, Grace is prohibited from selling NRCL to third parties and must notify us of any new business inquiries relating to the purchase of NRCL. The Grace Supply Agreement provides for an initial term through April 30, 2029, and will automatically renew for successive twelve (12) month terms unless either party provides written notice of its intent not to renew. We are required to purchase a minimum quantity of NRCL during each year of the term. We will also provide monthly rolling forecasts of its purchase needs for a twenty-four (24) month period, with the first twelve (12) months of each forecast binding upon Grace’s acceptance. We have submitted our rolling forecast pursuant to the Grace Supply Agreement, which requires the purchase of approximately $33.6 million in inventory through September 30, 2026. The parties have further agreed to make a good faith effort to execute a supplemental agreement establishing a process by which we would obtain from Grace a world-wide, royalty-bearing, exclusive, non-transferable and sub-licensable license to Grace’s patents covering NRCL’s manufacture, sufficient to enable the Company to manufacture NRCL for an agreed-upon royalty percentage (“License Agreement”). The License Agreement would become effective upon proper termination of the Grace Supply Agreement under specified conditions. There is no guarantee that any such agreement will be entered into, or the timing of any such agreement or its terms. Lease Amendment During the first quarter of 2025, we amended our existing lease in Longmont, Colorado. In accordance with Accounting Standards Codification (ASC) 842, the amended lease agreement is considered to be modified and subject to lease modification guidance. The right-of-use (ROU) asset and lease liability related to the agreement were remeasured based on the change in the lease conditions such as rent payment and lease terms. The fair value of the increase in related lease liability and ROU asset is estimated to be approximately $1.1 million. The amended lease now extends through October 31, 2030. 27 Table of Contents Amended Executive Employment Agreement and Executive Market Performance Stock Unit Grant As previously disclosed, on February 25, 2025 the Company granted to Robert Fried, our Chief Executive Officer, 1,518,600 market performance stock units (“PSUs”) under the Company’s 2017 Equity Incentive Plan and subject to performance conditions during a seven year performance period. Additionally, Mr. Fried’s base salary and target performance bonus opportunity increased to $650,000 and 75% of his base salary, respectively. Financial Condition and Results of Operations 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 making 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 net sales and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As of September 30, 2025, our cash and cash equivalents totaled approximately $64.3 million, of which $64.1 million was unrestricted. We anticipate that our current unrestricted cash and cash equivalents and cash to be generated from net sales will be sufficient to meet our financial obligations as they become due over at least the next twelve months. We may, however, seek additional capital in the next twelve months, both to meet our projected operating plans after the next twelve months and/or to fund our longer-term strategic objectives. We currently have three operating segments that offer differentiated services. Through our Consumer Products segment, we provide finished dietary supplement products containing our proprietary ingredients directly to consumers and distributors, as well as NAD+ test kits exclusively to healthcare practitioners. We deliver food-grade Niagen® as the sole or principal dietary ingredient in our consumer product line Tru Niagen®. Our Ingredients segment develops and commercializes proprietary-based ingredient technologies, including food-grade Niagen® and pharmaceutical-grade Niagen®, and supplies these ingredients as raw materials to the manufacturers of consumer products and U.S. FDA-registered 503B outsourcing facilities, respectively. Our Analytical Reference Standards and Services segment focuses on natural product fine chemicals, known as phytochemicals, and related research and development services. The results of these segments and our consolidated operations are detailed in the discussion that follows. Our consolidated net sales, net income and income per share for the three and nine months ended September 30, 2025 and 2024 are as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share data) 2025 2024 2025 2024 Net sales $ 33,986 $ 25,580 $ 95,584 $ 70,472 Net income 4,578 1,878 13,250 1,371 Income Per Share: Basic income per common share $ 0.06 $ 0.02 $ 0.17 $ 0.02 Diluted income per common share $ 0.05 $ 0.02 $ 0.15 $ 0.02 28 Table of Contents Net Sales Net sales consist of gross sales less discounts and returns. The following table sets forth our total net sales by reportable segment: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 % Change 2025 2024 % Change Net sales: Consumer Products $ 26,017 $ 18,123 44 % $ 70,217 $ 54,121 30 % Ingredients 7,197 6,673 8 % 22,985 14,062 63 % Analytical reference standards and services 772 784 (2) % 2,382 2,289 4 % Total net sales $ 33,986 $ 25,580 33 % $ 95,584 $ 70,472 36 % Total net sales increased by $8.4 million and $25.1 million for the three and nine months ended September 30, 2025, respectively, as compared to the same periods in 2024. The increase in net sales was primarily attributable to growth within our consumer products and ingredients segments. Detailed changes in net sales were driven by the following: • Within our consumer products segment, Tru Niagen® sales increased by $7.9 million and $16.1 million for the three and nine months ended September 30, 2025, respectively, compared to the corresponding periods in 2024. This growth was primarily driven by e-commerce channel performance, which increased approximately $4.3 million and $13.3 million for the three and nine months ended September 30, 2025, respectively, reflecting increased customer acquisition and retention and effective digital marketing efforts. During the three and nine months ended September 30, 2025, sales through our distributor partners increased $2.0 million and $2.6 million, respectively. The remaining gains were attributable to higher sales to A.S. Watson, which were up $1.6 million and $0.2 million for the three and nine months ended September 30, 2025, respectively. • Total ingredient sales increased by $0.5 million and $8.9 million for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase was primarily driven by higher sales to food-grade Niagen® partners, contributing approximately $0.6 million and $6.4 million for the three and nine months ended September 30, 2025, respectively. While pharmaceutical-grade Niagen® sales decreased slightly by $0.4 million during the three month period, total pharmaceutical-grade Niagen® sales improved by $2.0 million during the nine-month period ended September 30, 2025, compared to the corresponding period in 2024, reflecting an overall growth. These ingredient partner orders are subject to timing variability and may fluctuate quarter to quarter. The remaining increase in ingredient sales was attributable to modest growth in other ingredient categories. • Our analytical reference standards and services segment constituted the smallest proportion of our total net sales and remained stable for the three months ended September 30, 2025 compared to the same period in 2024. Net sales increased by $0.1 million for the nine months ended September 30, 2025, compared to the corresponding period in 2024. Cost of Sales Cost of sales include raw materials, labor, overhead, and delivery costs. The following table sets forth our total cost of sales by reportable segment: Three Months Ended September 30, Nine Months Ended September 30, Amount % of net sales Amount % of net sales (In thousands) 2025 2024 2025 2024 2025 2024 2025 2024 Cost of sales: Consumer Products $ 8,560 $ 6,512 32.9 % 35.9 % $ 23,420 $ 19,451 33.4 % 35.9 % Ingredients 2,944 2,176 40.9 32.6 8,853 5,558 38.5 39.5 Analytical reference standards and services 554 652 71.8 83.2 1,826 2,074 76.7 90.6 Total cost of sales $ 12,058 $ 9,340 35.5 % 36.5 % $ 34,099 $ 27,083 35.7 % 38.4 % 29 Table of Contents Total cost of sales, as a percentage of net sales, improved by 100 basis points and 270 basis points for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024 reflecting enhanced operational efficiency and favorable product mix shifts across our segments. Changes in cost of sales were primarily driven by the following: • Cost of sales, as a percentage of net sales, within our consumer products segment can fluctuate due to changes in business mix, product mix, inflationary pressures, and optimization efforts in our supply chain, among other factors. For the three and nine months ended September 30, 2025, cost of sales as a percentage of net sales improved by approximately 300 basis points and 250 basis points, respectively, compared to the same periods in 2024. The improvement was attributable to a favorable shift in product mix and the use of lower-cost inventory purchases. • Cost of sales, as a percentage of net sales, in our ingredients segment are influenced by several factors including inventory purchase costs, fixed supply chain overhead costs and transportation and storage costs. For the three months ended September 30, 2025, cost of sales as a percentage of net sales increased by approximately 830 basis points, primarily due to a shift in business mix, with food-grade Niagen® representing a greater portion of segment sales and pharmaceutical-grade Niagen® representing a smaller portion of segment sales each of which carries a distinct margin profile. Changes in the relative contribution of these products unfavorably affected the overall margin structure for the period. For the nine months ended September 30, 2025, cost of sales, as a percentage of net sales, improved by approximately 100 basis points, compared to the same periods in 2024. This improvement was primarily driven by more efficient labor and overhead utilization associated with higher sales volumes and the use of lower-cost inventory purchases. • Cost of sales, as a percentage of net sales, in our analytical reference standards and services segment are influenced by many factors including inventory purchase costs, fixed supply chain overhead costs and transportation and storage costs. For the three and nine months ended September 30, 2025, this segment experienced relatively stable net sales and modest reductions in cost of sales compared to the same periods in 2024. As a result, cost of sales as a percentage of net sales improved by approximately 1,140 basis points and 1,390 basis points, respectively. While the percentage improvement appears significant, this segment's smaller scale means that modest changes in dollar amounts can result in outsized percentage fluctuations. Gross Profit Gross profit is net sales less the cost of sales and is affected by business and product mix, competitive pricing and costs of products, labor, overhead, services, and delivery, among other factors. The following table sets forth our total gross profit by reportable segment: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 % Change 2025 2024 % Change Gross profit : Consumer Products $ 17,457 $ 11,611 50 % $ 46,797 $ 34,670 35 % Ingredients 4,253 4,497 (5) 14,132 8,504 66 Analytical reference standards and services 218 132 65 556 215 159 Total gross profit $ 21,928 $ 16,240 35 % $ 61,485 $ 43,389 42 % For details supporting the changes in gross profit, refer to the preceding discussions outlining the changes in both our net sales and cost of sales for each respective segment. 30 Table of Contents Operating Expenses-Sales and Marketing Sales and marketing expenses consist of salaries, advertising, public relations and marketing expenses. Sales and marketing expenses by reportable segment were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 ($ In thousands) Amount % of net sales Amount % of net sales Amount % of net sales Amount % of net sales Advertising expenses: Consumer Products $ 3,145 12.1 % $ 2,734 15.1 % $ 9,003 12.8 % $ 7,770 14.4 % Total advertising expenses $ 3,145 9.3 % $ 2,734 10.7 % $ 9,003 9.4 % $ 7,770 11.0 % Marketing expenses: Consumer Products $ 2,700 10.4 % $ 1,920 10.6 % $ 7,667 10.9 % $ 5,886 10.9 % Ingredients 17 0.2 15 0.2 87 0.4 77 0.5 Analytical reference standards and services 1 0.1 — — 1 — 4 0.2 Total marketing expenses $ 2,718 8.0 % $ 1,935 7.6 % $ 7,755 8.1 % $ 5,967 8.5 % Selling expenses: Consumer Products $ 2,788 10.7 % $ 2,264 12.5 % $ 7,973 11.4 % $ 6,635 12.3 % Ingredients 38 0.5 (9) (0.1) 94 0.4 7 — Analytical reference standards and services 79 10.2 120 15.3 267 11.2 374 16.3 Total selling expenses $ 2,905 8.5 % $ 2,375 9.3 % $ 8,334 8.7 % $ 7,016 10.0 % Total sales and marketing expenses: Consumer Products $ 8,633 33.2 % $ 6,918 38.2 % $ 24,643 35.1 % $ 20,291 37.5 % Ingredients 55 0.8 6 0.1 181 0.8 84 0.6 Analytical reference standards and services 80 10.4 120 15.3 268 11.3 378 16.5 Total sales and marketing expenses $ 8,768 25.8 % $ 7,044 27.5 % $ 25,092 26.3 % $ 20,753 29.4 % Total sales and marketing expenses increased by $1.7 million and $4.3 million during the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. However, as a percentage of net sales, total sales and marketing expenses improved by 170 basis points and 310 basis points, respectively, reflecting improved sales efficiency and disciplined investment as well as higher ingredient sales that require minimal additional sales and marketing resources. The increase in expenses primarily reflects higher investments to support brand growth in our consumer products segment. Detailed changes in sales and marketing expense were primarily driven by the following: • For our consumer products segment, sales and marketing expenses increased by $1.7 million and $4.4 million during the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. While these expenses rose in absolute terms, sales and marketing expenses, as a percentage of net sales, improved to 33.2% from 38.2% for the three month periods ended September 30, 2025 and 2024, respectively, and improved to 35.1% from 37.5% for the nine month periods ended September 30, 2025 and 2024, respectively. ◦ Advertising expenses rose by $0.4 million during the three months ended September 30, 2025, and by $1.2 million during the nine months ended September 30, 2025. Despite the higher spend, as a percentage of net sales, advertising efficiency improved, with expenses representing 12.1% of net sales, compared to 15.1% in the prior-year quarter, and 12.8% of net sales, compared to 14.4% in the prior year-to-date period. ◦ Marketing expenses totaled $2.7 million and $7.7 million during the three and nine months ended September 30, 2025, respectively, representing increases of $0.8 million and $1.8 million compared to the same periods in 2024. As a percentage of net sales, marketing expenses improved slightly to 10.4% from 10.6% for the three month periods and remained steady at 10.9% for the nine month periods. 31 Table of Contents ◦ Selling expenses grew by $0.5 million during the three months ended September 30, 2025, and by $1.3 million during the nine months ended September 30, 2025. As a percentage of net sales, selling expenses improved slightly in both periods, declining to 10.7% from 12.3% compared to the corresponding periods in 2024. • For our ingredients segment, total sales and marketing expense increased by $49,000 and $97,000 during the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase reflects higher investment to support pharmaceutical-grade Niagen® ingredient. These expenses remained immaterial as a percentage of net sales. • For our analytical reference standards and services segment, sales and marketing expense decreased to $80,000 and $268,000 for the three and nine months ended September 30, 2025, respectively, primarily due to lower selling costs and more efficient resource allocation. Operating Expenses-Research and Development Research and development (R&D) expenses consist primarily of headcount, clinical trials, product development and process development expenses. Research and development expenses by reportable segment were as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 % Change 2025 2024 % Change R&D expenses: Consumer Products $ 1,400 $ 901 55 % $ 3,481 $ 3,731 (7) % Ingredients 395 389 2 1,139 970 17 Total R&D expenses $ 1,795 $ 1,290 39 % $ 4,620 $ 4,701 (2) % We allocate R&D expenses related to our Niagen® branded ingredient to the consumer products and ingredients segment, based on recorded revenues. For the three months ended September 30, 2025, R&D expenses increased by $0.5 million compared to the same period in 2024, primarily due to higher professional and consulting fees, higher employee wage expenses and additional lab supply purchases to support ongoing development activities. For the nine months ended September 30, 2025, R&D expenses declined by $0.1 million compared to the prior year period. This decrease is primarily due to elevated R&D investments in the first quarter of 2024 to support the successful launch of the Niagen Plus product line, including advancement of pharmaceutical-grade Niagen®. The year-over-year decline was partially offset by higher employee wage expenses in 2025 and timing of R&D projects. We continue to anticipate fluctuations in R&D investment based on the timing and scope of specific projects, clinical development activities, and internal resource allocation. Operating Expenses-General and Administrative General and administrative expense consists of general company administration, legal, royalties, IT, accounting and executive management expenses. General and administrative expenses are not allocated by segment and instead are classified under our Corporate and Other category. General and administrative expense for the periods indicated were as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 % Change 2025 2024 % Change General and administrative $ 7,129 $ 6,304 13 % $ 19,580 $ 17,320 13 % Total general and administrative expenses increased by $0.8 million and $2.3 million during the three and nine months ended September 30, 2025, respectively, compared to the corresponding periods in 2024. During the three months ended September 30, 2025, the increase was primarily driven by $1.1 million in higher employee-related expenses and share-based compensation, partially offset by a $0.4 million reduction in professional and consulting fees, with the remainder attributable to various general and administrative costs. During the nine months ended September 30, 2025, the increase reflects $2.2 million in higher employee-related expenses and share-based compensation, $0.4 million higher banking, royalty and insurance costs, and $0.8 million higher professional and consulting fees, partially offset by a $1.3 million reduction in credit loss expense due to a recovery of previously recognized credit losses. The remaining increase was attributable to other general and administrative costs. For additional details regarding the recovery of credit losses see Note 10, Commitments and Contingencies , under the heading Legal Proceedings , respectively in the Notes to the Consolidated Financial Statements, included in Part I, Item 1 of this Form 10-Q. 32 Table of Contents Income Taxes Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of September 30, 2025 and December 31, 2024, we maintained a full valuation allowance against the entire deferred income tax balance. In accordance with ASC 740, Income Taxes, future realization of deferred tax assets depends on the existence of sufficient taxable income, including the expectation of future profitability. The Company recorded income tax expense of $222,000 and $518,000 during the three and nine months ended September 30, 2025, respectively, representing 4.6% and 3.8% of earnings before income taxes for the respective periods. During the three and nine months ended September 30, 2024, the Company did not record income tax expense. The Company is not currently under examination by the Internal Revenue Service or any other major income tax jurisdiction. As of September 30, 2025 and December 31, 2024, the Company has not identified any material uncertain tax positions requiring a reserve. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, makes permanent many of the corporate and individual tax provisions originally introduced under the Tax Cuts and Jobs Act of 2017 and introduces a range of new provisions such as extended bonus depreciation, enhanced R&D expensing, and changes affecting international tax rules, interest deductibility, and startup stock exemptions. While the OBBBA may have broad implications for corporate taxpayers, the Company has evaluated the relevant provisions and does not anticipate a significant impact on its consolidated income tax position, effective tax rate, or valuation allowance as a result of the legislation. Management will continue to monitor the implementation of the Act and evaluate any future guidance or rulemaking that may affect the Company’s tax profile. Depreciation and Amortization Depreciation expense was approximately $473,000 and $512,000 for the nine months ended September 30, 2025 and 2024, respectively. We depreciate our assets on a straight-line basis, based on the estimated useful lives of the respective assets. Amortization expense of intangible assets was approximately $113,000 for each of the nine months ended September 30, 2025 and 2024. We amortize intangible assets using a straight-line method, generally over 10 years. For licensed patent rights, the useful lives are 10 years or the remaining term of the patents underlying licensing rights, whichever is shorter. The useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized. Noncash lease expense for the nine months ended September 30, 2025 was approximately $496,000 compared to $501,000 for the nine months ended September 30, 2024. Liquidity and Capital Resources From inception through September 30, 2025, we have incurred aggregate losses of approximately $168.7 million. These losses are primarily due to expenses associated with the development and expansion of our operations and investments to protect our intellectual property, including litigation-related expenses. Historically, these operations have been financed through capital contributions, primarily through the issuance of common stock in private placements, and cash generated from sales. Our board of directors periodically reviews our capital requirements in light of our proposed business plan. Our future capital requirements will be influenced by several factors, including cash flows from operations, sales growth, optimized gross profit margins, reduced selling and marketing expense as a percentage of net sales, continued customer relationship development, and the ability to successfully market new and existing products. However, based on our results from operations, we may determine that we need additional financing to implement our long-term business plan. There can be no assurance that any such financing will be available on terms favorable to us or at all. 33 Table of Contents As of September 30, 2025, we had cash and cash equivalents of $64.3 million, including $152,000 of restricted cash, no material off-balance sheet arrangements and no outstanding borrowings under our line of credit with Western Alliance Bank. Our cash and cash equivalents as of September 30, 2025 consisted of bank deposits and short-term investments of highly liquid investment-grade debt instruments with an original maturity of three months or less. Additionally, as of September 30, 2025, we had purchase obligations of $33.6 million related to inventory purchase commitments to be paid for the next twelve months through September 30, 2026, as well as future minimum lease obligations of $3.4 million to be paid over approximately five years. We anticipate that our current unrestricted cash and cash equivalents and cash to be generated from net sales will be sufficient to meet our financial obligations as they become due over at least the next twelve months and beyond. However, we may seek additional funds to support both our short-term and long-term operating objectives, either through additional equity or debt financings or collaborative agreements or from other sources. Net cash provided by operating activities: Cash provided by operating activities is net loss adjusted for certain non-cash items and changes in operating assets and liabilities. For the nine months ended September 30, 2025, net cash provided by operating activities was approximately $12.8 million, compared to approximately $3.5 million for the nine months ended September 30, 2024. The increase of approximately $9.3 million was primarily driven by improvements in net income, higher collections on trade receivables relative to the increase in trade receivables, higher share-based compensation expense, and an increase in accounts payable compared to a reduction in the prior year period. These increases were partially offset by a decrease in credit loss expense due to a recovery of previously written-off amounts and higher inventory purchases associated with scaling our inventory levels. We expect operating cash flows to continue to fluctuate significantly from period to period due to a variety of factors, including changes in operating results, shipment timing, the pace of trade receivable collections, inventory management practices, and the timing of payments to vendors, among other factors. Cash used in investing activities: Investing cash flows consist primarily of capital expenditures. Cash used in investing activities was $191,000 and $74,000 for the nine months ended September 30, 2025 and 2024, respectively. Net cash provided by financing activities: Financing cash flows primarily consists proceeds from the exercise of stock options. For the nine months ended September 30, 2025, cash provided by financing activities was $7.0 million, compared to $1.6 million for the same period in 2024. This increase of $5.4 million was driven by higher proceeds from the exercise of stock options compared to the same period in 2024. Critical Accounting Estimates There have been no material changes to critical accounting estimates from those disclosed in our 2024 Form 10-K. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 34 Table of Contents