Niagen Bioscience, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) 49 Consolidated Balance Sheets at December 31, 2022 and December 31, 2021 50 Consolidated Statements of Operations for the Years Ended December 31, 2022 and December 31, 2021 51 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and December 31, 2021 52 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and December 31, 2021 53 Notes to Consolidated Financial Statements 54 48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of ChromaDex Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of ChromaDex Corporation and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2013. New York, NY March 8, 2023 49 Table of Contents ChromaDex Corporation and Subsidiaries Consolidated Balance Sheets December 31, 2022 2021 (In thousands, except par values, unless otherwise indicated) Assets Current assets Cash and cash equivalents, including restricted cash of $ 0.2 million for both periods presented $ 20,441 $ 28,219 Trade receivables, net of allowances of $ 122 and $ 65 , respectively; Including receivables from Related Party of $ 3.1 million and $ 2.1 million, respectively. 8,482 5,226 Inventories 14,677 13,601 Prepaid expenses and other assets 2,967 1,859 Total current assets 46,567 48,905 Leasehold improvements and equipment, net 2,799 3,003 Intangible assets, net 671 857 Right-of-use assets 3,523 4,352 Other long-term assets 497 723 Total assets $ 54,057 $ 57,840 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 9,679 $ 10,423 Accrued expenses 7,337 6,481 Current maturities of operating lease obligations 680 528 Current maturities of finance lease obligations 16 20 Customer deposits 157 161 Total current liabilities 17,869 17,613 Deferred revenue 3,955 4,346 Operating lease obligations, less current maturities 3,539 4,154 Finance lease obligations, less current maturities 22 — Total liabilities 25,385 26,113 Commitments and Contingencies (Notes 10 and 17) Stockholders' Equity Common stock, $ 0.001 par value; authorized 150,000 shares; 74,567 shares and 68,126 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively. 74 68 Additional paid-in capital 214,094 200,614 Accumulated deficit ( 185,493 ) ( 168,953 ) Cumulative translation adjustments ( 3 ) ( 2 ) Total stockholders' equity 28,672 31,727 Total liabilities and stockholders' equity $ 54,057 $ 57,840 See accompanying notes to consolidated financial statements. 50 Table of Contents ChromaDex Corporation and Subsidiaries Consolidated Statements of Operations Year Ended December 31, 2022 2021 (In thousands, except per share data) Sales, net $ 72,050 $ 67,449 Cost of sales 29,253 25,959 Gross profit 42,797 41,490 Operating expenses: Sales and marketing 28,313 28,352 Research and development 4,826 3,832 General and administrative 28,286 36,379 Total operating expenses 61,425 68,563 Operating loss ( 18,628 ) ( 27,073 ) Nonoperating expenses: Other income, net - Employee Retention Tax Credit 2,085 — Interest income (expense), net 3 ( 55 ) Net loss $ ( 16,540 ) $ ( 27,128 ) Basic and diluted loss per common share $ ( 0.24 ) $ ( 0.40 ) Basic and diluted weighted average common shares outstanding 69,729 67,185 See accompanying notes to consolidated financial statements. 51 Table of Contents ChromaDex Corporation and Subsidiaries Consolidated Statement of Stockholders’ Equity (In thousands, unless otherwise indicated) Common Stock Additional Paid-in Capital Accumulated Deficit Cumulative Translation Adjustments Total Stockholders' Equity Shares Amount Balance, January 1, 2021 61,881 $ 62 $ 158,190 $ ( 141,825 ) $ ( 3 ) $ 16,424 Issuance of common stock, net of offering costs of $ 0.4 million 4,059 4 26,736 26,740 Exercise of stock options 2,186 2 9,493 — — 9,495 Share-based compensation — — 6,195 — — 6,195 Translation adjustment — — — — 1 1 Net loss — — — ( 27,128 ) ( 27,128 ) Balance, December 31, 2021 68,126 $ 68 $ 200,614 $ ( 168,953 ) $ ( 2 ) $ 31,727 Issuance of common stock, net of offering costs of $ 0.4 million 6,297 6 7,741 — — 7,747 Issuance of restricted stock 144 — — — — — Share-based compensation — — 5,739 — — 5,739 Translation adjustment — — — — ( 1 ) ( 1 ) Net loss — — — ( 16,540 ) — ( 16,540 ) Balance, December 31, 2022 74,567 $ 74 $ 214,094 $ ( 185,493 ) $ ( 3 ) $ 28,672 See accompanying notes to consolidated financial statements. 52 Table of Contents ChromaDex Corporation and Subsidiaries Consolidated Statements of Cash Flows (In thousands, unless otherwise indicated) Year Ended December 31, 2022 2021 Cash Flows From Operating Activities Net loss $ ( 16,540 ) $ ( 27,128 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of leasehold improvements and equipment 869 890 Amortization of intangibles 186 225 Amortization of right of use assets 829 511 Share-based compensation expense 5,739 6,195 Loss on disposal of leasehold improvements and equipment 7 — Provision for doubtful trade receivables 63 46 Non-cash financing costs 67 108 Changes in operating assets and liabilities: Trade receivables ( 3,319 ) ( 2,578 ) Inventories ( 1,076 ) ( 1,918 ) Implementation costs for cloud computing arrangement ( 304 ) ( 278 ) Prepaid expenses and other assets ( 872 ) ( 810 ) Accounts payable ( 744 ) 978 Accrued expenses 856 348 Deferred revenue ( 391 ) ( 95 ) Customer deposits and other ( 5 ) ( 116 ) Operating lease liabilities ( 463 ) ( 541 ) Net cash used in operating activities ( 15,098 ) ( 24,163 ) Cash Flows From Investing Activities Purchases of leasehold improvements and equipment ( 334 ) ( 409 ) Net cash used in investing activities ( 334 ) ( 409 ) Cash Flows From Financing Activities Proceeds from issuance of common stock, net 7,747 26,740 Proceeds from exercise of stock options — 9,495 Payment of debt issuance costs ( 77 ) ( 110 ) Principal payments on finance leases ( 16 ) ( 31 ) Net cash provided by financing activities 7,654 36,094 Net (decrease) increase in cash and cash equivalents ( 7,778 ) 11,522 Cash and cash equivalents, including restricted cash of $ 0.2 million for both 2022 and 2021 - beginning of year 28,219 16,697 Cash and cash equivalents, including restricted cash of $ 0.2 million for both 2022 and 2021 - end of year $ 20,441 $ 28,219 Supplemental Disclosures of Cash Flow Information Cash payments for interest on finance leases $ 1 $ 1 Cash payments for principal on operating lease liabilities $ 507 $ 541 Supplemental Schedule of Noncash Operating Activity Right-of-use assets and operating lease obligations incurred for entering into lease amendment $ — $ 3,637 Supplemental Schedule of Noncash Investing Activity Financing lease obligation incurred for computer equipment and software $ 34 $ — See accompanying notes to consolidated financial statements. 53 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 1. Nature of Business ChromaDex Corporation and its wholly owned subsidiaries, ChromaDex, Inc., ChromaDex International, Inc., ChromaDex Analytics, Inc., ChromaDex Asia Limited, Asia Pacific Scientific, Inc., ChromaDex Europa B.V. and ChromaDex Sağlik Ürünleri Anonim Şirketi (collectively, “ChromaDex” or the “Company”) are a global bioscience company dedicated to healthy aging. The ChromaDex 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 with age, among other factors, and may be increased through supplementation with NAD+ precursors. ChromaDex is the innovator behind the NAD+ precursor nicotinamide riboside (NR), commercialized as the flagship ingredient Niagen®. Nicotinamide riboside and other NAD+ precursors are protected by ChromaDex’s patent and/or licensed rights portfolio. The Company delivers Niagen® as the sole active ingredient in its consumer product Tru Niagen®. The Company further develops and commercializes proprietary-based ingredient technologies and supplies these ingredients as raw materials to the manufacturers of consumer products. Additionally, the Company offers natural product fine chemicals, known as phytochemicals, and related research and development services. Note 2. Summary of Significant Accounting Policies Basis of Presentation: The financial statements and accompanying notes have been prepared on a consolidated basis and reflect the consolidated financial position of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated from these financial statements. Use of Accounting Estimates : The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition : The Company recognizes sales and the related cost of sales when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods or as the services are performed over time. In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement exists, there is a fixed price, and collectability is reasonably assured. Discounts, returns and allowances related to sales, including an estimated reserve for the returns and allowances, are recorded as reduction of revenue. Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. If the Company determines that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on its consolidated balance sheets. Revenue is then recognized utilizing the output method based on an estimated rate to allocate the transaction price for this performance obligation as products are supplied over the duration of the contract. Certain judgments affect the application of the Company’s revenue recognition policy. For example, when utilizing the output method, the Company estimates total delivery volume based on the Company’s current operating plan, forecast inputs for expected purchases received from the customer, minimum purchase commitments by the customer and historical experience with similar customer contracts. Accordingly, the Company may recognize a different amount of deferred revenue over the next 12-month period if the Company’s plan changes in the future or if the customer informs the Company of changes to their expected purchases. As of December 31, 2022 and 2021, the Company held deferred revenue balances of $ 4.0 million and $ 4.3 million, respectively. The Company may periodically enter into bill-and-hold arrangements upon request by certain customers according to the terms in the contract. Under the terms, the customer makes a fixed commitment to purchase the Company’s goods, however the customer delays the physical transfer of the goods until a later date. In such instances, revenue is recognized when a customer obtains control of the promised goods and the Company has satisfied all of its performance obligations. The Company considers indicators of the transfer of control, which include, but are not limited to, the following: (i) the Company has a present right to payment for the asset, (ii) the customer has legal title to the asset, (iii) the Company has transferred physical possession of the asset, (iv) the customer has the significant risks and rewards of ownership of the asset and (v) the customer has accepted the asset. 54 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements In addition, all of the following criteria in a bill-and-hold arrangement must be met to further indicate a customer has obtained control of the goods: (i) the reason for the bill-and-hold arrangement must be substantive, (ii) the requested goods must be identified separately as belonging to the customer, (iii) the requested goods must be ready for physical transfer to the customer, and (iv) the Company cannot have the ability to use the goods or direct the goods to another customer. Revenue under bill-and-hold arrangements totaled $ 1.7 million for the year ended December 31, 2022. The company recognized no revenue under bill-and-hold arrangements during the year ended December 31, 2021. Net sales include the revenue related to shipping and handling charges billed to customers. The related costs associated with shipping and handling is included as a component of cost of goods sold. Shipping and handling fees billed to customers included in net sales for the periods indicated are as follows: Year Ended December 31, (In thousands) 2022 2021 Shipping and handling fees billed $ 428 $ 336 Taxes collected from customers and remitted to governmental authorities are excluded from revenue, which is presented on a net basis in the statement of operations. Cash, Cash Equivalents and Restricted Cash : All highly liquid interest-bearing investments with short-terms are classified as cash equivalents. The Company’s investments primarily include investments in money market funds managed by banks with maturities of three months or less when purchased. The carrying value of these cash equivalents approximate their fair value. The Company classifies cash as restricted if the withdrawal or usage is restricted for more than three months. For each of the years ended December 31, 2022 and 2021, there was $ 0.2 million restricted cash held as collateral associated with letters of credit for the Company’s office space in Los Angeles, California. The Los Angeles, California office lease currently expires in March 2027. Trade Receivables, net : Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on monthly and quarterly reviews of all outstanding amounts. Management determines the allowance for doubtful accounts by identifying troubled accounts and using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Credit Risk : Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents and trade receivables. Cash and cash equivalents, consist of bank deposits or highly liquid investment-grade debt instruments with an original maturity of three months or less when purchased pursuant to the Company’s investment policy. The Company maintains several bank accounts for its operations primarily at three financial institutions in the U.S. and one financial institution in Hong Kong. The Company’s U.S. bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 at each institution. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held. The Company’s trade receivables are derived from sales to its customers. The Company assesses credit risk of its customers through quantitative and qualitative analysis. From this analysis, the Company establishes credit limits and manages the risk exposure. The Company, however, may from time-to-time incur credit losses due to bankruptcy or other failures from its customers to pay. Inventories : Inventories are comprised of work-in-process and finished goods. Inventories are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. The inventory on the balance sheet is recorded net of valuation allowances. Labor and overhead has been added to inventory that was manufactured or characterized by the Company. The Company’s normal operating cycle for reference standards is currently longer than one year. The Company regularly reviews inventories on hand and reduces the carrying value for slow-moving and obsolete inventory, inventory not meeting quality standards and inventory subject to expiration. The reduction of the carrying value for slow-moving and obsolete inventory is based on current estimates of future product demand, market conditions and related management judgment. Any significant unanticipated changes in future product demand or market conditions that vary from current expectations could have an impact on the value of inventories. 55 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Intangible assets : Intangible assets include licensing rights and are accounted for based on the fair value of consideration given or the fair value of the net assets acquired, whichever is more reliable. Intangible assets with finite useful lives are amortized using the straight-line method over a period of 10 years, or, for licensed patent rights, the remaining term of the patents underlying licensing rights (considered to be the remaining useful life of the license), whichever is shorter. The useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized. Leasehold Improvements and Equipment, net : Leasehold improvements and equipment are comprised of leasehold improvements, laboratory equipment, furniture and fixtures, computer equipment, construction in progress and implementations costs for cloud computing arrangements. Leasehold improvements and equipment are carried at cost and depreciated on the straight-line method over the lesser of the estimated useful life of each asset or lease term. Implementation costs related to a cloud computing arrangement are deferred or expensed as incurred, in accordance with the Accounting Standards Update (ASU) 2018-15. Depreciation on equipment under finance lease is included with depreciation on owned assets. Maintenance and repairs are charged to operating expenses as incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. Long-lived assets are reviewed for impairment on a periodic basis and when changes in circumstances indicate the possibility that the carrying amount may not be recoverable. Long-lived assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. If the forecast of undiscounted future cash flows is less than the carrying amount of the assets, an impairment charge would be recognized to reduce the carrying value of the assets to fair value. If a possible impairment is identified, the asset group’s fair value is measured relying primarily on a discounted cash flow methodology. Customer Deposits : Customer deposits represent cash received from customers in advance of product shipment or delivery of services. Income Taxes : Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. 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. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company files tax returns in all appropriate jurisdictions, which include a U.S. federal tax return and various state tax returns. Open tax years for these jurisdictions are 2019 to 2022, which statutes expire in 2023 to 2026, respectively. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expenses in the statements of operations. As of December 31, 2022, the Company has no liability for unrecognized tax benefits. Research and Development Costs: Research and development costs consist of direct and indirect costs associated with clinical trials, product development and process development expenses. These costs are expensed as incurred. Advertising: The Company expenses the production costs of advertising the first time the advertising takes place. Advertising expense for the years ended December 31, 2022 and 2021 were approximately $ 11.4 million and $ 12.5 million, respectively. Share-based Compensation : The Company grants equity awards to recipients through its 2017 Equity Incentive Plan, as amended (the “2017 Plan”), which was approved by stockholders and the Board of Directors. Under the 2017 Plan, the Board of Directors may grant restricted stock or stock options to employees and non-employees. The accounting treatment for share-based payments to employees and non-employees is substantially equivalent. The Company accounts for all share-based compensation costs under the fair value method. 56 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements The fair value of the Company’s stock options is estimated at the date of grant using the Black-Scholes option valuation model. For the expected term, the Company uses SEC Staff Accounting Bulletin No. 107 simplified method for “plain vanilla” options with following characteristics: (i) the share options are granted at the market price on the grant date; (ii) exercisability is conditional on performing service through the vesting date on most options; (iii) if an employee terminates service prior to vesting, the employee would forfeit the share options; (iv) if an employee terminates service after vesting, the employee would have 30 to 90 days to exercise the share options; and (v) the share options are nontransferable and nonhedgeable. The volatility assumption is based on the historical volatility of the Company’s common stock with an equivalent remaining expected term. The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock. The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining expected term. Market conditions that affect vesting of stock options are considered in the grant-date fair value. The issues surrounding the valuation for such awards can be complex and consideration needs to be given for how the market condition should be incorporated into the valuation of the award. The Company considers using other valuation techniques, such as Monte Carlo simulations based on a lattice approach, to value awards with market conditions. The fair-value of restricted stock unit awards is determined at the grant date and is based on the market price on the grant date. For option grants and restricted stock unit awards without performance conditions, the Company recognizes compensation expense over the requisite vesting period ratably, recognizing expense for each tranche of each grant starting on the grant date. For stock options that have both service and performance conditions, the Company recognizes compensation expense using the graded attribution method. Compensation expense for stock options with performance conditions is recognized only for those awards expected to vest. The Company recognizes forfeitures when they occur. Fair Value Measurement: The Company follows the provisions of the accounting standard which defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. Fair value measurements are based on a three-tier hierarchy that prioritizes the use of observable inputs and minimizes the use on unobservable inputs. These tiers include: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. As of December 31, 2022 and 2021, the Company did not have any Level 2 or Level 3 assets or liabilities. Financial instruments : The estimated fair value of financial instruments has been determined based on the Company’s assessment of available market information and appropriate valuation methodologies. The fair value of the Company’s financial instruments that are included in current assets and current liabilities approximates their carrying value due to their short-term nature. The carrying amounts reported in the balance sheet for capital lease obligations are present values of the obligations, excluding the interest portion. Accounting Standards Recently Issued but Not Yet Adopted by the Company: In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new guidance represents significant changes to accounting for credit losses: (i) full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope; (ii) the current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold; and (iii) the expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. ASU 2016-13 introduces two distinctive credit loss impairment models: (i) current expected credit loss impairment model (Subtopic 326-20) applicable to financial assets measured at amortized cost; and (ii) available-for-sale debt securities impairment model (Subtopic 326-30). ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Public entities that qualify as a smaller reporting company can elect to defer compliance effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of ASU 2016-13 and anticipates there will be no material impact on the Company's financial position, results of operations and liquidity. 57 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 3. Liquidity Evaluation of Ability to Maintain Current Level of Operations In connection with the preparation of these financial statements for the year ended December 31, 2022, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to meet its obligations as they became due over the next twelve months from the date of issuance of these financial statements for the fourth quarter of 2022. Management assessed that there were such conditions and events, including a history of recurring operating losses, negative cash flows from operating activities and inflationary pressures and the continued impact of the COVID-19 pandemic. For the year ended December 31, 2022, the Company incurred a net loss of approximately $ 16.5 million and used net cash in operating activities of $ 15.1 million. As of December 31, 2022, the Company had unrestricted cash and cash equivalents of $ 20.3 million which consists of bank deposits or highly liquid investment-grade debt instruments with an original maturity of three months or less. Management evaluated these conditions and anticipates that its current unrestricted cash and cash equivalents and cash to be generated from net sales will be sufficient to meet its financial obligations as they become due over at least the next twelve months from the issuance date of these financial statements. The Company may, however, seek additional capital within the next twelve months, both to fund its projected operating plans after the next twelve months and/or to fund the Company’s longer-term strategic objectives. The Company has an available line of credit with Western Alliance Bank for up to $ 10.0 million, subject to certain terms and conditions which as of December 31, 2022 allows for $ 6.1 million of borrowing. There are no outstanding borrowings as of December 31, 2022. In June 2020, the Company filed a $ 125 million registration statement on Form S-3 with the SEC, utilizing a “shelf” registration process. Under this shelf registration process, the Company may sell securities from time to time, including up to $ 50.0 million pursuant to the At Market Issuance Sales Agreement, dated as of June 12, 2020, with B. Riley FBR, Inc. and Raymond James & Associates, Inc. (ATM Facility). As of December 31, 2022, approximately $ 47.8 million remains available under the ATM Facility. The Company’s potential use of the ATM facility is subject to the satisfaction of various conditions in the ATM Facility agreement as well as market conditions. As a result, the Company’s ability to rely on the ATM Facility to raise liquidity is limited to a material extent. Note 4. Loss Per Share Applicable to Common Stockholders The following table sets forth the computations of loss per share amounts applicable to common stockholders for the periods indicated. Year Ended December 31, (In thousands, except per share data) 2022 2021 Net loss $ ( 16,540 ) $ ( 27,128 ) Basic and diluted loss per common share $ ( 0.24 ) $ ( 0.40 ) Basic and diluted weighted average common shares outstanding (1): 69,729 67,185 Potentially dilutive securities (2): Stock options 10,438 10,536 Restricted stock units 650 115 (1) Includes approximately 0.2 million nonvested shares of restricted stock for the years ended December 31, 2022 and 2021 which are participating securities that feature voting and dividend rights. (2) Excluded from the computation of loss per share as their impact is antidilutive. 58 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 5. Business Segments and Geographical Distribution The Company has the following three reportable segments for the years ended December 31, 2022 and 2021: • Consumer Products segment: provides finished dietary supplement products that contain the Company's proprietary ingredients directly to consumers as well as to distributors; • Ingredients segment : develops and commercializes proprietary-based ingredient technologies and supplies these ingredients as raw materials to the manufacturers of consumer products; and • Analytical Reference Standards and Services segment: offers the supply of phytochemical reference standards and other research and development services. The Company’s reportable segments are significant operating segments that offer differentiated services. This structure reflects the Company’s current operational and financial management and provides the best structure to maximize the Company's objectives and investment strategy, while maintaining financial discipline. The Company's Chief Executive Officer, who is its chief operating decision maker (CODM), reviews financial information for each operating segment to evaluate performance and allocate resources. The Company evaluates performance and allocates resources based on reviewing gross margin by reportable segment. The Company's CODM does not review assets by segment in his evaluation and therefore assets by segment are not disclosed below. There are no intersegment sales that require elimination. The “Corporate and other” classification includes corporate items not allocated by the Company to each reportable segment. The following tables set forth financial information by segment: Year Ended December 31, 2022 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total (In thousands) Net sales $ 60,110 $ 8,736 $ 3,204 $ — $ 72,050 Cost of sales 21,726 4,465 3,062 — 29,253 Gross profit 38,384 4,271 142 — 42,797 Operating expenses: Sales and marketing 27,661 51 601 — 28,313 Research and development 4,214 612 — — 4,826 General and administrative — — — 28,286 28,286 Operating expenses 31,875 663 601 28,286 61,425 Operating income (loss) $ 6,509 $ 3,608 $ ( 459 ) $ ( 28,286 ) $ ( 18,628 ) Year Ended December 31, 2021 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total (In thousands) Net sales $ 56,705 $ 7,407 $ 3,337 $ — $ 67,449 Cost of sales 19,864 3,233 2,862 — 25,959 Gross profit 36,841 4,174 475 — 41,490 Operating expenses: Sales and marketing 27,821 46 485 — 28,352 Research and development 3,427 405 — — 3,832 General and administrative — — — 36,379 36,379 Operating expenses 31,248 451 485 36,379 68,563 Operating income (loss) $ 5,593 $ 3,723 $ ( 10 ) $ ( 36,379 ) $ ( 27,073 ) 59 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Disaggregation of revenue The Company disaggregates its revenue from contracts with customers by type of goods or services for each of its segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. Disaggregated revenues are as follows: Year Ended December 31, 2022 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total (In thousands) Tru Niagen®, Consumer Product $ 60,110 $ — $ — $ 60,110 Niagen® Ingredient — 8,280 — 8,280 Subtotal Niagen® Related 60,110 8,280 — 68,390 Other Ingredients — 456 — 456 Reference Standards — — 3,081 3,081 Consulting and Other — — 123 123 Subtotal Other Goods and Services — 456 3,204 3,660 Total Net Sales $ 60,110 $ 8,736 $ 3,204 $ 72,050 Year Ended December 31, 2021 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total (In thousands) Tru Niagen®, Consumer Product $ 56,705 $ — $ — $ 56,705 Niagen® Ingredient — 6,700 — 6,700 Subtotal Niagen® Related 56,705 6,700 — 63,405 Other Ingredients — 707 — 707 Reference Standards — — 3,061 3,061 Consulting and Other — — 276 276 Subtotal Other Goods and Services — 707 3,337 4,044 Total Net Sales $ 56,705 $ 7,407 $ 3,337 $ 67,449 Net sales from international sources * Year Ended December 31, (In millions) 2022 2021 Consumer Products Segment $ 18.4 $ 18.0 Ingredients Segment 2.1 $ 0.7 Analytical Reference Standards and Services Segment 1.3 $ 1.1 Total net sales from international sources $ 21.8 $ 19.8 *International sources include Europe, North America, South America, Asia and Oceania. 60 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Long-lived assets The Company’s long-lived assets are located within the United States. Disclosure of major customers Major customers are defined as customers whose sales or accounts receivables individually consist of more than 10% of total sales or total trade receivables, respectively. Percentage of revenues from major customers of the Company’s consumer products segment for the periods indicated were as follows: Year Ended December 31, Major Customers 2022 2021 A.S. Watson Group - Related Party 13.9 % 13.8 % The percentage of the amounts due from major customers to total accounts receivable, net for the periods indicated were as follows: At December 31, Major Customers 2022 2021 A.S. Watson Group - Related Party 36.6 % 39.6 % Nestlé (NHSc) 23.6 % * Life Extension * 22.1 % Persona * 10.3 % * Represents less than 10% Disclosure of major vendor The Company’s major vendor who accounted for more than 10% of the Company’s total accounts payable is as follows: Major Vendor At December 31, 2022 2021 Vendor A 50.1 % 32.1 % Note 6. Related Party Transactions A.S. Watson Group is a related party through common ownership of an enterprise that beneficially owns more than 10% of the common stock of the Company. The sale of consumer products and corresponding trade receivables to related parties during the periods indicated are as follows: Net Sales Trade Receivable as of Year Ended December 31, December 31, 2022 2021 2022 2021 A.S. Watson Group $ 10.0 million $ 9.3 million $ 3.1 million $ 2.1 million 61 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 7. Inventories The Company's major classes of inventory and corresponding balances for the periods indicated are as follows: December 31, (In thousands) 2022 2021 Consumer Products - Finished goods $ 7,901 $ 6,823 Consumer Products - Work-in-process 2,992 4,131 Bulk ingredients 3,284 2,131 Reference standards 500 516 Inventories $ 14,677 $ 13,601 Note 8. Intangible Assets, Net Intangible assets for the periods indicated consisted of the following: December 31, (In thousands, except years) Weighted Average Life (Years) 2022 2021 Healthspan Research LLC Acquisition 10 $ 1,346 $ 1,346 License agreements and other 9 1,643 1,643 Less: Accumulated amortization ( 2,318 ) ( 2,132 ) Intangible assets, net $ 671 $ 857 For the years ended December 31, 2022 and 2021, amortization expense was approximately $ 186,000 and $ 225,000 , respectively. Estimated amortization expense for each of the years ending December 31 is as follows: (In thousands) Year Amount 2023 $ 158 2024 154 2025 151 2026 151 2027 42 Thereafter 15 $ 671 62 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 9. Leasehold Improvements and Equipment, Net Leasehold improvements and equipment for the periods indicated consisted of the following: December 31, (In thousands) 2022 2021 Laboratory equipment $ 3,268 $ 3,281 Leasehold improvements 2,060 2,387 Computer equipment 602 814 Implementation costs - cloud computing arrangements 1,075 771 Furniture and fixtures 176 203 Construction in progress 172 91 7,353 7,547 Less: Accumulated depreciation ( 4,554 ) ( 4,544 ) Leasehold improvements and equipment, net $ 2,799 $ 3,003 Depreciation expense on leasehold improvements and equipment for the years ended December 31, 2022 and 2021 was approximately $ 869,000 and $ 890,000 , respectively. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets (ranging from three to ten years ). Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term. During the year ended December 31, 2022, the Company retired or disposed certain leasehold improvements and equipment resulting in a loss of $ 7,000 . At the time of retirement or disposal, the related cost and accumulated depreciation were removed from the respective accounts. Note 10. Leases Operating Leases As of December 31, 2022 and 2021, the Company had ROU assets of $ 3.5 million and $ 4.4 million, respectively, and corresponding operating lease liabilities of $ 4.2 million and $ 4.7 million, respectively. The components of operating lease expense for the periods indicated are as follows: Year Ended December 31, (In thousands) 2022 2021 Operating leases Operating lease expense $ 941 $ 625 Variable lease expense 176 195 Operating lease expense 1,117 820 Short-term lease rent expense 164 249 Total expense $ 1,281 $ 1,069 As of December 31, 2022, the weighted average remaining lease term for operating leases is 4.5 years and the weighted average discount rate used to determine the operating lease liabilities is 5.8 %. 63 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Future minimum lease payments under operating leases as of December 31, 2022 are as follows: (In thousands) Year Amount 2023 $ 843 2024 1,101 2025 1,135 2026 901 2027 491 Thereafter 387 Total 4,858 Less: Present value discount ( 639 ) Present value of total operating lease liabilities 4,219 Less: Current portion ( 680 ) Long-term obligations under operating leases $ 3,539 Note 11. Share-Based Compensation Equity Plans The Company grants awards to recipients through the 2017 Equity Incentive Plan, as amended (2017 Plan), which was approved by stockholders and the Board of Directors. The 2017 Plan provided for the issuance of shares that total no more than the sum of (i) 14,500,000 new shares, (ii) approximately 384,000 unallocated shares remaining available for the grant of new awards under the Second Amended and Restated 2007 Equity Incentive Plan, (iii) any returning shares such as forfeited, cancelled, or expired shares and (iv) 500,000 shares pursuant to an inducement award. The number of shares available to be issued under the 2017 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) 1.5 shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award). As of December 31, 2022, there were approximately 4.0 million remaining shares available for issuance under this plan. Options expire 10 years from the date of grant. General Vesting Conditions The Company’s stock options and restricted stock unit awards are generally subject to a one-year cliff vesting period after which 1/3rd of the shares vest with the remaining shares vesting ratably each month over a two-year period subject to the passage of time. Beginning in the second quarter of 2022, newly granted restricted stock units are generally subject to a three-year vesting period with 1/3rd vesting per year on the anniversary of the grant date. Certain stock option awards are market or performance based and vest based on certain triggering events established by the Compensation Committee. Certain executive and board member equity awards provide for accelerated vesting if there is a change in control or termination without cause. Stock Options The fair value of the Company’s stock options that are not market or performance based was estimated at the date of grant using the Black-Scholes based option valuation model. The table below outlines the weighted average assumptions for options granted during the periods indicated: Year Ended December 31, Weighted Average: 2022 2021 Expected term (years) 5.8 5.8 Volatility 76.4 % 74.6 % Risk-free rate 2.3 % 1.0 % Dividend Yield 0 % 0 % 64 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Service Period Based Stock Options The majority of options granted by the Company are comprised of service based options. These options vest ratably over the requisite service period of the award. The following table summarizes activity of service period-based stock options during the periods indicated: (In thousands except per-share data and remaining contractual term) Number of Options Weighted Average Aggregate Intrinsic Value Exercise Price Remaining Contractual Term (Years) Outstanding at December 31, 2020 10,833 $ 3.96 6.8 $ 10,472 Options Granted 1,724 8.67 Options Exercised ( 2,146 ) 4.34 13,301 Options Forfeited / Expired ( 916 ) 4.83 Outstanding at December 31, 2021 9,495 $ 4.65 6.5 $ 2,452 Options Granted 2,445 2.41 Options Exercised — — — Options Forfeited / Expired ( 2,543 ) 4.11 Outstanding at December 31, 2022 9,397 $ 4.21 6.2 $ 44 * Exercisable at December 31, 2022 6,540 $ 4.46 5.0 $ — * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 1.68 , which is the closing price of the Company’s stock on the last day of business for the year ended December 31, 2022 Performance Based Stock Options The Company also grants stock option awards that are performance based and vest based on the achievement of certain criteria established by the Compensation Committee. The related performance criteria has passed for these performance based stock options and no further stock options are pending performance determinations. For performance criteria met, the applicable stock options vested and expense was recognized. For performance criteria not met, the compensation expense was not recognized and the applicable stock options were forfeit. The following table summarizes activity of performance based stock options during the periods indicated: (In thousands except per-share data and remaining contractual term) Number of Shares Weighted Average Aggregate Intrinsic Value Exercise Price Remaining Contractual Term (Years) Outstanding at December 31, 2020 81 $ 4.34 3.1 $ 37 Options Granted — — Options Exercised ( 40 ) 4.34 401 Options Forfeited — — Outstanding at December 31, 2021 41 $ 4.34 2.1 $ — Options Granted — — Options Exercised — — — Options Forfeited — — Outstanding and Exercisable at December 31, 2022 41 $ 4.34 1.1 $ — * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 1.68 , which is the closing price of the Company’s stock on the last day of business for the year ended December 31, 2022. 65 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Market Based Stock Options The Company grants stock option awards that are market based which have vesting conditions associated with a service condition as well as performance of the Company’s stock price. The following table summarizes activity of market based stock options during the periods indicated: (In thousands except per-share data and remaining contractual term) Number of Shares Weighted Average Aggregate Intrinsic Value Exercise Price Remaining Contractual Term (Years) Outstanding at December 31, 2020 1,000 $ 4.24 6.8 $ 560 Options Granted — — Options Exercised — — — Options Forfeited — — Outstanding at December 31, 2021 1,000 $ 4.24 5.8 $ — Options Granted — — Options Exercised — — — Options Forfeited — — Outstanding and Exercisable at December 31, 2022 1,000 $ 4.24 4.8 $ — * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 1.68 , which is the closing price of the Company’s stock on the last day of business for the year ended December 31, 2022 . Restricted Stock Units The following table summarizes activity of restricted stock units during the periods indicated: (In thousands except per share fair value) Number of Units Weighted Average Fair Value Unvested shares at December 31, 2020 — $ — Granted 135 10.29 Vested — — Forfeited ( 20 ) 10.77 Unvested shares at December 31, 2021 115 $ 10.21 Granted 700 2.16 Vested ( 144 ) 5.05 Forfeited ( 21 ) 7.49 Unvested shares at December 31, 2022 650 $ 2.77 Expected to vest as of December 31, 2022 650 $ 2.77 66 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Restricted Stock Awards The following table summarizes activity of restricted stock awards during the periods indicated: (In thousands except per share fair value) Number of Awards Weighted Average Fair Value Unvested shares at December 31, 2020 183 $ 3.25 Granted — — Vested — — Forfeited — — Unvested shares at December 31, 2021 183 $ 3.25 Granted — — Vested — — Forfeited — — Unvested shares at December 31, 2022 183 $ 3.25 Expected to vest as of December 31, 2022 183 $ 3.25 Share-based Compensation Share-based compensation expenses for the years ended December 31, 2022 and December 31, 2021 were as follows: Year Ended December 31, (In thousands) 2022 2021 Share-based compensation expense Cost of sales $ 276 $ 204 Sales and marketing 1,519 1,689 Research and development 973 877 General and administrative 2,971 3,425 Total $ 5,739 $ 6,195 On August 10, 2022, the Company entered into a separation agreement with Kevin Farr, the Company’s former Chief Financial Officer. Pursuant to the terms of the agreement, Mr. Farr received an equity grant of 89,189 restricted stock units vesting fully in 90 days, accelerated vesting of 88,480 stock options that would have otherwise become vested by the one-year anniversary of the termination date and a period of three years after the termination date to exercise any vested stock options, among other terms. The related expense from these awards has been included during the year ended December 31, 2022. In future periods, the Company expects to recognize approximately $ 5.4 million and $ 1.4 million in share-based compensation expense for unvested options and unvested restricted stock units, respectively, that were outstanding as of December 31, 2022. Future share-based compensation expense will be recognized over 1.6 and 1.7 weighted average years for unvested options and restricted stock units, respectively. The Company also has total unrecognized share-based compensation expense of $ 1.0 million pertaining to the Joint Venture. Such expense will only be recognized if Blue Hat Registration is achieved, the timing of which is uncertain as of December 31, 2022. See Note 12, Joint Venture for further discussion. 67 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 12. Joint Venture On September 30, 2022, Asia Pacific Scientific, Inc., an indirect wholly owned subsidiary of the Company, and Hong Kong (China) Taikuk Group Ltd (Taikuk) entered into a shareholders agreement (the “Shareholders Agreement”) pursuant to which Taikuk has agreed to contribute $ 1.0 million (the “Subscription Price”) in exchange for an 11 % non-voting equity interest in ChromaDex Asia Pacific Ventures Limited, a subsidiary of Asia Pacific Scientific, Inc. (the “Joint Venture” or “JV”). Additionally, the Company shall pay $ 1.0 million in cash to Taikuk (the “Taikuk Fee”) upon the closing of the Shareholders Agreement (the “Closing”). The Company and Taikuk have mutually agreed that no exchange of funds for the Taikuk Fee and Subscription Price was necessary and, accordingly, no cash has or will exchange hands related to these provisions of the Shareholders Agreement. The articles of association of the JV were amended and restated simultaneously with the Closing. The purpose of the JV is to commercialize Tru Niagen® and other products containing nicotinamide riboside to be developed by the Company in the ordinary course (the “Products”) in Mainland China and its territories, excluding Hong Kong, Macau and Taiwan (the “Territory”). The Shareholders Agreement has an initial term of 20 years, unless earlier terminated. The Company indirectly owns an 89 % equity interest (and all of the voting interests) in the JV and has the right to elect all three directors of the JV. Prior to being able to commercialize the Products in the Territory, the JV will have to obtain all applicable regulatory approvals, including “Blue Hat” or health food registration with the Peoples Republic of China State Administration for Market Regulation for Products in the name of the Company or its designee (collectively, the “Blue Hat Registration”). Upon completion of Blue Hat Registration, the Company shall make a payment of $ 1.0 million in cash to Taikuk (the “Blue Hat Registration Fee”). If the Blue Hat Registration is not obtained within 24 months of the Closing (which may be extended by an additional 12 months upon mutual consent of the parties), the JV may repurchase the 11 % non-voting interest purchased by Taikuk for $ 1 (the “Right of Repurchase”). The Right of Repurchase functions as a performance vesting condition under ASC 718 and the 11 % non-voting equity interest is accounted for as nonemployee share-based compensation. The equity interest will only vest if Blue Hat Registration is achieved, at which time the minority interest will be recorded. As of December 31, 2022, it is uncertain when Blue Hat Registration will be achieved. Consequently, no amounts related to the Blue Hat Registration Fee or the 11 % non-voting interest have been recognized in the Consolidated Statements of Operations for the year ended December 31, 2022. The fair value of the 11 % non-voting interest and corresponding share-based compensation expense of $ 1.0 million was determined as of the grant date of September 30, 2022 and based on a discounted cash flow model, which utilizes Level 3, or unobservable, inputs. The most significant of these inputs were the combined weighted averages of the a) discount rate at 27.5 %, b) present value of estimated future cash flows of $ 3.9 million and c) the present value of the terminal value at $ 5.6 million. Once Blue Hat Registration is complete and certain distribution agreements relating to the commercialization of the Products in the Territory are assigned and entered into (the “Distribution Agreements”), Taikuk would be entitled to certain royalty payments based on the Company’s and the JV’s net revenue for sales of the Products in the Territory under the Distribution Agreements. Operating activity under the JV was not material during the year ended December 31, 2022. Note 13. Line of Credit On November 12, 2019, the Company entered into a business financing agreement with Western Alliance Bank (Credit Agreement), to establish a formula based revolving credit line. On December 11, 2021, the Company amended the Credit Agreement to increase the aggregate principal amount available to the Company from $ 7.0 million to $ 10.0 million subject to the terms and conditions of the agreement, as amended, and extended the maturity date to November 12, 2023. The amendment also reduced the interest rate to be calculated at a floating rate per month equal to (a) the greater of 3.25 % per year (previously 4.75 % per year) or (ii) the Prime Rate published by The Wall Street Journal, plus (b) 1.50 percentage points, plus an additional 5.00 percentage points during any period that an event of default has occurred and is continuing. As of December 31, 2022, the interest rate was 9.00 % and the Company had no outstanding debt under this line of credit arrangement. 68 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements If the Company draws from the line of credit, the Company’s obligations under the Credit Agreement are secured by a security interest in substantially all of the Company’s current and future personal property assets, including intellectual property. Any borrowings, interest or other fees or obligations that the Company owes will become due and payable on the maturity date. The Credit Agreement includes quick ratio and minimum liquidity financial covenants. The Company is also subject to a number of affirmative and restrictive covenants, including covenants regarding delivery of financial statements, maintenance of inventory, payment of taxes, maintenance of insurance, dispositions of property, business combinations or acquisitions and incurrence of additional indebtedness, among other customary covenants. The Company was in compliance with all covenants as of December 31, 2022. Debt Issuance Costs For the years ended December 31, 2022 and 2021, the Company incurred debt issuance costs of approximately $ 77,000 and $ 110,000 , respectively, in connection with this line of credit arrangement and had an unamortized balance of approximately $ 69,000 as of December 31, 2022. For the line of credit arrangement, the Company elected a policy to keep the debt issuance costs as an asset, regardless of whether an amount is drawn. The remaining unamortized deferred asset will be amortized over the remaining life of the line of credit arrangement. Note 14. NHSc Revenue On October 10, 2022, the Company and Société des Produits Nestlé SA, a société anonyme organized under the laws of Switzerland (NHSc), as successor-in-interest to NESTEC Ltd., entered into an amended and restated supply agreement (the “Supply Agreement”), which amends and restates the supply agreement, dated December 19, 2018, entered into by the Company and NESTEC Ltd. Pursuant to the Supply Agreement, NHSc and its affiliates will exclusively purchase nicotinamide riboside chloride (NRCL) from the Company and NHSc and its affiliates will have the non-exclusive right to manufacture, market, distribute, and sell products using NRCL for human use in the (i) medical nutritional, (ii) functional food and beverage and (iii) multi-ingredient dietary supplements categories sold under one of the NHSc brands (the “Approved Products”) world-wide, but excluding certain countries and ingredient combinations. The term of the Supply Agreement is five years , unless earlier terminated, and is subject to automatic extensions provided certain minimum purchases by NHSc are met. As consideration for the rights granted to NHSc under the Supply Agreement, NHSc agreed to an initial purchase commitment of NRCL equal to approximately $ 2.0 million. During the fourth quarter of 2022, NHSc purchased the full consideration under this commitment, of which $ 1.7 million relates to a bill-and-hold arrangement . The Supply Agreement also provides for NHSc to pay a royalty to the Company at tiered percentage rates in the low-single digits based on worldwide annual net sales of the Approved Products, subject to certain deductions. Furthermore, the Supply Agreement provides for NHSc to pay the Company two separate one-time milestone payments in the low seven figures depending on whether NHSc achieves certain net sales targets in any contract year. No royalty or milestone payments were received during the year ended December 31, 2022. Under the Supply Agreement, the Company will continue to recognize the deferred revenue balance received in connection with the original Nestec Ltd. agreement utilizing the output method. Deferred revenue will be recognized by the Company based on the percentage of NRCL kilograms delivered to-date compared to the total forecasted NRCL kilograms to be delivered for the duration of the contract term including renewal options as estimated by the Company. Revenue recognized from deferred revenue and the corresponding deferred revenue balance for the years indicated is as follows: (In thousands) Year Ended December 31, At December 31, 2022 2021 2022 2021 Revenue recognized from deferred revenue $ 391 $ 432 Deferred revenue balance $ 3,955 $ 4,346 In addition, in connection with the entry into the Supply Agreement, the Company entered into a Securities Purchase Agreement with NHSc. For further discussion regarding the Securities Purchase Agreement see Note 16, Stock Issuances . 69 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 15. Income Taxes A reconciliation of income taxes computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is summarized as follows: Year Ended December 31, 2022 2021 Federal income tax expense at statutory rate ( 21.0 ) % ( 21.0 ) % State income tax, net of federal benefit ( 5.5 ) ( 4.8 ) Permanent differences 3.2 ( 1.8 ) Change in state tax rate 0.3 ( 0.1 ) Changes of state net operating losses ( 1.6 ) 2.8 Change in stock options and restricted stock 7.8 ( 4.9 ) Change in valuation allowance 17.7 29.8 Other ( 0.9 ) — Effective tax rate 0.0 % 0.0 % The Company's deferred tax assets and liabilities for the periods indicated are summarized below: December 31, (In thousands) 2022 2021 Deferred tax assets: Net operating loss carryforward $ 37,308 $ 36,136 Stock options and restricted stock 4,528 4,805 Interest expense 258 244 Inventory reserve 410 399 Allowance for doubtful accounts 32 17 Accrued expenses 1,654 1,073 Research and development expense 922 — Deferred revenue 1,050 880 Leasehold improvements and equipment 60 74 Intangibles 104 95 Operating leases 185 85 46,511 43,808 Less: Valuation allowance ( 46,254 ) ( 43,363 ) Total deferred tax assets 257 445 Deferred tax liabilities: Prepaid expenses ( 257 ) ( 445 ) Total deferred tax liabilities ( 257 ) ( 445 ) Net deferred tax assets (liabilities) $ — $ — As of December 31, 2022 and 2021, the Company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of 0 % for both of the years ended December 31, 2022, and 2021. The Company increased its valuation allowance by approximately $ 2.9 million to $ 46.2 million as of December 31, 2022 from $ 43.3 million as of December 31, 2021. For fiscal year 2022, the Company identified no U.S. tax on global intangible low-taxed income (GILTI) due to a loss. 70 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements As of December 31, 2022, the Company’s net operating loss (NOL) carryforwards for federal and state income tax purposes are approximately $ 141.9 million and $ 116.8 million, respectively, portions of which begin to expire in the years ending December 31, 2023 and 2022, respectively. During the year ended December 31, 2022, $ 46 thousand and $ 0.5 million of state NOL carryforwards expired and was written-off, respectively. The write-off of state NOL carryforwards was due to the fact the Company no longer has employees in such state. The Company’s federal NOL carryforward of $ 101.9 million generated in tax years beginning after December 31, 2017 may be carried forward indefinitely but the deductibility of such NOL carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other provisions, increases the limitation on the allowed business interest expense deduction from 30% to 50% of adjusted taxable income for tax years beginning January 1, 2019 and 2020 and allows businesses to immediately expense the full cost of Qualified Improvement Property, retroactive to tax years beginning on or after January 1, 2018. Additionally, the CARES Act permits NOL carryforwards and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act has not materially impacted the Company’s income tax provision. Under the Internal Revenue Code of 1986, as amended (the Code), certain ownership changes may subject the Company to annual limitations on the utilization of its net operating loss carryforwards. The Company determined that stock issued during fiscal year 2022 did not create a change in control under the Section 382 of the Code. The Company will continue to analyze the potential impact of any additional transactions undertaken upon the utilization of the net operating losses on a go forward basis. The Company is currently not under examination by the Internal Revenue Service or any other major income tax jurisdiction. The Company has not identified any material uncertain tax positions requiring a reserve as of December 31, 2022 or December 31, 2021. Note 16. Stock Issuances On September 30, 2022, the Company entered into a Securities Purchase Agreement with Pioneer Step Holdings Limited (Pioneer Step), Champion River Ventures Limited (Champion) and Robert Fried (collectively, the “Purchasers”) pursuant to which the Company agreed to sell and issue approximately 2.5 million shares of common stock at a price of $ 1.25 per share (the “2022 Financing”). Champion is indirectly owned by Li Ka-Shing and Pioneer Step is indirectly owned by Solina Chau, and each of Mr. Ka-Shing and Ms. Chau own through affiliated entities more than 5 % of the Company’s common stock. Pursuant to previous agreements, each of Pioneer Step and Champion have appointed a member of the Company’s Board. Mr. Fried is the Company’s Chief Executive Officer. The transaction and related agreements were approved by the Audit Committee of the Board in accordance with the Company’s Related-Persons Transaction Policy. On October 7, 2022, the Company closed the 2022 Financing and received proceeds of approximately $ 2.9 million, net of offering costs of $ 0.2 million. In connection with the 2022 Financing, on September 30, 2022, the Company also entered into a Registration Rights Agreement with the Purchasers (the “Registration Rights Agreement”), pursuant to which the Company agreed to (i) file one or more registration statements with the SEC to cover the resale of the shares of Common Stock issued to the Purchasers, (ii) use reasonable best efforts to have all such registration statements declared effective within the timeframes set forth in the Registration Rights Agreement, and (iii) use commercially reasonable efforts to keep such registration statements effective during the timeframes set forth in the Registration Rights Agreement. The Company filed a Registration Statement registering the resale of Common Stock in November 2022. In the event that such registration statement subsequently becomes unavailable, or the Purchasers are unable to sell the shares of Common Stock issued pursuant to the Financing due to failure by the Company to satisfy the current public information requirement of Rule 144 under the Securities Act, the Company would be required to pay liquidated damages to the Purchasers equal to 1.0 % of the aggregate purchase price per month for each default (up to a maximum of 5.0 % of such aggregate purchase price). On October 10, 2022, in connection with the entry into the NHSc Supply Agreement, the Company also entered into a Securities Purchase Agreement with NHSc pursuant to which NHSc agreed to purchase 3.8 million shares of common stock at a price of $ 1.31 which is equal to the volume weighted average price of the Company’s common stock for the 10 trading days preceding October 10, 2022 (the “Securities Purchase Agreement”). On October 17, 2022, the Company closed the Securities Purchase Agreement and received proceeds of approximately $ 4.8 million , net of offering costs of $ 0.2 million. 71 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements Note 17. Commitments and Contingencies Purchase obligations From time to time, the Company enters into purchase obligations with vendors for goods and services required in its operations, primarily consisting of inventory. Future minimum payments under inventory purchase obligations as of December 31, 2022 are as follows: (In thousands) Year Amount 2023 $ 18,000 $ 18,000 Royalty The Company has various licensing agreements with leading research universities and other patent holders, pursuant to which the Company acquired patents related to certain products the Company offers to its customers. These agreements afford for royalty payments based on contractual minimums and expire at various dates ranging from 2025 through 2037, often correlated to the expiration date of each patent. In addition, the Company is required to pay a range of 1 % to 5 % of sales related to the licensed products under these agreements. Total royalty expenses including license maintenance fees for the years ended December 31, 2022 and 2021 were approximately $ 2.0 million and $ 1.8 million, respectively, under these agreements. As of December 31, 2022, future minimum royalties including license maintenance fees for the next five years are as follows: (In thousands) Year Amount 2023 $ 415 2024 426 2025 413 2026 364 2027 174 $ 1,792 L egal proceedings 1. Elysium Health, LLC (A) California Action On December 29, 2016, ChromaDex filed a complaint in the United States District Court for the Central District of California, naming Elysium Health, Inc. (together with Elysium Health, LLC, “Elysium”) as defendant (Complaint). On January 25, 2017, Elysium filed an answer and counterclaims in response to the Complaint (together with the Complaint, the “California Action”). Over the course of the California Action, the parties have each filed amended pleadings several times and have each engaged in several rounds of motions to dismiss and one round of motion for judgment on the pleadings with respect to various claims. Most recently, on November 27, 2018, ChromaDex filed a fifth amended complaint that added an individual, Mark Morris, as a defendant. Elysium and Morris (Defendants) moved to dismiss on December 21, 2018. The court denied Defendants’ motion on February 4, 2019. Defendants filed their answer to ChromaDex’s fifth amended complaint on February 19, 2019. ChromaDex filed an answer to Elysium’s restated counterclaims on March 5, 2019. Discovery closed on August 9, 2019. 72 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements On August 16, 2019, the parties filed motions for partial summary judgment as to certain claims and counterclaims. The parties filed opposition briefs on August 28, 2019, and reply briefs on September 4, 2019. On October 9, 2019, among other things, the court vacated the previously scheduled trial date, ordered supplemental briefing with respect to certain issues related to summary judgment. Elysium filed its opening supplemental brief on October 30, 2019, ChromaDex filed its opening supplemental brief on November 18, 2019, and Elysium filed a reply brief on November 27, 2019, and the court heard argument on January 13, 2020. On January 16, 2020, the court granted both parties’ motions for summary judgment in part and denied both in part. On ChromaDex’s motion, the court granted summary judgment in favor of ChromaDex on Elysium’s counterclaims for (i) breach of contract related to manufacturing NIAGEN® according to the defined standard, selling NIAGEN and ingredients that are substantially similar to pterostilbene to other customers, distributing the NIAGEN® product specifications, and failing to provide information concerning the quality and identity of NIAGEN®, and (ii) breach of the implied covenant of good faith and fair dealing. The court denied summary judgment on Elysium’s counterclaims for (i) fraudulent inducement of the Trademark License and Royalty Agreement, dated February 3, 2014, by and between ChromaDex and Elysium (License Agreement), (ii) patent misuse, and (iii) unjust enrichment. On Elysium’s motion, the court granted summary judgment in favor of Elysium on ChromaDex’s claim for damages related to $ 110,000 in avoided costs arising from documents that Elysium used in violation of the Supply Agreement, dated February 3, 2014, by and between ChromaDex and Elysium, as amended (NIAGEN® Supply Agreement). The court denied summary judgment on Elysium’s counterclaim for breach of contract related to certain refunds or credits to Elysium. The court also denied summary judgment on ChromaDex’s breach of contract claim against Morris and claims for disgorgement of $ 8.3 million in Elysium’s resale profits, $ 600,000 for a price discount received by Elysium, and $ 684,781 in Morris’s compensation. Following the court’s January 16, 2020 order, ChromaDex’s claims asserted in the California Action, among other allegations, were that (i) Elysium breached the Supply Agreement, dated June 26, 2014, by and between ChromaDex and Elysium (pTeroPure® Supply Agreement), by failing to make payments to ChromaDex for purchases of pTeroPure® and by improper disclosure of confidential ChromaDex information pursuant to the pTeroPure® Supply Agreement, (ii) Elysium breached the NIAGEN® Supply Agreement, by failing to make payments to ChromaDex for purchases of NIAGEN®, (iii) Defendants willfully and maliciously misappropriated ChromaDex trade secrets concerning its ingredient sales business under both the California Uniform Trade Secrets Act and the Federal Defend Trade Secrets Act, (iv) Morris breached two confidentiality agreements he signed by improperly stealing confidential ChromaDex documents and information, (v) Morris breached his fiduciary duty to ChromaDex by lying to and competing with ChromaDex while still employed there, and (vi) Elysium aided and abetted Morris’s breach of fiduciary duty. ChromaDex sought damages and interest for Elysium’s alleged breaches of the NIAGEN® Supply Agreement and pTeroPure® Supply Agreement and Morris’s alleged breaches of his confidentiality agreements, compensatory damages and interest, punitive damages, injunctive relief, and attorney’s fees for Defendants’ alleged willful and malicious misappropriation of ChromaDex’s trade secrets, and compensatory damages and interest, disgorgement of all benefits received, and punitive damages for Morris’s alleged breach of his fiduciary duty and Elysium’s aiding and abetting of that alleged breach. Elysium’s claims alleged in the California Action were that (i) ChromaDex breached the NIAGEN® Supply Agreement by not issuing certain refunds or credits to Elysium, (ii) ChromaDex fraudulently induced Elysium into entering into the License Agreement, (iv) ChromaDex’s conduct constitutes misuse of its patent rights, and (v) ChromaDex was unjustly enriched by the royalties Elysium paid pursuant to the License Agreement. Elysium sought damages for ChromaDex’s alleged breaches of the NIAGEN® Supply Agreement, and compensatory damages, punitive damages, and/or rescission of the License Agreement and restitution of any royalty payments conveyed by Elysium pursuant to the License Agreement, and a declaratory judgment that ChromaDex has engaged in patent misuse. On January 17, 2020, Elysium moved to substitute its counsel. The same day, the court ordered hearing on that motion for January 21, 2020, and granted Elysium’s motion at the hearing. On January 23, 2020, the court issued a scheduling order that, among other things, set trial on the remaining claims to begin on May 12, 2020. On March 19, 2020, in light of the global 2019 coronavirus disease (COVID-19) pandemic and ongoing private mediation efforts, the parties jointly stipulated to adjourn the trial date. The court vacated the trial date on March 20, 2020. The court held a telephonic status conference on June 9, 2020, during which the court indicated that it will reschedule the jury trial as soon as conditions permit. On November 4, 2020, the parties submitted a joint status report indicating that they will propose a new trial date as soon as the court announces that it will resume jury trials. On November 18, 2020, the court set trial to begin on September 21, 2021. 73 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements On December 11, 2020, Elysium filed a “Notice of Correction of Depositions” related to the depositions of its chief executive officer, Eric Marcotulli, and chief operating officer, Daniel Alminana, both taken in March 2019. On March 8, 2021, based in part on information that Elysium submitted under seal with that notice, ChromaDex filed a motion for sanctions or, in the alternative, reconsideration of the court’s January 16, 2020 order regarding summary judgment, in which ChromaDex moved to dismiss Elysium’s third, fourth, and fifth counterclaims. Elysium’s opposition brief was filed on March 22, 2021. ChromaDex filed its reply brief on March 29, 2021. On April 27, 2021, the court denied ChromaDex, Inc’s motion for terminating sanctions, but concluded that the evidence at issue in the motion will be admissible at trial. The jury trial portion of the case commenced on September 21, 2021. The jury returned a verdict on September 27, 2021. The verdict found (i) Elysium liable for breaches of the NIAGEN® and pTeroPure® Supply Agreements for failing to pay for purchases of the ingredients totaling approximately $ 3.0 million, (ii) Mark Morris liable for breach of a confidentiality agreement, requiring him to disgorge approximately $ 17,307 , (iii) ChromaDex liable for breaching the NIAGEN® Supply Agreement for not issuing certain refunds or credits to Elysium in the amount of $ 625,000 , and (iv) ChromaDex liable for fraudulent inducement of the Licensing Agreement in the amount of $ 250,000 , along with $ 1,025,000 in punitive damages arising from the same counterclaim. On January 17, 2022, ChromaDex filed a motion for prejudgment interest on the approximately $ 3.0 million in damages awarded by the jury for Elysium’s breaches of the NIAGEN® and pTeroPure® Supply Agreements. Elysium’s opposition brief was filed on January 24, 2022, and ChromaDex, Inc.’s reply brief was filed on January 31, 2022. On February 10, 2022, the court denied ChromaDex Inc.’s motion for prejudgment interest. On February 18, 2022, ChromaDex, Inc. and Elysium jointly filed a notice informing the court that ChromaDex, Inc. had filed in the U.S. District Court for the Southern District of New York (SDNY Court) a motion to enforce a settlement agreement between ChromaDex, Inc. and Elysium that ChromaDex, Inc. asserts would materially affect the California Action. On April 22, 2022, ChromaDex, Inc. and Elysium jointly filed a notice informing the court that the SDNY Court had granted ChromaDex, Inc.’s motion to enforce the settlement agreement. On April 29, 2022, ChromaDex, Inc. filed a notice informing the court that the SDNY Court had dismissed the SDNY action with prejudice pursuant to the settlement agreement. On August 22, 2022, ChromaDex, Inc. filed a motion for entry of judgment pursuant to Federal Rule of Civil Procedure 54(b) on the basis that the settlement agreement was enforceable and resolved the claims and counterclaims tried to the jury in the California Action. Elysium’s opposition brief was filed on August 29, 2022, and ChromaDex, Inc.’s reply brief was filed on September 2, 2022. On September 13, 2022, the court denied ChromaDex, Inc.’s motion for entry of judgment pursuant to Rule 54(b). On September 28, 2022, ChromaDex, Inc., Elysium, and Mark Morris filed a joint stipulation requesting that the court stay the California Action pending the final resolution of ChromaDex, Inc.’s appeal in the U.S. Court of Appeals for the Federal Circuit captioned ChromaDex, Inc. v. Elysium Health, Inc., No. 2022-1116 (the “Federal Circuit Appeal”). On September 28, 2022, the court issued an order staying the California Action pending the final resolution of the Federal Circuit Appeal. (B) Southern District of New York Action On September 27, 2017, Elysium Health Inc. (Elysium Health) filed a complaint in the United States District Court for the Southern District of New York, against ChromaDex (Elysium SDNY Complaint). Elysium Health alleged in the Elysium SDNY Complaint that ChromaDex made false and misleading statements in a citizen petition to the Food and Drug Administration it filed on or about August 18, 2017. Among other allegations, Elysium Health averred that the citizen petition made Elysium Health’s product appear dangerous, while casting ChromaDex’s own product as safe. The Elysium SDNY Complaint asserted four claims for relief: (i) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (ii) trade libel; (iii) deceptive business practices under New York General Business Law § 349; and (iv) tortious interference with prospective economic relations. On October 26, 2017, ChromaDex moved to dismiss the Elysium SDNY Complaint on the grounds that, inter alia, its statements in the citizen petition are immune from liability under the Noerr-Pennington Doctrine, the litigation privilege, and New York’s Anti-SLAPP statute, and that the Elysium SDNY Complaint failed to state a claim. Elysium Health opposed the motion on November 2, 2017. ChromaDex filed its reply on November 9, 2017. On October 26, 2017, ChromaDex filed a complaint in the United States District Court for the Southern District of New York against Elysium Health (ChromaDex SDNY Complaint). ChromaDex alleges that Elysium Health made material false and misleading statements to consumers in the promotion, marketing, and sale of its health supplement product, Basis, and asserts five claims for relief: (i) false advertising under the Lanham Act, 15 U.S.C. §1125(a); (ii) unfair competition under 15 U.S.C. § 1125(a); (iii) deceptive practices under New York General Business Law § 349; (iv) deceptive practices under New York General Business Law § 350; and (v) tortious interference with prospective economic advantage. On November 16, 2017, Elysium Health moved to dismiss for failure to state a claim. ChromaDex opposed the motion on November 30, 2017 and Elysium Health filed a reply on December 7, 2017. 74 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements On November 3, 2017, the Court consolidated the Elysium SDNY Complaint and the ChromaDex SDNY Complaint actions under the caption In re Elysium Health-ChromaDex Litigation, 17-cv-7394, and stayed discovery in the consolidated action pending a Court-ordered mediation. The mediation was unsuccessful. On September 27, 2018, the Court issued a combined ruling on both parties’ motions to dismiss. For ChromaDex’s motion to dismiss, the Court converted the part of the motion on the issue of whether the citizen petition is immune under the Noerr-Pennington Doctrine into a motion for summary judgment, and requested supplemental evidence from both parties, which were submitted on October 29, 2018. The Court otherwise denied the motion to dismiss. On January 3, 2019, the Court granted ChromaDex’s motion for summary judgment under the Noerr-Pennington Doctrine and dismissed all claims in the Elysium SDNY Complaint. Elysium moved for reconsideration on January 17, 2019. The Court denied Elysium’s motion for reconsideration on February 6, 2019, and issued an amended final order granting ChromaDex’s motion for summary judgment on February 7, 2019. The Court granted in part and denied in part Elysium’s motion to dismiss, sustaining three grounds for ChromaDex’s Lanham Act claims while dismissing two others, sustaining the claim under New York General Business Law § 349, and dismissing the claims under New York General Business Law § 350 and for tortious interference. Elysium filed an answer and counterclaims on October 10, 2018, alleging claims for (i) false advertising under the Lanham Act, 15 U.S.C. §1125(a); (ii) unfair competition under 15 U.S.C. § 1125(a); and (iii) deceptive practices under New York General Business Law § 349. ChromaDex answered Elysium’s counterclaims on November 2, 2018. ChromaDex filed an amended complaint on March 27, 2019, adding new claims against Elysium Health for false advertising and unfair competition under the Lanham Act, 15 U.S.C. § 1125(a). On April 10, 2019, Elysium Health answered the amended complaint and filed amended counterclaims, also adding new claims against ChromaDex for false advertising and unfair competition under the Lanham Act, 15 U.S.C. § 1125(a). On July 1, 2019, Elysium Health filed further amended counterclaims, adding new claims under the Copyright Act §§ 106 & 501. On February 9, 2020, ChromaDex filed a motion for leave to amend its complaint to add additional claims against Elysium Health for false advertising and unfair competition. On February 10, 2020, Elysium Health filed a motion for leave to amend its counterclaims to identify allegedly false and misleading statements in ChromaDex’s advertising. Those motions were both granted after respective stipulations. On March 12, 2020, Elysium Health answered the second amended complaint. On March 13, 2020, ChromaDex filed an answer and objection to Elysium Health’s third amended counterclaims. On December 14, 2020, Elysium Health filed a motion to supplement and amend its counterclaims to add claims regarding alleged advertising related to COVID-19, to add an allegation about a change to the ChromaDex website, and to remove its copyright infringement claim under the Copyright Act. On January 19, 2021, the Court denied Elysium Health’s motion to add claims regarding alleged advertising related to COVID-19. The Court granted the unopposed requests to add an allegation about a change to ChromaDex’s website and to remove Elysium’s Copyright Act claim. Pursuant to the Court’s order, Elysium filed fourth amended counterclaims on April 21, 2021. All discovery closed on April 23, 2021. The Court vacated a previously scheduled joint pretrial order and trial date because of COVID-19, and the Court has informed the Parties that trial date will be rescheduled in November or December 2021. Both parties filed dispositive and Daubert motions on June 4, 2021. Opposition papers were filed by both parties on June 25, 2021, and reply papers were filed on July 9, 2021. On January 10, 2022, both parties appeared for oral argument on the dispositive and Daubert motions. On February 3, 2022, ChromaDex reached a settlement in order to resolve the SDNY action in its entirety as well as the claims tried to the jury in the Central District of California (the “Settlement Agreement”). Shortly thereafter, before the parties could notify the Court, the Court issued a ruling on the pending dispositive and Daubert motions, dismissing ChromaDex’s SDNY complaint in its entirety on the grounds that ChromaDex’s damages were uncertain, and dismissing some of Elysium’s claims. Elysium then asserted that a settlement had not been reached. ChromaDex thereafter filed a motion to enforce the Settlement Agreement in its entirety on February 16, 2022. Elysium’s opposition to that motion was filed on March 2, 2022, and ChromaDex’s reply was filed on March 9, 2022. On April 19, 2022, the Court concluded that a settlement had been reached and granted ChromaDex’s motion to enforce the Settlement Agreement. On April 28, 2022, pursuant to the Settlement Agreement, the Court dismissed the entire action with prejudice. On May 11, 2022, Elysium filed a notice of appeal. On May 25, 2022, ChromaDex filed a notice of cross-appeal. Elysium filed its opening brief on August 24, 2022. ChromaDex filed its opening and response brief on November 22, 2022. Elysium filed its reply and response brief on January 20, 2023. ChromaDex filed its reply brief on February 10, 2023. 75 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements The Company is unable to predict the outcome of the Elysium SDNY Complaint and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceeding discussed herein. As of December 31, 2022, ChromaDex did not accrue a potential loss for the Elysium SDNY Complaint because ChromaDex believes that the allegations are without merit and thus it is not probable that a liability has been incurred. (C) Delaware - Patent Infringement Action On September 17, 2018, ChromaDex and Trustees of Dartmouth College filed a patent infringement complaint in the United States District Court for the District of Delaware against Elysium Health, Inc. The complaint alleges that Elysium’s BASIS® dietary supplement infringes U.S. Patent Nos. 8,197,807 (‘807 Patent) and 8,383,086 (‘086 Patent) that comprise compositions containing isolated nicotinamide riboside held by Dartmouth and licensed exclusively to ChromaDex On October 23, 2018, Elysium filed an answer to the complaint. The answer asserts various affirmative defenses and denies that Plaintiffs are entitled to any relief. On November 7, 2018, Elysium filed a motion to stay the patent infringement proceedings pending resolution of (1) the inter partes review of the ‘807 Patent and the ‘086 Patent before the Patent Trial and Appeal Board (PTAB) and (2) the outcome of the litigation in the California Action. ChromaDex filed an opposition brief on November 21, 2018 detailing the issues with Elysium’s motion to stay. In particular, ChromaDex argued that given claim 2 of the ‘086 Patent was only included in the PTAB’s inter partes review for procedural reasons the PTAB was unlikely to invalidate claim 2 and therefore litigation in Delaware would continue regardless. In addition, ChromaDex argued that the litigation in the California Action is unlikely to have a significant effect on the ongoing patent litigation. After the PTAB released its written decision upholding claim 2 of the ‘086 Patent, proving right ChromaDex’s prediction, ChromaDex informed the Delaware court of the PTAB’s decision on January 17, 2019. On June 19, 2019, the Delaware court granted in part and denied in part Elysium’s motion, ordering that the case was stayed pending the resolution of Elysium’s patent misuse counterclaim in the California Action. On November 1, 2019, ChromaDex filed a motion to lift the stay due to changed circumstances in the California Action, among other reasons. Briefing on the motion was completed on November 22, 2019. On January 6, 2020, the Delaware court issued an oral order instructing the parties to submit a joint status report after the January 13, 2020 motions hearing in the California Action. The joint status report was submitted on January 30, 2020. On February 4, 2020, the Delaware court issued an order granting ChromaDex’s motion to lift the stay and setting a scheduling conference for March 10, 2020. On March 19, 2020, the Delaware court entered a scheduling order, which, among other things, set the claim-construction hearing for December 17, 2020 and trial for the week of September 27, 2021. On April 17, 2020, ChromaDex served infringement contentions. Elysium filed a Second Amended Answer on July 10, 2020. On April 24, 2020, ChromaDex moved for leave to amend the complaint to add Healthspan Research, LLC as a plaintiff. On May 5, 2020, Elysium filed its opposition to ChromaDex’s motion for leave to amend and moved to dismiss ChromaDex for alleged lack of standing. ChromaDex filed its opposition to Elysium’s motion to dismiss and reply in support of its motion to amend on May 19, 2020. Elysium filed its reply in support of its motion to dismiss on May 26, 2020. The Court held a hearing on the motion for leave to amend the complaint and Elysium’s motion to dismiss on September 16, 2020. On December 15, 2020, the Court entered orders (i) granting in part and denying in part Elysium’s motion to dismiss ChromaDex for alleged lack of standing; and (ii) denying ChromaDex’s motion for leave to amend. ChromaDex filed a motion for reargument on December 29, 2020. Elysium filed a response to the motion for reargument on January 28, 2021. ChromaDex filed a motion for leave to file a reply on February 8, 2021. Elysium filed a response to the motion for leave to file a reply on February 12, 2021. ChromaDex filed a reply to the motion for leave to file a reply on February 19, 2021. The Court granted the motion for leave to file the reply on April 26, 2021 and denied the motion for reargument on April 27, 2021. On July 22, 2020, the parties filed a Joint Claim Construction Chart and respective motions for claim construction. The parties filed a Joint Claim Construction Brief on November 5, 2020. The Court held a Markman hearing on claim-construction issues on December 17, 2020. The Court entered a claim-construction ruling on January 5, 2021. Fact discovery closed on January 26, 2021. Opening expert reports were served on February 9, 2021. Responsive expert reports were served on March 9, 2021. Reply expert reports were served on March 30, 2021. Both parties filed dispositive and Daubert motions on April 27, 2021. 76 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements On September 21, 2021, the Court granted Elysium’s motion for summary judgment that the claims of the ‘807 and ‘086 patents are invalid based on patent-ineligible subject matter. ChromaDex filed a notice of appeal on November 2, 2021. ChromaDex’s opening brief was filed on February 2, 2022. Elysium’s response brief was filed on April 11, 2022. ChromaDex’s reply brief was filed on May 9, 2022. Oral argument occurred on December 6, 2022. On February 13, 2023, the court of appeals issued a decision affirming the district court’s decision. The deadline to file a petition for a panel rehearing and/or rehearing en banc is March 15, 2023. The Company does not believe that this decision will have a material impact on the Company’s NR business. 2. Thorne Research, Inc . (A) Inter Partes Review Proceedings On or around September 28, 2020, Thorne Research, Inc. (Thorne) provided notice to ChromaDex that it intended to terminate its March 25, 2019 Supply Agreement and subsequent amendments with ChromaDex, effective as of December 31, 2020. A discussion between ChromaDex and Thorne followed, and Thorne asserted that it could challenge the ‘086 Patent in an inter partes review (IPR) proceeding on the basis of prior art, but would be willing to enter into a mutual existence agreement that would permit Thorne to source NR from a third party. Thorne did not offer substantive information supporting a prior art claim or about the nature of the threatened IPR. On December 1, 2020, Thorne filed a petition for IPR of the ‘086 Patent. Dartmouth’s preliminary response to the petition was filed on March 15, 2021. On June 10, 2021, the Patent Trial and Appeal Board (PTAB) issued a decision instituting an IPR on the ‘086 Patent. On September 21, 2021, Dartmouth filed its Patent Owner Response. On December 21, 2021, Thorne filed its reply. Oral argument was held on March 15, 2022. On May 31, 2022, the PTAB issued a final written decision holding that the challenged claim was unpatentable. On August 2, 2022, Dartmouth filed a notice of appeal. On December 29, 2022, the parties filed a joint stipulation to dismiss the appeal. On January 3, 2023, the appeal was dismissed. On February 1, 2021, Thorne filed a petition for IPR of the ‘807 Patent. Dartmouth’s preliminary response to the petition was filed on May 18, 2021. On August 12, 2021, the Patent Trial and Appeal Board (PTAB) issued a decision instituting an IPR on the ‘807 Patent. On November 9, 2021, Dartmouth filed its Patent Owner Response. On February 15, 2022, Thorne filed its reply. Oral argument was held on May 17, 2022. On August 10, 2022, the PTAB issued a final written decision holding that the challenged claims were not unpatentable. On October 12, 2022, Thorne filed a notice of appeal. Thorne’s opening brief is currently due on March 16, 2023. (B) Southern District of New York – Patent Infringement Action On May 12, 2021, ChromaDex and Trustees of Dartmouth College filed a patent infringement complaint in the United States District Court for the Southern District of New York. The complaint alleges that certain of Thorne’s dietary supplements containing isolated NR infringe the ‘807 and ‘086 Patents, which claim compositions containing isolated nicotinamide riboside and are held by Dartmouth and licensed exclusively to ChromaDex. On July 6, 2021, Thorne filed an answer and counterclaims to the complaint. The answer asserts various affirmative defenses and denies that Plaintiffs are entitled to any relief. The counterclaims seek declaratory judgment of patent invalidity for the ‘807 and ‘086 Patents. On July 8, 2021, the parties filed a proposed stipulation and order staying the matter pending issuance of the institution decision in the ‘807 Patent IPR. On July 9, 2021, the Court granted the stipulation and order to stay. On August 19, 2021, the parties filed a proposed stipulation and order staying the matter pending issuance of final written decisions in the IPRs. On August 20, 2021, the Court granted the stipulation and order to stay. On August 24, 2022, the parties filed a status report agreeing to continue to stay until fourteen days after the deadline to appeal the final written notice decision in the ‘807 Patent IPR. On October 26, 2022, the parties filed a further status report agreeing to continue the stay through resolution of the appeals. 77 Table of Contents ChromaDex Corporation and Subsidiaries Notes to the Consolidated Financial Statements 3. Contingencies (A) In September 2019, the Company received a letter from a licensor stating that the Company owed the licensor $ 1.6 million plus interest for sublicense fees as a result of the Company entering into a supply agreement with a customer. After reviewing the relevant facts and circumstances, the Company believes that the Company does not owe any sublicense fees to the licensor and has corresponded with the licensor to resolve the matter. The Company does not believe that the ultimate resolution of this matter will be material to the Company’s results of operations, financial condition or cash flows. (B) On November 17, 2020, the Company received a warning letter (the Letter) from the United States Food and Drug Administration (FDA) and Federal Trade Commission (FTC). The Letter references statements issued by the Company relating to preclinical and clinical research results involving nicotinamide riboside and COVID-19. The statements were included in press releases and referenced in social media posts. On November 18, 2020, the Company provided a response to the Letter stating that the Company disagrees with the assertion in the Letter that the Company’s 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 or that they were unsubstantiated under the FTC Act, but rather accurately reflected the state of the science and the results of scientific research. Nonetheless, the Company also responded that it had deleted social media references to the studies and removed related press releases from its website. On April 30, 2021, the Company received an additional warning letter (the Second Letter) from only the FTC. The Second Letter references the original Letter, and cites additional statements issued by the Company and certain officers and advisors of the Company relating to nicotinamide riboside and scientific studies related to COVID-19. The Second Letter asserts that such statements contain coronavirus-related prevention or treatment claims and are deceptive in violation of the Federal Trade Commission Act. On May 4, 2021, the Company provided a response to the Second Letter stating that it had removed the social media posts from its accounts identified in the Second Letter and requested that third parties remove the post from their accounts that were identified in the Second Letter. The Company stated that the press release identified in the Second Letter is appropriate and not a deceptive act or practice under applicable law. The Company affirmed its belief in the need to accurately report on the scientific results of its studies to its investors and welcomed the opportunity to discuss its research and development program with the FTC and receive guidance on future releases. The Company does not believe that the ultimate resolution of this matter will be material to the Company’s results of operations, financial condition or cash flows. Note 18. Employee Retention Tax Credit In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Tax Credit (ERTC): a refundable tax credit against certain employment taxes for qualifying businesses keeping employees on their payroll during the COVID-19 pandemic. The ERTC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERTC availability and guidelines under the CARES Act. During the third quarter of 2022, the Company evaluated its eligibility for the ERTC and is eligible to claim a refundable tax credit against the employer share of Social Security taxes equal to fifty percent (50%) of the qualified wages paid to employees between March 27, 2020 and December 31, 2020 and seventy percent (70%) of the qualified wages paid to employees between January 1, 2021 and September 30, 2021. For fiscal year 2020, qualified wages are limited to $10,000 annually per employee for a maximum allowable ERTC per employee of $5,000 annually and qualified wages are limited to $10,000 per calendar quarter in 2021 for a maximum allowable ERTC per employee of $7,000 for each calendar quarter in 2021. The Company qualified for the ERTC in the last three quarters of 2020 and all three quarters of 2021 and filed a claim for the credit in August 2022. During the third quarter of 2022, the Company recorded an aggregate benefit of approximately $ 2.1 million in Other income, net - Employee Retention Tax Credit in its Consolidated Statements of Operations to reflect the ERTC for all eligible quarters. During the fourth quarter of 2022, the Company received $ 0.6 million related to the ERTC. As of December 31, 2022, the Company's Consolidated Balance Sheets include an ERTC benefit of $ 1.8 million and associated commissions payable of $ 0.3 million recorded within prepaid expenses and other current assets and accrued expenses, respectively. Subsequent to December 31, 2022, the Company received an additional $ 0.8 million related to the ERTC. 78 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.