What changed in this filing

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Item 1A. Risk Factors

2022-03-14 compared with 2021-03-12 · 312 added, 267 removed, 234 unchanged (71% of the section changed)

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Current investors and potential investors should consider carefully the risks and uncertainties described below together with all other information contained in this Form 10-K before making investment decisions with respect to our common stock.

If any of the following risks occurs, our business, financial condition, results of operations and our future growth prospects would be materially and adversely affected.

If any of the following risks occur, our business, financial condition, results of operations and our future growth prospects would likely be materially and adversely affected.

Under these circumstances, the trading price and value of our common stock could decline, resulting in a loss of all or part of your investment.

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The COVID-19 pandemic has adversely affected, and is expected to continue to pose risks to, our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

As previously disclosed, we face risks related to the ongoing COVID-19 pandemic.

COVID-19 has spread across the globe during 2020 and is impacting economic activity worldwide.

COVID-19 has caused disruption and volatility in the global capital markets, and has caused an economic slowdown.

The COVID-19 pandemic and its associated economic uncertainty may negatively impact our sales volumes in 2021.

In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing.

The duration of these measures is unknown, may be extended and additional measures may be imposed.

Among the potential effects of COVID-19 include, but are not limited to, the following:

Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which may adversely affect our results of operations by reducing our sales, margins and/or net income as a result of a slowdown in customer orders.

As previously disclosed, we face risks related to the ongoing COVID-19 pandemic, including the emergence of new variant strains with varying degrees of resistance to vaccines, and these variant strains’ impacts.

COVID-19 has spread across the globe since 2020 and is impacting economic activity worldwide.

COVID-19 has caused supply chain and market disruptions and volatility in the global capital markets, and has caused an economic slowdown.

In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders, vaccine mandates and recommendations to practice social distancing.

The duration of these measures is unknown, may be extended and additional measures may be imposed, in light of the recent surge in cases, which could negatively impact our sales volumes.

The potential effects of COVID-19 include, but are not limited to, the following:

• Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending due to economic uncertainty, which may adversely affect our results of operations by reducing our sales, margins and/or net income as a result of a slowdown in customer orders.

• Reduced demand for our products due to store closures and reduced operating hours of our customers.

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For example, our retail business, including sales to A.S.

Watson group and other partners in international markets, has been impacted by the effects of COVID-19, due to store closures and reduced operating hours.

Watson group and other partners in international markets, has been impacted by the effects of COVID-19, due to strict government lockdowns, store closures and reduced operating hours.

Additionally, global supply chains have increasingly been impacted by COVID-19, including challenges with transportation, logistics and production lead-times, as well as labor shortages and cost inflation.

To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and cash flows, it may also heighten many of the other risks described in this section.

The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Global, market and economic conditions may negatively impact our business, financial condition and share price.

Concerns over inflation, geopolitical issues, the U.S.

financial markets, foreign exchange rates, capital and exchange controls, unstable global credit markets and financial conditions and the COVID-19 pandemic, have led to periods of significant economic instability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, and increased unemployment rates.

Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions.

If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete, more costly and more dilutive.

In addition, there is a risk that one or more of our current or future service providers, manufacturers, suppliers and other partners could be negatively affected by difficult economic times, which could adversely affect our ability to attain our operating goals on schedule and on budget or meet our business and financial objectives.

In addition, we face several risks associated with international business and are subject to global events beyond our control, including war, public health crises, such as pandemics and epidemics, trade disputes, economic sanctions, trade wars and their collateral impacts and other international events.

Any of these changes could have a material adverse effect on our reputation, business, financial condition or results of operations.

There may be changes to our business if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest;

and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.

In February 2022, armed conflict escalated between Russia and Ukraine.

The sanctions announced by the U.S.

and other countries, following Russia’s invasion of Ukraine against Russia to date include restrictions on selling or importing goods, services or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business and financial organizations in Russia.

and other countries could impose wider sanctions and take other actions should the conflict further escalate.

It is not possible to predict the broader consequences of this conflict, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, currency exchange rates and financial markets, all of which could impact our business, financial condition and results of operations.

We have a history of operating losses, may need additional financing to meet our future long-term capital requirements and may be unable to raise sufficient capital on favorable terms or at all.

We have a history of losses and may continue to incur operating and net losses for the foreseeable future.

We incurred net losses of approximately $19.9 million and $32.1 million for the years ended December 31, 2020 and December 31, 2019, respectively.

We incurred net losses of approximately $27.1 million and $19.9 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, our accumulated deficit was approximately $169.0 million.

We have not achieved profitability on an annual basis.

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As of December 31, 2021, our cash and cash equivalents totaled approximately $28.2 million.

Subsequent to the year ended December 31, 2020, we entered into a Securities Purchase Agreement with an investor, pursuant to which we sold and issued an aggregate of $25.0 million of the Company’s common stock.

While we anticipate that our current cash, cash equivalents, cash to be generated from operations, $25.0 million received from the financing described above and available line of credit up to $7.0 million from Western Alliance Bank will be sufficient to meet our projected operating plans through at least the next twelve months, we may require additional funds, either through additional equity or debt financings, including pursuant to the At Market Issuance Sales Agreement, dated as of June 12, 2020, with B.

While we anticipate that our current cash, cash equivalents and cash to be generated from net sales will be sufficient to meet our projected operating plans through at least the next twelve months and have an available line of credit up to $10.0 million from Western Alliance Bank, we may require additional funds, either through additional equity or debt financings, including pursuant to the At Market Issuance Sales Agreement, dated as of June 12, 2020, with B.

Riley FBR, Inc.

and Raymond James & Associates, Inc.

(the “ATM Facility”), or collaborative agreements or from other sources.

(ATM Facility), or collaborative agreements or from other sources.

We have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable to us, or at all.

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The inability to raise additional financing may have a material adverse effect on the future performance of the Company.

Our capital requirements will depend on many factors.

Our capital requirements will depend on many factors, including:

Our material cash requirements will depend on many factors.

Our material cash requirements will depend on many factors, including:

• the revenues generated by sales of our products;

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• the expenses we incur in developing and commercializing our products, including the cost of obtaining and maintaining regulatory approvals;

unanticipated general and administrative expenses, including expenses involved with our ongoing litigation with Elysium.

• unanticipated general and administrative expenses.

Because of these factors, we may seek to raise additional capital within the next twelve months both to meet our projected operating plans after the next twelve months and to fund our longer term strategic objectives.

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Any of these events could adversely affect our ability to achieve our development and commercialization goals, which could have a material and adverse effect on our business, results of operations and financial condition.

Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain and may be inadequate, which would have a material and adverse effect on us.

Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products.

We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology, including our licensed technology.

However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.

For example, our pending United States and foreign patent applications may not issue as patents in a form that will be advantageous to us or may issue and be subsequently successfully challenged by others and invalidated.

In addition, our pending patent applications include claims to material aspects of our products and procedures that are not currently protected by issued patents.

Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

Competitors may be able to design around our patents or develop products which provide outcomes which are comparable or even superior to ours.

Steps that we have taken to protect our intellectual property and proprietary technology, including entering into confidentiality agreements and intellectual property assignment agreements with some of our officers, employees, consultants and advisors, may not provide us with meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.

Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.

In the event a competitor infringes our licensed or pending patent or other intellectual property rights, enforcing those rights may be costly, uncertain, difficult and time consuming.

Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time consuming and could divert our management’s attention.

We may not have sufficient resources to enforce our intellectual property rights or to defend our patents rights against a challenge.

The failure to obtain patents and/or protect our intellectual property rights could have a material and adverse effect on our business, results of operations and financial condition.

Our patents and licenses may be subject to challenge on validity grounds, and our patent applications may be rejected.

We rely on our patents, patent applications, licenses and other intellectual property rights to give us a competitive advantage.

Whether a patent is valid, or whether a patent application should be granted, is a complex matter of science and law, and therefore we cannot be certain that, if challenged, our patents, patent applications and/or other intellectual property rights would be upheld.

If one or more of those patents, patent applications, licenses and other intellectual property rights are invalidated, rejected or found unenforceable, that could reduce or eliminate any competitive advantage we might otherwise have had.

We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from developing our products, require us to obtain licenses from third parties or to develop non-infringing alternatives and subject us to substantial monetary damages.

Third parties could, in the future, assert infringement or misappropriation claims against us with respect to products we develop.

Whether a product infringes a patent or misappropriates other intellectual property involves complex legal and factual issues, the determination of which is often uncertain.

Therefore, we cannot be certain that we have not infringed the intellectual property rights of others.

There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for use related to the use or manufacture of our products, and our potential competitors may assert that some aspect of our product infringes their patents.

Because patent applications may take years to issue, there also may be applications now pending of which we are unaware that may later result in issued patents upon which our products could infringe.

There also may be existing patents or pending patent applications of which we are unaware upon which our products may inadvertently infringe.

Any infringement or misappropriation claim could cause us to incur significant costs, place significant strain on our financial resources, divert management’s attention from our business and harm our reputation.

If the relevant patents in such claim were upheld as valid and enforceable and we were found to infringe them, we could be prohibited from manufacturing or selling any product that is found to infringe unless we could obtain licenses to use the technology covered by the patent or are able to design around the patent.

We may be unable to obtain such a license on terms acceptable to us, if at all, and we may not be able to redesign our products to avoid infringement, which could materially impact our revenue.

A court could also order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees.

These damages could be substantial and could harm our reputation, business, financial condition and operating results.

A court also could enter orders that temporarily, preliminarily or permanently enjoin us and our customers from making, using, or selling products, and could enter an order mandating that we undertake certain remedial activities.

Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties.

The prosecution and enforcement of patents licensed to us by third parties are not within our control.

Without these technologies, our products may not be successful and our business would be harmed if the patents were infringed on or misappropriated without action by such third parties.

We have obtained licenses from third parties for patents and patent application rights related to the products we are developing, allowing us to use intellectual property rights owned by or licensed to these third parties.

We do not control the maintenance, prosecution, enforcement or strategy for many of these patents or patent application rights and as such are dependent in part on the owners of the intellectual property rights to maintain their viability.

If any third-party licensor is unable to successfully maintain, prosecute or enforce the licensed patents and/or patent application rights related to our products, we may become subject to infringement or misappropriate claims or lose our competitive advantage.

Without access to these technologies or suitable design-around or alternative technology options, our ability to conduct our business could be impaired significantly.

We are currently engaged in substantial and complex litigation with Elysium Health, Inc.

and Elysium Health LLC (collectively, “Elysium”), the outcome of which could materially harm our business and financial results.

The litigation includes multiple complaints and counterclaims by us and Elysium in venues in California and New York, as well as a patent infringement complaint filed by the Company and Trustees of Dartmouth College.

For further details on this litigation, please refer to Part I, Item 3 of this Annual Report on Form 10-K.

The litigation is substantial and complex, and it has caused and could continue to cause us to incur significant costs, as well as distract our management over an extended period.

The litigation may substantially disrupt our business and we cannot assure you that we will be able to resolve the litigation on terms favorable to us.

If we are unsuccessful in resolving the litigation on favorable terms to us, we may be forced to pay compensatory and punitive damages and restitution for any royalty payments that we received from Elysium, which payments could materially harm our business, or be subject to other remedies, including injunctive relief.

We cannot predict the outcome of our litigation with Elysium, which could have any of the results described above or other results that could materially adversely affect our business.

Interruptions in our relationships or declines in our business with major customers could materially harm our business and financial results.

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As a result, the market acceptance of TRU NIAGEN® is critical to our continued success, and if we are unable to expand market acceptance of TRU NIAGEN®, our business, results of operations, financial condition, liquidity and growth prospects would be materially adversely affected.

Our TRU NIAGEN ® products are not approved by the United States Food and Drug Administration or any foreign regulatory authority to mitigate, prevent, treat, diagnose or cure COVID-19 or any other disease or condition.

As previously disclosed, in November 2020, we received a warning letter (the “Letter”) from the FDA and Federal Trade Commission (“FTC”).

The Letter references statements related to preclinical and clinical research and data involving NR and COVID-19 that were included in certain press releases and social media posts issued by us (the “Public Disclosures”).

The Letter asserts that our TRU NIAGEN® products are intended to mitigate, prevent, treat, diagnose or cure COVID-19 in violation of certain sections of the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) and the Federal Trade Commission Act (the “FTC Act”).

We provided a response (the “Response”) to the Letter stating that we disagree with the assertion in the Letter that our products are intended to mitigate, prevent, treat, diagnose or cure COVID-19 in violation of certain sections of the FD&C Act and the FTC Act.

The Response notes that the Public Disclosures accurately describe the scientific research regarding NR and COVID-19, and that such Public Disclosures were not intended to suggest the use of our products for therapeutic purposes.

However, in order to address the concerns from the Letter, we deleted certain social media posts and removed certain press releases from our website, including the Public Disclosures.

In February 2021, we announced that results from the study “Combined Metabolic Activators Accelerates Recovery in Mild-to-Moderate COVID-19” conducted by a third party were published on a preprint publication website.

The randomized, placebo-controlled, and double-blind Phase 3 clinical trial conducted in Turkey demonstrated that patients with mild-to-moderate COVID-19 receiving Turkish standard of care experienced a 3.5 day reduction in recovery time when receiving an added nutritional protocol.

Aimed at improving mitochondrial function, the protocol included NR, L-serine, N-acetyl-L-cysteine (NAC), and L-carnitine tartrate.

However, our TRU NIAGEN® products are not approved by the FDA or any foreign regulatory authority to mitigate, prevent, treat, diagnose or cure COVID-19 or any other disease or condition, and are not intended for such use, and may never be approved for such use by the FDA or any foreign regulatory authority.

Decline in the state of the global economy and financial market conditions could adversely affect our ability to conduct business and our results of operations .

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Such events could, in turn, adversely affect our business through loss of sales.

We may need to increase the size of our organization, and we can provide no assurance that we will successfully expand operations or manage growth effectively.

Our significant increase in the scope and the scale of our product launches, including the hiring of additional personnel, has resulted in significantly higher operating expenses.

As a result, we anticipate that our operating expenses will continue to increase.

Expansion of our operations may also cause a significant demand on our management, finances and other resources.

Our ability to manage the anticipated future growth, should it occur, will depend upon a significant expansion of our accounting and other internal management systems and the implementation and subsequent improvement of a variety of systems, procedures and controls.

There can be no assurance that significant problems in these areas will not occur.

Any failure to expand these areas and implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with our business could have a material adverse effect on our business, financial condition and results of operations.

There can be no assurance that our attempts to expand our marketing, sales, manufacturing and customer support efforts will be successful or will result in additional sales or profitability in any future period.

As a result of the expansion of our operations and the anticipated increase in our operating expenses, as well as the difficulty in forecasting revenue levels, we expect to continue to experience significant fluctuations in our results of operations.

Changes in our business strategy, including entering the consumer product market, or restructuring of our businesses may increase our costs or otherwise affect the profitability of our businesses.

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In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets or returns on new investments may be lower than prior to the change in strategy or restructuring.

For example, if we are not successful in developing our consumer product business, our sales may decrease and our costs may increase.

For example, we may not be successful in developing our consumer product business for sales of TRU NIAGEN® products, and our sales may decrease despite us incurring increased costs related to marketing such products.

The success of our consumer product and ingredient business is linked to the size and growth rate of the vitamin, mineral and dietary supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.

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• convert consumer inquiries into actual orders.

Unfavorable publicity or consumer perception of our products and any similar products distributed by other companies could have a material adverse effect on our business.

We believe the nutritional supplement market is highly dependent upon consumer perception regarding the safety, efficacy and quality of nutritional supplements generally, as well as of products distributed specifically by us.

Consumer perception of our products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, national media attention and other publicity regarding the consumption of nutritional supplements.

We cannot assure you that future scientific research, findings, regulatory proceedings, litigation, media attention or other favorable research findings or publicity will be favorable to the nutritional supplement market or any product, or consistent with earlier publicity.

Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, such earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and consequently on our business, results of operations, financial condition and cash flows.

Our dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, if accurate or with merit, could have a material adverse effect on the demand for our products, the availability and pricing of our ingredients, and our business, results of operations, financial condition and cash flows.

Further, adverse public reports or other media attention regarding the safety, efficacy and quality of nutritional supplements in general, or our products specifically, or associating the consumption of nutritional supplements with illness, could have such a material adverse effect.

Any such adverse public reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed and the content of such public reports and other media attention may be beyond our control.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income .

As a consumer product and ingredient supplier we market and manufacture products designed for human and animal consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury.

Our products consist of vitamins, minerals, herbs and other ingredients that are classified as food ingredients, dietary supplements, or natural health products, and, in most cases, are not necessarily subject to pre-market regulatory approval in the United States.

Some of our products contain innovative ingredients that do not have long histories of human consumption.

Previously unknown adverse reactions resulting from human consumption of these ingredients could occur.

In addition, the products we sell are produced by third-party manufacturers.

As a marketer of products manufactured by third parties, we also may be liable for various product liability claims for products we do not manufacture.

We may, in the future, be subject to various product liability claims, including, among others, that our products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances.

A product liability claim against us could result in increased costs and could adversely affect our reputation with our customers, which, in turn, could have a materially adverse effect on our business, results of operations, financial condition and cash flows.

We acquire ingredients for our products from foreign suppliers, and may be negatively affected by the risks associated with international trade and importation issues .

We acquire ingredients for a number of our products from suppliers outside of the United States.

Accordingly, the acquisition of these ingredients is subject to the risks generally associated with importing raw materials, including, among other factors, delays in shipments, changes in economic and political conditions, quality assurance, health epidemics affecting the region of such suppliers, including COVID-19, nonconformity to specifications or laws and regulations, tariffs, trade disputes and foreign currency fluctuations.

While we have a supplier certification program and audit and inspect our suppliers’ facilities as necessary both in the United States and internationally, we cannot assure you that raw materials received from suppliers outside of the United States will conform to all specifications, laws and regulations.

There have in the past been quality and safety issues in our industry with certain items imported from overseas.

We may incur additional expenses and experience shipment delays due to preventative measures adopted by the U.S.

governments, our suppliers and our company.

The insurance industry has become more selective in offering some types of coverage and we may not be able to obtain insurance coverage in the future .

The insurance industry has become more selective in offering some types of insurance, such as product liability, product recall, property and directors’ and officers’ liability insurance.

Our current insurance program is consistent with both our past level of coverage and our risk management policies.

However, we cannot assure you that we will be able to obtain comparable insurance coverage on favorable terms, or at all, in the future.

Certain of our customers as well as prospective customers require that we maintain minimum levels of coverage for our products.

Lack of coverage or coverage below these minimum required levels could cause these customers to materially change business terms or to cease doing business with us entirely.

If we experience product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.

We may be exposed to product recalls and adverse public relations if our products are alleged to be mislabeled or to cause injury or illness, or if we are alleged to have violated governmental regulations.

A product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow.

In addition, a product recall may require significant management attention.

Product recalls may hurt the value of our brands and lead to decreased demand for our products.

Product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We depend on key personnel, the loss of any of which could negatively affect our business .

We depend greatly on Frank L.

Jaksch Jr., Robert N.

Fried, Kevin M.

Farr and Lisa H.

Harrington, who are our Executive Chairman of the Board, Chief Executive Officer, Chief Financial Officer and General Counsel, respectively.

We also depend greatly on other key employees, including key scientific and marketing personnel.

In general, only highly qualified and trained scientists have the necessary skills to develop our products and provide our services.

Only marketing personnel with specific experience and knowledge in health care are able to effectively market our products.

In addition, some of our manufacturing, quality control, safety and compliance, information technology, sales and e-commerce related positions are highly technical as well.

We face intense competition for these professionals from our competitors, customers, marketing partners and other companies throughout the industries in which we compete.

Our success will depend, in part, upon our ability to attract and retain additional skilled personnel, which will require substantial additional funds.

There can be no assurance that we will be able to find and attract additional qualified employees or retain any such personnel.

Our inability to hire qualified personnel, the loss of services of our key personnel, or the loss of services of executive officers or key employees that may be hired in the future may have a material and adverse effect on our business.

Our operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control.

We are subject to the following factors, among others, that may negatively affect our operating results:

the announcement or introduction of new products by our competitors;

our ability to upgrade and develop our systems and infrastructure to accommodate growth;

the decision by significant customers to reduce purchases;

disputes and litigation with competitors;

our ability to attract and retain key personnel in a timely and cost-effective manner;

technical difficulties;

the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure;

regulation by federal, state or local governments;

general economic conditions as well as economic conditions specific to the healthcare industry.

For example, our operating results may be harmed by the effect of the COVID-19 pandemic on global economic conditions.

As a result of our limited operating history and the nature of the markets in which we compete, it is extremely difficult for us to make accurate forecasts.

We have based our current and future expense levels largely on our investment plans and estimates of future events although certain of our expense levels are, to a large extent, fixed.

Assuming our products reach the market, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.

Accordingly, any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results of operations and financial condition.

Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions that could have a material and adverse effect on our business, results of operations and financial condition.

Due to the foregoing factors, our revenues and operating results are and will remain difficult to forecast.

We face significant competition, including changes in pricing.

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In certain instances, competitors with greater financial resources also may be able to enter a market in direct competition with us, offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features that consumers may find attractive.

We may never develop any additional products to commercialize.

We have invested a substantial amount of our time and resources in developing various new products.

Commercialization of these products will require additional development, clinical evaluation, regulatory approval, significant marketing efforts and substantial additional investment before they can provide us with any revenue.

Despite our efforts, these products may not become commercially successful products for a number of reasons, including but not limited to:

we may not be able to obtain regulatory approvals for our products, or the approved indication may be narrower than we seek;

our products may not prove to be safe and effective in clinical trials;

we may experience delays in our development program;

any products that are approved may not be accepted in the marketplace;

we may not have adequate financial or other resources to complete the development or to commence the commercialization of our products or will not have adequate financial or other resources to achieve significant commercialization of our products;

we may not be able to manufacture any of our products in commercial quantities or at an acceptable cost;

rapid technological change may make our products obsolete;

we may be unable to effectively protect our intellectual property rights or we may become subject to claims that our activities have infringed the intellectual property rights of others;

we may be unable to obtain or defend patent rights for our products.

In addition, we may never achieve technical feasibility under the supply agreement with Nestec Ltd., and therefore our sales and profit expectations resulting from this agreement may be reduced.

We may not be able to partner with others for technological capabilities and new products and services.

Our ability to remain competitive may depend, in part, on our ability to continue to seek partners that can offer technological improvements and improve existing products and services that are offered to our customers.

We are committed to attempting to keep pace with technological change, to stay abreast of technology changes and to look for partners that will develop new products and services for our customer base.

We cannot assure prospective investors that we will be successful in finding partners or be able to continue to incorporate new developments in technology, to improve existing products and services, or to develop successful new products and services, nor can we be certain that newly developed products and services will perform satisfactorily or be widely accepted in the marketplace or that the costs involved in these efforts will not be substantial.

If we fail to maintain adequate quality standards for our products and services, our business may be adversely affected and our reputation harmed.

Dietary supplement, nutraceutical, food and beverage, functional food, analytical laboratories, pharmaceutical and cosmetic customers are often subject to rigorous quality standards to obtain and maintain regulatory approval of their products and the manufacturing processes that generate them.

A failure to maintain, or, in some instances, upgrade our quality standards to meet our customers’ needs, could cause damage to our reputation and potentially substantial sales losses.

We may be subject to damages resulting from claims that we, our employees, or our independent contractors have wrongfully used or disclosed alleged trade secrets of others.

Some of our employees were previously employed at other dietary supplement, nutraceutical, food and beverage, functional food, analytical laboratories, pharmaceutical and cosmetic companies.

We may also hire additional employees who are currently employed at other such companies, including our competitors.

Additionally, consultants or other independent agents with which we may contract may be or have been in a contractual arrangement with one or more of our competitors.

We may be subject to claims that these employees or independent contractors have used or disclosed such other party’s trade secrets or other proprietary information.

Litigation may be necessary to defend against these claims.

Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to our management.

If we fail to defend such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.

A loss of key personnel or their work product could hamper or prevent our ability to market existing or new products, which could severely harm our business.

Litigation may harm our business.

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For example, lawsuits by employees, stockholders, collaborators, distributors, customers, competitors or others could be very costly and substantially disrupt our business.

Disputes from time to time with such companies, organizations or individuals are not uncommon, and we cannot assure you that we will always be able to resolve such disputes or on terms favorable to us.

As further described in Part I, Item 3 of this Annual Report on Form 10-K, we are currently involved in substantial and complex litigation.

Disputes from time to time with such companies, organizations or individuals are not uncommon, and we cannot assure you that we will always be able to resolve such disputes on terms favorable to us.

As further described in Note 15, Commitments and Contingencies — Contingencies in the Notes to the Consolidated Financial Statements, included in Part II, Item 8 of this Form 10-K, we are currently involved in substantial and complex litigation.

Unexpected results could cause us to have financial exposure in these matters in excess of recorded reserves and insurance coverage, requiring us to provide additional reserves to address these liabilities, therefore impacting profits.

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The timing of the receipt of grant funds may affect the timing of purchase decisions by our customers and, as a result, cause fluctuations in our sales and operating results.

Demand for our products and services are subject to the commercial success of our customers’ products, which may vary for reasons outside our control.

Even if we are successful in securing utilization of our products in a customer’s manufacturing process, sales of many of our products and services remain dependent on the timing and volume of the customer’s production, over which we have no control.

The demand for our products depends on regulatory approvals and frequently depends on the commercial success of the customer’s supported product.

Regulatory processes are complex, lengthy, expensive, and can often take years to complete.

Risks Related to our Operations

We depend on key personnel, the loss of any of which could negatively affect our business .

We depend greatly on the collective services of Frank L.

Jaksch Jr., Robert N.

Fried, Kevin M.

Farr and William Carter, who are our Executive Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Senior Vice President of Business Affairs, respectively.