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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-03 · 127 added, 139 removed, 107 unchanged (71% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Management's Discussion and Analysis (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 and Section 21E of the Securities Exchange Act of 1934, as amended.

The following Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Form 10-Q and in our 2021 Annual Report on Form 10-K.

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 months ended March 31, 2022 compared with the three months ended March 31, 2021 unless otherwise noted.

Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” “ChromaDex” and similar expressions refer to ChromaDex Corporation, 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.

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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 and related notes set forth below in Part II, Item 1A, “Risk Factors” and included under Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 12, 2021 (Annual Report).

The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Growth and percentage comparisons made herein generally refer to the three and nine months ended September 30, 2021 compared with the three and nine months ended September 30, 2020 unless otherwise noted.

Readers should carefully review the risk factors set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 14, 2022 (Annual Report).

Company Overview

We are a global bioscience company dedicated to healthy aging.

Our team, which includes world-renowned scientists, is pioneering research on nicotinamide adenine dinucleotide (NAD+), levels of which decline with age.

NAD+ is an essential coenzyme and a key regulator of cellular metabolism.

Best known for its role in cellular energy production, NAD+ is now thought to play an important role in healthy aging.

Many cellular functions related to health and healthy aging are sensitive to levels of locally available NAD+ and this represents an active area of research in the field of NAD+.

NAD+ levels are not constant, and in humans, NAD+ levels have been shown to decline by more than 50% from young adulthood to middle age.

There are other factors linked to NAD+ depletion, including poor diet, excess alcohol consumption and a number of disease states.

NAD+ levels may also be increased, including through calorie restriction, moderate exercise and supplementation with NAD+ precursors, such as nicotinamide riboside (NR).

Healthy aging, mitochondrial health and NAD+ continue to be areas of focus in the research community.

To date, there are over 400 published human clinical studies related to NAD+ and its impact on health.

Areas of study include understanding NAD+’s role in Alzheimer’s disease, Parkinson’s disease, neuropathy, sarcopenia, liver disease and heart failure.

Our team, which includes world-renowned scientists, is pioneering research on nicotinamide adenine dinucleotide (NAD+), an essential coenzyme that is a key regulator of cellular metabolism and is found in every cell of the human body.

NAD+ levels in humans have been shown to decline by more than 50% from young adulthood to middle age.

In addition to age, other factors linked to NAD+ depletion include poor diet, excess alcohol consumption and a number of disease states.

NAD+ levels may be increased through supplementation with NAD+ precursors, such as nicotinamide riboside (NR), calorie restriction and moderate exercise.

In 2013, we commercialized Niagen®, a proprietary form of NR, a novel form of vitamin B3.

Data from numerous preclinical studies, and confirmed in human clinical trials, show that NR is a highly efficient NAD+ precursor that significantly raises blood and tissue NAD+ levels.

NIAGEN® is safe for human consumption.

Data from numerous preclinical studies and human clinical trials show that NR is a highly efficient NAD+ precursor that significantly raises NAD+ levels in blood and tissue.

Niagen® is confirmed safe for human consumption as a dietary supplement and food ingredient.

Niagen® has twice been successfully reviewed under the U.S.

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Niagen® is protected by patents to which we are the owner or have exclusive rights.

ChromaDex is among the world leaders in the emerging NAD+ space.

We have amassed more than 225 research partnerships with leading universities and research institutions around the world including the National Institutes of Health, Cornell, Dartmouth, Harvard, Massachusetts Institute of Technology, University of Cambridge and the Mayo Clinic.

Additional relationships are currently being developed.

While best known for its role in cellular energy production, NAD+ is also thought to play an important role in healthy aging.

Many cellular functions related to health and healthy aging are sensitive to levels of locally available NAD+ and this represents an active area of research in the field of NAD+.

To date, there are over 450 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 amassed more than 250 research partnerships with leading universities and research institutions around the world including the National Institutes of Health, Cornell, Dartmouth, Harvard, Massachusetts Institute of Technology, University of Cambridge and the Mayo Clinic.

The results of the 250+ research agreements have allowed CERP to help produce the trusted science behind Niagen® and continue to advance the understanding of NAD+ in health, diseases, and aging.

We value and encourage strong scientific rigor behind our products and seek to continually develop additional relationships in pursuit of this.

CERP is a vital component of our research and development platform along with our scientific advisory board.

Our scientific advisory board supports the technical and intellectual property needs of investigators, presents research at conferences, and helps build and support the NAD+ and healthy aging research community.

Our scientific advisory board is led by Chairman Dr.

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Impact of COVID-19

The worldwide outbreak of the 2019 coronavirus disease (COVID-19) continues to drive global uncertainty and disruption, which has created headwinds for our business.

Our e-commerce business continues to perform relatively well in this challenging environment.

Our international retail business, including sales to A.S.

Watson group and other partners in international markets, has been impacted by the effects of COVID-19, including the delta variant.

While certain countries continue to be impacted by strict government lockdowns, store closures and reduced operating hours, others are seeing signs of recovery.

Our United States (U.S.) retail operations are not a significant portion of our business today;

however, we began distributing Tru Niagen® in 3,800+ U.S.

Walmart™ stores beginning in June 2021.

In general, the U.S.

retail industry has recovered fairly well as the COVID-19 vaccine has been widely accessible and businesses continue to reopen and remain open.

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.

The worldwide outbreak of COVID-19 continues to drive global uncertainty and disruption, which has created headwinds for our business.

Authorities have imposed, and businesses and individuals have implemented, numerous measures to try to contain the virus or treat its impact, such as travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, store closures and reduced operating hours, and vaccine requirements.

These measures have impacted and may further impact our workforce and operations and those of our respective suppliers and partners.

Our primary focus throughout the COVID-19 pandemic has remained ensuring the health and safety of our employees through office closures or implementing enhanced safety protocols to ensure the well-being of our employees.

We have adapted to the new environment and have been able to successfully conduct business virtually.

The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including the duration and severity of the pandemic;

surges related to new variants;

the actions taken to contain the virus or treat its impact;

other actions taken by governments, businesses, and individuals in response to the virus and resulting economic disruption;

and how quickly and to what extent normal economic and operating conditions can resume.

Additional impacts and risks may arise that we are not aware of or able to respond to effectively.

We are similarly unable to predict the extent of the impact of the pandemic on our customers, suppliers, and other partners, but a material effect on these parties could also materially adversely affect us.

The impact of COVID-19 can also exacerbate other risks discussed in Part II, Item 1A Risk Factors and throughout this report.

Supply chain disruptions, inflation and changing prices

We have experienced, and could in the future experience, global supply chain delays including challenges with transportation, logistics and production lead-times, as well as labor shortages and cost inflation.

In the first quarter of 2021, we experienced delays due to global components and packaging shortages for our consumer products across our supply chain.

These challenges were addressed in the second quarter and we have otherwise not encountered any major disruptions in our supply chain.

It is our intention to maintain adequate safety stocks to support our growth and we currently have adequate inventory on hand to meet our current demands.

Overall, we believe the supply chain disruptions due to the COVID-19 pandemic will not have a material impact to our business operations, however we cannot predict how the current economic environment may evolve over the coming months.

We will continue to monitor the situation closely as conditions may become more challenging due to these ongoing economic factors.

Our primary focus throughout the COVID-19 pandemic has remained ensuring the health and safety of our employees by closing our offices or enhancing safety protocols in place to ensure the well-being of our employees.

We have adapted to the new environment and been able to successfully conduct business virtually.

Supply chain delays, among other factors such as store closures, have impacted our sales to partners in international markets.

These supply chain challenges were addressed in the second quarter of 2021 and we have otherwise not encountered any major disruptions in our supply chain.

It is our intention to maintain adequate safety stocks to support our growth and we currently believe we have adequate inventory on hand to meet current demands.

We have also recently experienced inflation in labor, raw materials and other costs.

Inflation can also have a long-term impact as increasing costs may impact our ability to maintain satisfactory margins.

We may be unsuccessful in passing these increases on to our customers or finding other mitigating solutions.

Furthermore, increases in inflation may not be matched by growth in consumer income, which also could have a negative impact on customer spending.

We will continue to monitor this situation closely as conditions may become more challenging due to ongoing and uncertain economic factors.

Financial Condition and Results of Operations

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Actual results may differ from these estimates under different assumptions or conditions.

On February 20, 2021, we entered into a Securities Purchase Agreement with EverFund pursuant to which we agreed to sell and issue approximately 3.8 million shares of common stock at a purchase price of $6.50 per share (the Financing).

On February 23, 2021, we closed the Financing and received proceeds of $24.9 million, net of offering costs.

As of March 31, 2022, our cash and cash equivalents totaled approximately $21.0 million.

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 for at least the next twelve months.

In addition, we have an available line of credit up to $10.0 million, subject to certain terms and conditions, from Western Alliance Bank.

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.

In June 2020, we entered into an At Market Issuance Sales Agreement (the Sales Agreement) with B.

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Riley FBR, the “Sales Agents”) under which ChromaDex may offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through the Sales Agents (ATM Facility).

During the second quarter of 2021, we sold an aggregate of 0.2 million shares of our common stock under the ATM Facility resulting in proceeds of $1.9 million, net of offering costs and commissions.

The shares sold at an average price of $10.56 per share.

As of September 30, 2021, approximately $47.8 million remains available under the ATM Facility.

As of September 30, 2021, our cash and cash equivalents on hand totaled approximately $33.1 million.

We anticipate that our current cash, cash equivalents, and available line of credit up to $7.0 million from Western Alliance Bank will be sufficient to meet our projected operating plans for at least the next twelve months.

Our line of credit currently expires on November 12, 2021.

We are actively working with Western Alliance Bank to extend this line of credit prior to its expiration.

The line of credit is an additional source of liquidity available to us, however any inability to access any portion of the amount available under this line will not have an adverse effect on our ability to satisfy our obligations or support operations.

We do not believe any delays in or inability to obtain an extension of this line of credit will impact our ability to meet our operating objectives.

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.

As of March 31, 2022, approximately $47.8 million remains available under the ATM Facility.

Additional capital may come from other public and/or private stock or debt offerings, borrowings under lines of credit or other sources.

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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.

Further, as a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

Further, as a result of the COVID-19 pandemic and other macroeconomic factors such as rising interest rates, inflation and geopolitical uncertainties, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

If equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive.

Effective as of August 2, 2021, we entered into a Seventh Amendment (Seventh Amendment) to the Manufacturing and Supply Agreement (such agreement as amended, the “Grace Manufacturing Agreement” or “Agreement”), originally effective in January 2016 with W.R.

In January 2019, Grace was issued patents related to the manufacturing of the crystalline form of NR (Grace Patents).

Pursuant to the Seventh Amendment, we are committed to purchase approximately $18.0 million of total inventory between January 1, 2022 and December 31, 2022 and $3.5 million of inventory from January 1, 2023 through June 30, 2023.

The Grace Manufacturing Agreement will expire on June 30, 2023, subject to further renewal of the Agreement to be negotiated by the parties.

Our net sales and net loss for the three and nine months ended on September 30, 2021 and 2020 are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

We currently have three operating segments which offer differentiated services.

First, through our Consumer Products segment we provide finished dietary supplement products that contain the Company's proprietary ingredients directly to consumers and distributors.

We deliver Niagen® as the sole active ingredient in our consumer product Tru Niagen® which is offered in both convenient capsules and stickpacks.

Additionally, beginning in April 2022, we launched our new consumer product, Tru Niagen® Immune, a combination of immune-boosting nutrition with Niagen® in capsule form.

Second, our ingredients segment develops and commercializes proprietary-based ingredient technologies and supplies these ingredients as raw material to the manufacturers of consumer products.

Finally, 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 and net loss for the three months ended on March 31, 2022 and 2021 are as follows:

Three Months Ended March 31,

(In thousands) 2022 2021

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The following table sets forth our total net sales by reportable segment:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2021 2020 % Change 2021 2020 % Change

Three Months Ended March 31,

(In thousands) 2022 2021 % Change

Consumer Products $ 14,937 $ 12,437 20 %

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Total net sales $ 17,259 $ 14,683 18 %

Total net sales increased by approximately 22% and 13% for the three and nine months ended September 30, 2021, compared to the same period in 2020, respectively.

Changes in sales for the periods indicated were primarily driven by the following:

• TRU NIAGEN® sales for the consumer products segment continues to increase after the Company's strategic shift towards consumer products in 2017.

Our e-commerce sales for TRU NIAGEN® increased approximately $1.9 million, or 21%, for the three months ended September 30, 2021 compared to same period in 2020 and $5.7 million, or 23%, for the nine months ended September 30, 2021 compared to the same period in 2020.

Additionally, we began distributing TRU NIAGEN® at Walmart™ stores across the United States beginning in June 2021.

• Our ingredients segment experienced decreased demand during the first half of 2021 compared to the same period in 2020.

The increase during the third quarter in 2021 is primarily related to increased demand from existing customers.

In 2021, the Company did not ship NIAGEN® to Thorne Research Inc., a former customer who filed a petition on December 1, 2020 for IPR of the ‘086 Patent which ChromaDex Inc.

exclusively licenses from Dartmouth College.

For more information, see Note 12, Commitments and Contingencies, Legal Proceedings in the Notes to the Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

• The analytical reference standards and services segment experienced lower demand during the nine months ended September 30, 2020 due to the effects of COVID-19.

During the first half of 2021, demand from existing customers increased with a slight decline during the third quarter of 2021.

Total net sales increased approximately 18% for the three months ended March 31, 2022, compared to the same period in 2021.

Changes in sales for the periods indicated were driven by the following:

• Tru Niagen® sales for our Consumer Products segment increased $2.5 million, or 20%, compared to the same period in the prior year.

The increase primarily related to higher e-commerce sales of approximately $1.3 million, and increased sales to A.S.

Watson, a related party, of approximately $1.0 million for the three months ended March 31, 2022 compared to same period in 2021.

The lower sales to A.S.

Watson in the prior year were largely due to shipment delays we experienced in the first quarter of 2021 surrounding COVID-19 supply chain issues which were resolved in the second quarter of 2021.

• Total ingredient sales increased $0.1 million, or 9%, compared to the same period in the prior year driven by an increase in other ingredient sales of approximately $0.2 million which was partially offset by lower Niagen ingredient sales of $0.1 million due to competitive pricing measures for the three months ended March 31, 2022 compared to same period in 2021.

• Analytical reference standards and services segment experienced a lower demand for research and development services which was partially offset by increased demand for reference standards during the three months ended March 31, 2022 compared to same period in 2021 resulting in slightly lower total sales year over year.

Cost of Sales

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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

Three Months Ended March 31,

Amount % of net sales

(In thousands) 2022 2021 2022 2021

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Total cost of sales $ 6,727 $ 5,449 39 % 37 %

Overall, cost of sales, as a percentage of net sales, remained relatively stable for the three and nine months ended September 30, 2021 compared to the same period in 2020.

Overall, cost of sales, as a percentage of net sales, slightly increased for the three months ended March 31, 2022 compared to the same period in 2021.

Changes in cost of sales were primarily driven by the following:

• Cost of sales, as a percentage of net sales, for the consumer products segment decreased by 1% and 3% for the three and nine months ended September 30, 2021, respectively, compared to the same period in 2020.

The decreases were driven by our product mix, continued cost saving initiatives and overall efficiencies of our supply chain.

• Cost of sales, as a percentage of net sales, for the ingredients segment increased by 1% and 2% for the three and nine months ended September 30, 2021, compared to the comparable period in 2020, respectively.

Cost of sales, as a percentage of net sales, were slightly lower for the nine months ended September 30, 2020 due to a rebate from a supplier for efficiency initiatives, which was recorded in the second quarter of 2020.

• Cost of sales, as a percentage of net sales, for the analytical reference standards and services segment increased 6% for the three months ended September 30, 2021 and decreased 11% for the nine months ended September 30, 2021, compared to the comparable period in 2020.

The fluctuation in cost of sales, as a percentage of net sales, is largely driven by our fixed supply chain labor and overhead costs which do not increase in proportion to sales.

Accordingly, as sales decreased for the three months ended September 30, 2021, we experienced lower labor and overhead utilization rates resulting in increased cost of sales, as a percentage of net sales, compared to the same period in 2020.

Conversely, as sales increased during the nine months ended September 30, 2021, we experienced increased utilization rates and decreased cost of sales, as a percentage of net sales compared to the same period in 2020.

• Cost of sales, as a percentage of net sales, for our consumer products segment remained substantially similar year over year.

• Cost of sales, as a percentage of net sales, for our ingredients segment increased 8% for the three months ended March 31, 2022, compared to the same period in 2021 primarily as a result of increasing our supply chain head count as we scale the business.

• Cost of sales, as a percentage of net sales, for the analytical reference standards and services segment increased 11% for the three months ended March 31, 2022 compared to the same period in 2021.

Cost of sales for our analytical reference standards and services segment are largely driven by fixed supply chain labor costs which do not increase in proportion to sales.

We increased our supply chain head count in order to scale the business.

Accordingly, as sales decreased and our supply chain labor head count increased for the three months ended March 31, 2022, we experienced lower labor and overhead utilization rates resulting in increased cost of sales, as a percentage of net sales, compared to the same period in 2021.

Gross profit is net sales less the cost of sales and is affected by a number of factors including business and product mix, competitive pricing and costs of products, labor, overhead, services and delivery.

The following table sets forth our total gross profit by reportable segment:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2021 2020 % Change 2021 2020 % Change

Three Months Ended March 31,

(In thousands) 2022 2021 % Change

Gross profit:

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For details supporting the changes in gross margin, refer to the discussions above regarding changes in our net sales and cost of sales for each segment.

• The consumer products segment posted gross profit of $9.5 million and $27.6 million for the three and nine months ended September 30, 2021, respectively, an increase of 27% for both periods compared to the comparable periods in 2020.

• The ingredients segment posted gross profit of $1.1 million for the three months ended September 30, 2021, an increase of 16% compared to the same period in 2020 and a gross profit of $2.6 million for the nine months ended September 30, 2021, a decrease of 35% compared to the same period in 2020.

• The analytical reference standards and services segment saw a 95% decrease in gross profit for the three months ended September 30, 2021, compared to the same period in 2020 and 349% increase in gross profit for the nine months ended September 30, 2021, compared to the same period in 2020.

• The consumer products segment posted gross profit of $9.7 million, an 18% increase for the three months ended March 31, 2022 compared to the same period in 2021.

• The ingredients segment posted gross profit of $0.7 million for the three months ended March 31, 2022, a decrease of 6% compared to the same period in 2021.

• The analytical reference standards and services segment saw a 43% decrease in gross profit for the three months ended March 31, 2022, compared to the same period in 2021.

Operating Expenses-Sales and Marketing

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Sales and marketing expenses by reportable segment were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2021 2020 % Change 2021 2020 % Change

Three Months Ended March 31,

(In thousands) 2022 2021 % Change

Sales and marketing expenses:

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Total sales and marketing expenses $ 8,237 $ 6,258 32 %

• For the consumer products segment, the increase during the three and nine months ended September 30, 2021 is largely due to direct marketing expenses associated with social media, public relations and other customer awareness and acquisition programs, as well as increased staffing.

• For the ingredients segment, selling and marketing expenses were approximately $10,000 and $21,000 during the three and nine months ended September 30, 2021.

Throughout 2021, we continued to decrease our sales and marketing efforts within our ingredients segment to continue our strategic focus on our consumer products segment.

The decreased expense for the nine months ended September 30, 2020 compared to the three months ended for September 30, 2020 relates to a reversal of approximately $114k of certain accrued commission expense during the first quarter of 2020, as we were no longer obligated to pay the commission.

• For the analytical reference standards and services segment, the selling and marketing expenses decreased by 9% and 23% during the three and nine months ended September 30, 2021, respectively.

During 2021, we continued to decrease our sales and marketing efforts within our analytical reference standards and services segment to continue our strategic focus on our consumer products segment.

• For the consumer products segment, we increased our direct marketing efforts through Amazon marketplaces, televised commercials, social media, public relations and other customer awareness and acquisition programs as well as increased staffing resulting in total increased marketing expenditures of approximately $1.7 million for the three months ended March 31, 2022 compared to the same period in 2021.

• For the ingredients segment, selling and marketing expenses were approximately $24,000 during the three months ended March 31, 2022.

This is a slight increase from the same period in the prior year due to higher commissionable sales for other ingredients.

• For the analytical reference standards and services segment, total selling and marketing expenses were substantially similar year over year.

Operating Expenses-Research and Development

Research and development (R&D) expenses consist primarily of clinical trials, regulatory approvals, product development and process development expenses.

Research and development (R&D) expenses consist primarily of 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) 2021 2020 % Change 2021 2020 % Change

Three Months Ended March 31,

(In thousands) 2022 2021 % Change

R&D expenses:

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We allocate R&D expenses related to our Niagen® branded ingredient to the consumer products and ingredients segment, based on revenues recorded.

Overall, our R&D expenses remained substantially similar with a slight increase for the three and nine months ended September 30, 2021 compared to the comparable periods in 2020 due to increased investments and acceleration of our R&D pipeline and timing of projects.

Overall, we had higher R&D expenses for the three months ended March 31, 2022 compared to the comparable period in 2021 due to increased staffing of research scientists and share-based compensation as well as timing of projects.

Operating Expenses-General and Administrative

General and administrative expenses consist of general company administration, legal, royalties, IT, accounting and executive management expenses.

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 expenses for the periods indicated were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands) 2021 2020 % Change 2021 2020 % Change

General and administrative expense for the periods indicated were as follows:

Three Months Ended March 31,

(In thousands) 2022 2021 % Change

General and administrative 8,949 9,551 (6) %

• The increase in general and administrative expenses for the three and nine months ended September 30, 2021, compared to the comparable periods in 2020 was largely due to an increase in legal expenses.

Our legal expenses increased to approximately $5.6 million and $14.8 million in the three and nine months ended September 30, 2021, respectively, compared to approximately $1.9 million and $6.1 million in the comparable periods in 2020 due to increased activity in our ongoing litigation.

For additional details see Note 12, Commitments and Contingencies, Legal Proceedings in the Notes to the Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

• For both the three and nine months ended September 30, 2021, we incurred approximately $0.3 million in severance and restructuring expenses compared to $0.3 million and $1.2 million, respectively, in the comparable periods in 2020.

These expenses relate to realignment of the business operations to reduce redundancies and improve efficiencies as we scale the business.

The decrease in general and administrative expense for the three months ended March 31, 2022, compared to the comparable period in 2021 was primarily driven by lower legal expense of $2.7 million related to litigation which was largely offset by increased severance and restructuring expense as well as investments in technology and increased staffing in key functional areas to support growth.

For additional details regarding our litigation see Note 10, Commitments and Contingencies, L egal Proceedings in the Notes to the Consolidated Financial Statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Severance and restructuring expenses relate to changes in our executive team.

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.

At September 30, 2021 and September 30, 2020, we maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of approximately 0% for the three and nine months ended September 30, 2021, and September 30, 2020, respectively.

At March 31, 2022 and March 31, 2021, we maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of approximately 0% for the three months ended March 31, 2022, and 2021, respectively.

As defined in ASC 740, Income Taxes, future realization of the tax benefit will depend on the existence of sufficient taxable income, including the expectation of continued future taxable income.

Depreciation and Amortization

Depreciation expense was approximately $0.7 million for both of the nine months ended September 30, 2021 and September 30, 2020.

Depreciation expense was approximately $0.2 million for both of the three months ended March 31, 2022 and 2021.

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 $0.2 million for both of the nine months ended September 30, 2021 and September 30, 2020.

Amortization expense of intangible assets was approximately $49 thousand and $60 thousand for the three months ended March 31, 2022 and 2021, respectively.

We amortize intangible assets using a straight-line method, generally over 10 years.

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The useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized.

Amortization expense of right of use assets for the nine months ended September 30, 2021 was approximately $0.4 million as compared to $0.3 million for the nine months ended September 30, 2020.

Amortization expense of right of use assets for the three months ended March 31, 2022 was approximately $0.3 million as compared to $0.1 million for the three months ended March 31, 2021.

Liquidity and Capital Resources

From inception through September 30, 2021, we have incurred aggregate losses of approximately $163.6 million.

From inception through March 31, 2022, we have incurred aggregate losses of approximately $176.7 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.

These operations have been financed through capital contributions, the issuance of common stock and warrants through private placements, and the issuance of debt.

Historically, these operations have been financed through capital contributions, the issuance of common stock and warrants through private placements and the issuance of debt.

Our board of directors periodically reviews our capital requirements in light of our proposed business plan.

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Any inability to raise additional financing would have a material adverse effect on us.

Pursuant to the Financing on February 23, 2021, we received proceeds of $24.9 million, net of offering costs.

Additionally, in June 2021, under the ATM facility, we received proceeds of $1.9 million, net of offering costs.

While we anticipate that our current cash, cash equivalents, and available line of credit up to $7.0 million from Western Alliance Bank will be sufficient to meet our projected operating plans for at least the next twelve months, we may seek additional funds, either through additional equity or debt financings or collaborative agreements or from other sources.

Our line of credit currently expires on November 12, 2021.

We are actively working with Western Alliance Bank to extend this line of credit prior to its expiration.

We do not believe any delays in or inability to obtain an extension of this line of credit will impact our ability to meet our operating objectives.

Further, in June 2020, we filed a $125.0 million registration statement on Form S-3 with the Commission, utilizing a “shelf” registration process.

Under this shelf registration process, we may sell securities from time to time, including up to $50.0 million, pursuant to the ATM Facility, of which approximately $47.8 million remains available.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

As of March 31, 2022, we had cash and cash equivalents totaling approximately $21.0 million, no material off-balance sheet arrangements, no outstanding borrowings under our line of credit up to $10.0 million with Western Alliance Bank, purchase obligations of $18.6 million related to inventory purchase commitments to be paid over approximately one year and future minimum lease obligations of $5.5 million to be paid over approximately six years.

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 for at least the next twelve months and beyond, 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.

Furthermore, in June 2020, we filed a $125.0 million registration statement on Form S-3 with the Commission, utilizing a “shelf” registration process.

Under this shelf registration process, we may sell securities from time to time, including up to $50.0 million, pursuant to the ATM Facility, of which approximately $47.8 million remains available as of March 31, 2022.

As a result of the COVID-19 pandemic and other macroeconomic factors such as rising interest rates, inflation and geopolitical uncertainties, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

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Net cash used in operating activities:

Cash used in operating activities is net loss adjusted for certain non-cash items and changes in operating assets and liabilities Net cash used in operating activities for the nine months ended September 30, 2021 was approximately $19.2 million as compared to approximately $10.6 million for the nine months ended September 30, 2020.

Along with our net loss, increases in our trade receivables, inventories and prepaid and other assets were the largest uses of cash during the nine months ended September 30, 2021, partially offset by noncash share-based compensation expense and an increase in accounts payable.

Net cash used in operating activities for the nine months ended September 30, 2020 largely reflects the net loss, a decrease in allowance for doubtful trade receivables and a decrease in accounts payable, partially offset by noncash share-based compensation expense, a decrease in trade receivables and an increase in accrued expenses.

Cash used in operating activities is net loss adjusted for certain non-cash items and changes in operating assets and liabilities.

Net cash used in operating activities was approximately $7.2 million and $5.4 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in cash used for the three months ended March 31, 2022 compared to March 31, 2021 of $1.8 million was primarily due to increases in our net loss and inventories paired with a decrease in our accounts payable which were partially offset by an increase in accrued expenses.

We expect our operating cash flows to fluctuate significantly in future periods as a result of fluctuations in our operating results, shipment timetables, trade receivable collections, inventory management and the timing of our payments, among other factors.

Net cash used in investing activities

Net cash used in investing activities was approximately $0.4 million for the nine months ended September 30, 2021, compared to approximately $0.2 million for the nine months ended September 30, 2020.

Net cash used in investing activities for the nine months ended September 30, 2021 and 2020 mainly consisted of purchases of leasehold improvements and equipment.

Net cash provided by financing activities

Net cash provided by financing activities was approximately $36.0 million for the nine months ended September 30, 2021, compared to approximately $7.5 million for the nine months ended September 30, 2020.

Net cash provided by financing activities for the nine months ended September 30, 2021 primarily consisted of proceeds from the issuance of common stock pursuant to the Financing, ATM Facility transaction and the exercise of stock options.

Net cash provided by financing activities for the nine months ended September 30, 2020 consisted of proceeds from the issuance of common stock and the exercise of stock options.

Contractual Obligations and Commitments

During the nine months ended September 30, 2021, there were no material changes outside of the ordinary course of business in the specified contractual obligations disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as contained in our Annual Report, other than as disclosed in “Item 1 Financial Statements” of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

During the nine months ended September 30, 2021, we had no material off-balance sheet arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Cash used in investing activities:

Investing cash flows consist primarily of capital expenditures and investment activities.

Cash used in investing activities was approximately $25 thousand and $46 thousand for the three months ended March 31, 2022 and 2021, respectively.

The decrease in cash used during the three months ended March 31, 2022 compared to March 31, 2021 of $21 thousand is attributable to fewer purchases of leasehold improvements and equipment.

Net cash used in and provided by financing activities:

Financing cash flows consist primarily of proceeds from issuance of our common stock, exercise of stock options through employee equity incentive plans and repayment of short-term and long-term debt.

Cash used in financing activities was approximately $3 thousand for the three months ended March 31, 2022, compared to net cash provided by financing activities of approximately $33.4 million for the three months ended March 31, 2021.

The difference in cash activities is largely attributable to proceeds from the issuance of common stock pursuant to the Securities Purchase Agreement with EverFund as well as the exercise of employee stock options, both of which occurred during the three months ended March 31, 2021 but not during the three months ended March 31, 2022.

Critical Account Estimates

There have been no changes to critical accounting estimates from those disclosed in our 2021 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis