What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-02 · 134 added, 260 removed, 547 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands except par values, unless otherwise indicated)

Sep 30, 2022 Dec 31, 2021

March 31, 2023 December 31, 2022

Current assets

Cash and cash equivalents, including restricted cash of $ 0.2 million as of both dates

Cash and cash equivalents, including restricted cash of $ 152 for both periods presented

$ 23,141 $ 20,441

7 unchanged sentences

Intangible assets, net 630 671

Right-of-use assets 3,714 4,352

Right-of-use assets, net 3,352 3,523

Other long-term assets 532 497

10 unchanged sentences

Operating lease obligations, less current maturities 3,353 3,539

Finance lease obligations, less current maturities 20 22

Total liabilities 25,751 25,385

3 unchanged sentences

authorized 150,000 shares;

68,169 shares and 68,126 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

74,666 shares and 74,567 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 215,367 214,094

7 unchanged sentences

(In thousands, except per share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Sales, net $ 22,556 $ 17,259

7 unchanged sentences

Operating loss ( 1,968 ) ( 7,732 )

Other income, net - Employee Retention Tax Credit 2,085 — 2,085 —

Interest expense, net ( 5 ) ( 15 ) ( 23 ) ( 46 )

Nonoperating income (expenses):

Interest income (expense), net 66 ( 8 )

Net loss $ ( 1,902 ) $ ( 7,740 )

5 unchanged sentences

(In thousands, unless otherwise indicated)

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

Common Stock Additional Paid-in Capital Accumulated Deficit Cumulative Translation Adjustments Total Stockholders' Equity

Shares Amount

Balance, July 1, 2022 68,155 $ 68 $ 203,798 $ ( 183,090 ) $ 2 $ 20,778

Issuance of restricted stock 14 — — — — —

Share-based compensation — — 1,229 — — 1,229

Translation adjustment — — — — 1 1

Net loss — — — ( 985 ) — ( 985 )

Balance, September 30, 2022 68,169 $ 68 $ 205,027 $ ( 184,075 ) $ 3 $ 21,023

Nine Months Ended September 30, 2022

Common Stock Additional

Paid-in Capital Accumulated

Deficit Cumulative

Adjustments Total

Stockholders'

Shares Amount

Balance, January 1, 2023 74,567 $ 74 $ 214,094 $ ( 185,493 ) $ ( 3 ) $ 28,672

2 unchanged sentences

Translation adjustment — — — — 3 3

Adjustment to retained earnings:

Cumulative effect of initially adopting ASC 326 — — — ( 29 ) — ( 29 )

Net loss — — — ( 1,902 ) — ( 1,902 )

Balance, September 30, 2022 68,169 $ 68 $ 205,027 $ ( 184,075 ) $ 3 $ 21,023

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

ChromaDex Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders' Equity - Continued

(In thousands, unless otherwise indicated)

Three Months Ended September 30, 2021

Balance, March 31, 2023 74,666 $ 74 $ 215,367 $ ( 187,424 ) $ — $ 28,017

Three Months Ended March 31, 2022

Common Stock Additional Paid-in Capital Accumulated Deficit Cumulative Translation Adjustments Total Stockholders' Equity

Shares Amount

Balance, July 1, 2021 68,009 $ 68 $ 196,848 $ ( 154,772 ) $ ( 2 ) $ 42,142

Issuance of common stock resulting from the exercise of stock options 85 — 341 — — 341

Share-based compensation — — 1,822 — — 1,822

Net loss — — — ( 8,856 ) — ( 8,856 )

Balance, September 30, 2021 68,094 $ 68 $ 199,011 $ ( 163,628 ) $ ( 2 ) $ 35,449

Nine Months Ended September 30, 2021

Common Stock Additional

Paid-in Capital Accumulated Deficit Cumulative Translation Adjustments Total Stockholders' Equity

Shares Amount

Balance, January 1, 2022 68,126 $ 68 $ 200,614 $ ( 168,953 ) $ ( 2 ) $ 31,727

Issuance of common stock, net of offering costs of $ 0.4 million

4,059 4 26,736 — — 26,740

Issuance of common stock resulting from the exercise of stock options 2,154 2 9,363 — — 9,365

Issuance of restricted stock 23 — — — — —

Share-based compensation — — 1,888 — — 1,888

1 unchanged sentence

Net loss — — — ( 7,740 ) — ( 7,740 )

Balance, September 30, 2021 68,094 $ 68 $ 199,011 $ ( 163,628 ) $ ( 2 ) $ 35,449

Balance, March 31, 2022 68,149 $ 68 $ 202,502 $ ( 176,693 ) $ — $ 25,877

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands, unless otherwise indicated)

Nine Months Ended September 30,

(In thousands)

Three Months Ended March 31,

Cash Flows From Operating Activities

5 unchanged sentences

Share-based compensation expense 1,273 1,888

Loss on disposal of leasehold improvements and equipment 7 —

Provision for doubtful trade receivables 316 10

7 unchanged sentences

Accrued expenses 1,273 1,645

Deferred revenue ( 118 ) ( 95 )

Customer deposits and other ( 6 ) ( 18 )

Operating lease liabilities ( 169 ) ( 39 )

Net cash used in operating activities ( 14,770 ) ( 19,219 )

Net cash provided by (used in) operating activities 2,792 ( 7,198 )

Cash Flows From Investing Activities

2 unchanged sentences

Cash Flows From Financing Activities

Proceeds from issuance of common stock, net — 26,740

Proceeds from exercise of stock options — 9,365

Payment of debt issuance costs ( 15 ) ( 47 )

Principal payments on finance leases ( 1 ) ( 3 )

Net cash (used in) provided by financing activities ( 25 ) 36,031

Net (decrease) increase in cash and cash equivalents ( 14,957 ) 16,405

Cash and cash equivalents, including restricted cash of $ 0.2 million for both periods - beginning of period

Net cash used in financing activities ( 1 ) ( 3 )

Net increase (decrease) in cash and cash equivalents 2,700 ( 7,226 )

Cash and cash equivalents, including restricted cash of $ 152 for both periods - beginning of period

20,441 28,219

Cash and cash equivalents, including restricted cash of $ 0.2 million for both periods - end of period

Cash and cash equivalents, including restricted cash of $ 152 for both periods - end of period

$ 23,141 $ 20,993

Supplemental Disclosures of Cash Flow Information

Cash payments for interest on finance leases $ — $ 1

Cash payments for principal on operating lease liabilities $ 180 $ 58

Supplemental Schedule of Noncash Operating Activity

Right-of-use assets and operating lease obligations incurred for entering into lease amendment $ — $ 2,209

Adjustment to retained earnings, cumulative effect of initially adopting ASC 326 $ 29 $ —

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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Results of operations for any interim period are not necessarily indicative of results for any other interim period or for the full year.

These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC.

Basis of Consolidation:

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Significant Accounting Policies:

There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2022, that have had a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements and related notes.

Recent Accounting Pronouncements:

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

There have been no changes to the Company’s significant accounting policies described in the Company’s 2022 Annual Report on Form 10-K filed with the SEC that have had a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements and related notes.

Recent Accounting Standards Adopted by the Company:

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic ASC 326):

Measurement of Credit Losses on Financial Instruments.

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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 on its consolidated financial statements.

The Company adopted this standard on January 1, 2023 using the modified retrospective method resulting in an adjustment to the opening balance of retained earnings of $ 29,000 .

ChromaDex Corporation and Subsidiaries

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Evaluation of Ability to Maintain Current Level of Operations

In connection with the preparation of these U naudited C ondensed Consolidated Financial Statements for the nine months ended September 30, 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 the Company’s third quarter of 2022 interim U naudited C ondensed Consolidated Financial Statements.

Management assessed that there were such conditions and events, including a history of recurring operating losses, negative cash flows from operating activities, the continued impact of the COVID-19 pandemic and inflationary pressures.

For the nine months ended September 30, 2022, t he Company incurred a net loss of $ 15.1 million and used net cash in operating activities of $ 14.8 million.

As of September 30, 2022, the Company had unrestricted cash and cash equivalents of $ 13.1 million which consists of bank deposits or highly liquid investment-grade debt instruments with an original maturity of three months or less.

In connection with the preparation of these U naudited C ondensed Consolidated Financial Statements for the three months ended March 31, 2023, 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 the Company’s first quarter of 2023 interim U naudited C ondensed Consolidated Financial Statements.

Management assessed that there were such conditions and events, including a history of recurring operating losses, a history of negative cash flows from operating activities and inflationary pressures.

For the three months ended March 31, 2023, t he Company incurred a net loss of $ 1.9 million, however, the Company’s operating activities provided cash of $ 2.8 million.

As of March 31, 2023, the Company had unrestricted cash and cash equivalents of $ 23.0 million which consists of bank deposits or highly liquid investment-grade debt instruments with an original maturity of three months or less.

The fair value of the Company’s cash and cash equivalents is derived using Level 1 inputs.

Subsequent to September 30, 2022, the Company closed two separate securities purchase agreements and received proceeds of approximately $ 7.7 million, net of offering costs of $ 0.4 million.

For further discussion of the securities purchase agreements, see Note 12, Subsequent Events .

Management evaluated these conditions and anticipates that its current unrestricted cash and cash equivalents, cash generated from the securities purchase agreements 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.

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 Unaudited Condensed Consolidated 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 currently allow for $ 4.3 million of borrowing.

There are no outstanding borrowings as of September 30, 2022.

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 March 31, 2023 allows for $ 7.2 million of borrowing.

There are no outstanding borrowings as of March 31, 2023.

In June 2020, the Company filed a $ 125 million registration statement on Form S-3 with the SEC, utilizing a “shelf” registration process.

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(ATM Facility).

As of September 30, 2022, approximately $ 47.8 million remains available under the ATM Facility.

As of March 31, 2023, 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 market conditions.

As a result, the Company’s ability to rely on the ATM Facility to raise liquidity is limited to a material extent.

Earnings Per Share Applicable to Common Stockholders

The following table sets forth the computations of earnings per share amounts applicable to common stockholders for the three and nine months ended September 30, 2022 and 2021:

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

Earnings (Loss) Per Share Applicable to Common Stockholders

The following table sets forth the computations of earnings (loss) per share amounts applicable to common stockholders for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

(In thousands, except per share data) 2023 2022

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Restricted stock units 945 365

(1) Includes approximately 0.2 million nonvested shares of restricted stock for each of the three and nine months ended September 30, 2022 and 2021 which are participating securities that feature voting and dividend rights.

(1) Includes approximately 0.2 million nonvested shares of restricted stock for each of the three months ended March 31, 2023 and 2022 which are participating securities that feature voting and dividend rights.

(2) Excluded from the computation of loss per share as their impact is antidilutive.

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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 evaluates performance and allocates resources based on reviewing net sales, gross profit and operating income (loss) 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.

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The following tables set forth financial information by segment:

Three months ended September 30, 2022 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total

Three Months Ended March 31, 2023 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total

(In thousands)

1 unchanged sentence

Cost of sales 6,404 1,881 753 — 9,038

Gross profit (loss) 9,337 920 ( 50 ) — 10,207

Gross profit 11,229 2,243 46 — 13,518

Operating expenses:

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Operating income (loss) $ 2,489 $ 1,999 $ ( 37 ) $ ( 6,419 ) $ ( 1,968 )

Nine Months Ended September 30, 2022 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total

Three Months Ended March 31, 2022 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total

(In thousands)

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Notes to the Unaudited Condensed Consolidated Financial Statements

Three months ended September 30, 2021 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total

(In thousands)

Net sales $ 14,772 $ 1,789 $ 747 $ — $ 17,308

Cost of sales 5,253 732 745 — 6,730

Gross profit 9,519 1,057 2 — 10,578

Operating expenses:

Sales and marketing 7,067 10 144 — 7,221

Research and development 895 101 — — 996

General and administrative — — — 11,202 11,202

Operating expenses 7,962 111 144 11,202 19,419

Operating income (loss) $ 1,557 $ 946 $ ( 142 ) $ ( 11,202 ) $ ( 8,841 )

Nine Months Ended September 30, 2021 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total

(In thousands)

Net sales $ 42,605 $ 4,608 $ 2,477 $ — $ 49,690

Cost of sales 15,003 1,970 2,095 — 19,068

Gross profit 27,602 2,638 382 — 30,622

Operating expenses:

Sales and marketing 19,368 21 322 — 19,711

Research and development 2,539 248 — — 2,787

General and administrative — — — 29,881 29,881

Operating expenses 21,907 269 322 29,881 52,379

Operating income (loss) $ 5,695 $ 2,369 $ 60 $ ( 29,881 ) $ ( 21,757 )

Disaggregation of Revenue

1 unchanged sentence

Disaggregated revenues are as follows:

Three Months Ended September 30, 2022 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total

(In thousands)

Tru Niagen®, Consumer Product $ 14,561 $ — $ — $ 14,561

Niagen® Ingredient

— 1,804 — 1,804

Subtotal Niagen® Related 14,561 1,804 — 16,365

Other Ingredients — 15 — 15

Reference Standards — — 661 661

Consulting and Other — — 22 22

Subtotal Other Goods and Services — 15 683 698

Total Net Sales $ 14,561 $ 1,819 $ 683 $ 17,063

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2022 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total

(In thousands)

Tru Niagen®, Consumer Product $ 44,018 $ — $ — $ 44,018

Niagen® Ingredient

— 4,389 — 4,389

Subtotal Niagen® Related 44,018 4,389 — 48,407

Other Ingredients — 321 — 321

Reference Standards — — 2,248 2,248

Consulting and Other — — 78 78

Subtotal Other Goods and Services — 321 2,326 2,647

Total Net Sales $ 44,018 $ 4,710 $ 2,326 $ 51,054

Three Months Ended September 30, 2021 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total

Three Months Ended March 31, 2023 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total

(In thousands)

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Total Net Sales $ 17,633 $ 4,124 $ 799 $ 22,556

Nine Months Ended September 30, 2021 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total

Three Months Ended March 31, 2022 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total

(In thousands)

8 unchanged sentences

Total Net Sales $ 14,937 $ 1,427 $ 895 $ 17,259

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Disclosure of Major Customers

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Percentage of net sales from major customers of the Company’s consumer products segment for the periods indicated were as follows:

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

Three Months Ended March 31,

Major Customers 2023 2022

Watson Group - Related Party 16.5 % 14.8 %

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

The percentage of the amounts due from major customers to total trade receivables, net for the periods indicated were as follows:

Major Customers At Sep 30, 2022 At Dec 31, 2021

Major Customers At March 31, 2023 At December 31, 2022

Watson Group - Related Party 38.0 % 36.6 %

Life Extension 15.7 % 22.1 %

Nestlé (NHSc) * 23.6 %

ProHealth 13.0 % *

Amazon Marketplaces 12.5 % *

Life Extension 11.7 % *

ShopHQ 10.8 % *

* Represents less than 10%

As of March 31, 2023, concentration for the Company's outstanding trade receivables is significant, with approximately 86 % of the total outstanding trade receivables aggregated among five customers.

This concentration presents a potential risk to the Company's financial performance and cash flows, as any adverse changes in the payment behavior or financial health of these major customers could impact the Company's cash flows and financial results.

The Company has determined that the current concentration is primarily due to the timing of purchases and does not consider the concentration of its trade receivables to be a significant risk.

However, to mitigate the risk associated with the concentration of trade receivables, the Company is actively monitoring the creditworthiness and payment behavior of these major customers.

It has implemented credit risk management policies and procedures, including credit assessments, ongoing credit monitoring, and diligent collection efforts.

Furthermore, the Company continues to pursue new partnerships and business opportunities which helps to broaden its customer base and minimize the risk of a significant concentration of trade receivables.

Despite these risk mitigation efforts, there is no assurance that the Company will not experience delays or defaults in payment from these major customers, which could result in an increase in the Company's bad debt expense, a reduction in cash flows, and a negative impact on its financial performance.

Related Party Transactions

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The sale of consumer products and corresponding trade receivables to related parties during the periods indicated are as follows:

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

2022 2021 2022 2021

Watson Group - Related Party $ 2.6 million $ 2.6 million $ 6.7 million $ 7.1 million

Total Related Party Net Sales $ 2.6 million $ 2.6 million $ 6.7 million $ 7.1 million

Trade Receivable as of

Sep 30, 2022 Dec 31, 2021

Three Months Ended March 31,

Net Sales 2023 2022

Watson Group - Related Party $ 3.7 million $ 2.6 million

Total Related Party Trade Receivables $ 2.4 million $ 2.1 million

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Joint Venture Agreement

On May 19, 2022, the Company entered into an agreement to form a joint venture (the “May JV Agreement”) to expand the Company’s market strategy to include opportunities in Mainland China and its territories, excluding Hong Kong, Macau and Taiwan (the “Territory”).

The May JV Agreement was among the Company, Crystal Lake Developments Limited (Crystal Lake), Pioneer Idea Holdings Limited (Pioneer Idea), and Hong Kong (China) Taikuk Group Ltd (Taikuk).

Crystal Lake is indirectly wholly-owned by Li Ka-Shing, and Pioneer Idea 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.

On September 30, 2022, the Company entered into a Termination Agreement for the purpose of terminating the May JV Agreement.

The Termination Agreement was approved by the Audit Committee of the Board in accordance with the Company’s Related-Persons Transaction Policy.

In connection with the Termination Agreement, 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 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.

Consequently, no amounts related to the Blue Hat Registration Fee or the 11 % non-voting interest have been recognized in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 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 three months ended September 30, 2022.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company's major classes of inventory and corresponding balances as of September 30, 2022 and December 31, 2021 are as follows:

(In thousands) Sep 30, 2022 Dec 31, 2021

Trade Receivable as of March 31, 2023 December 31, 2022

Watson Group - Related Party $ 3.5 million $ 3.1 million

The Company's major classes of inventory and corresponding balances as of March 31, 2023 and December 31, 2022 are as follows:

(In thousands) March 31, 2023 December 31, 2022

Consumer Products - Finished Goods $ 7,088 $ 7,901

3 unchanged sentences

Total Inventory $ 11,908 $ 14,677

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company accounts for its leases in accordance with ASU No.

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Operating Leases

As of September 30, 2022, the Company had right-of-use assets and corresponding operating lease liabilities of approximately $ 3.7 million and $ 4.4 million, respectively.

For the three and nine months ended September 30, 2022 and 2021, the components of operating lease expense are as follows:

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

As of March 31, 2023, the Company had right-of-use assets and corresponding operating lease liabilities of approximately $ 3.4 million and $ 4.1 million, respectively.

For the three months ended March 31, 2023 and 2022, the components of operating lease expense are as follows:

Three Months Ended March 31,

(In thousands) 2023 2022

5 unchanged sentences

Total expense $ 288 $ 689

At September 30, 2022

At March 31, 2023

Weighted-average remaining lease term (years), operating leases 4.2

Weighted-average discount rate, operating leases 5.7 %

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Future minimum lease payments under operating leases as of September 30, 2022 are as follows:

Future minimum lease payments under operating leases as of March 31, 2023 are as follows:

Year (In thousands)

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Long-term obligations under operating leases $ 3,353

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Share-Based Compensation

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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 September 30, 2022, there were approximately 4.4 million remaining shares available for issuance under the 2017 Plan.

As of March 31, 2023, there were approximately 1.4 million remaining shares available for issuance under the 2017 Plan.

Options expire 10 years from the date of grant.

4 unchanged sentences

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, 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.

The Company’s stock options and restricted stock unit (RSU) 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 applicable grantee’s continued service.

Beginning in the second quarter of 2022, RSU awards 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.

1 unchanged sentence

Stock Options

The Company used the following weighted average assumptions for options granted during the nine months ended September 30, 2022:

The Company used the following weighted average assumptions for options granted during the three months ended March 31, 2023:

Weighted Average:

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Expected term 6.2 years

5 unchanged sentences

Service Period Based Stock Options

The following table summarizes activity of service period-based stock options during the nine months ended September 30, 2022 :

The following table summarizes activity of service period-based stock options during the three months ended March 31, 2023 :

Weighted Average

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Options Forfeited ( 129 ) 4.32

Outstanding at September 30, 2022 9,023 $ 4.25 6.3 $ — *

Exercisable at September 30, 2022 6,112 $ 4.42 5.0 $ — *

*The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 1.23 , which is the closing price of the Company’s stock on the last day of business for the period ended September 30, 2022.

Outstanding at March 31, 2023 11,472 $ 3.75 6.9 $ 13 *

Exercisable at March 31, 2023 7,145 $ 4.36 5.3 $ — *

*The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 1.53 , which is the closing price of the Company’s stock on the last day of business for the period ended March 31, 2023.

There were no activities related to performance or market-based stock options during the three months ended March 31, 2023.

Restricted Stock Units

The following table summarizes activity of restricted stock units during the nine months ended September 30, 2022 :

The following table summarizes activity of restricted stock units during the three months ended March 31, 2023 :

(In thousands except per share fair value) Number of RSUs Weighted Average

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Forfeited ( 30 ) 2.79

Unvested shares at September 30, 2022 748 $ 2.75

Expected to vest at September 30, 2022 748 $ 2.75

Unvested shares at March 31, 2023 945 $ 2.29

Expected to vest at March 31, 2023 945 $ 2.29

Total Share-Based Compensation

Total share-based compensation expense was as follows:

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

Three Months Ended March 31,

(In thousands) 2023 2022

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Total $ 1,273 $ 1,888

In future periods, the Company expects to recognize approximately $ 6.2 million and $ 1.7 million in share-based compensation expense for unvested options and unvested restricted stock units, respectively, that were outstanding as of September 30, 2022.

In future periods, the Company expects to recognize approximately $ 7.0 million and $ 1.9 million in share-based compensation expense for unvested options and unvested restricted stock units, respectively, that were outstanding as of March 31, 2023.

Future share-based compensation expense will be recognized over 1.7 and 2.0 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 September 30, 2022.

Such expense will only be recognized if Blue Hat Registration is achieved, the timing of which is uncertain as of March 31, 2023.

For additional discussion of the Joint Venture, see Note 12, Joint Venture Agreement .

ChromaDex Corporation and Subsidiaries

113 unchanged sentences

On March 13, 2020, ChromaDex filed an answer and objection to Elysium Health’s third amended counterclaims.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

On December 14, 2020, Elysium Health filed a motion to supplement and amend its counterclaims to add claims regarding alleged advertising related to COVID, to add an allegation about a change to the ChromaDex website, and to remove its copyright infringement claim under the Copyright Act.

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Pursuant to the Court’s order, Elysium filed fourth amended counterclaims on April 21, 2021.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

All discovery closed on April 23, 2021.

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Elysium filed its opening brief on August 24, 2022.

ChromaDex’s brief is due on November 22, 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.

The Company is unable to predict the outcome of the Elysium SDNY Complaint or any possible appeals and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceeding discussed herein.

As of September 30, 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.

As of March 31, 2023, 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.

9 unchanged sentences

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.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

On November 1, 2019, ChromaDex filed a motion to lift the stay due to changed circumstances in the California Action, among other reasons.

6 unchanged sentences

Elysium filed a Second Amended Answer on July 10, 2020.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

On April 24, 2020, ChromaDex moved for leave to amend the complaint to add Healthspan Research, LLC as a plaintiff.

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ChromaDex’s reply brief was filed on May 9, 2022.

Oral argument has been scheduled for December 6, 2022.

If the appeal is unsuccessful, or, if on remand the Court dismisses ChromaDex’s claims for some other reason, it will impact any competitive advantage the Company may otherwise have had.

Oral argument occurred on December 6, 2022.

On February 13, 2023, the court of appeals issued a decision affirming the district court’s decision.

On March 15, 2023, ChromaDex filed a petition for a panel rehearing and/or rehearing en banc.

On April 10, 2023, the court of appeals invited Elysium to file a response to the petition and on April 24, 2023, Elysium filed a response to the petition.

On May 10, 2023, the Court denied the petition.

The Company does not believe that this decision will have a material impact on the Company’s NR business.

Thorne Research, Inc .

12 unchanged sentences

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.

6 unchanged sentences

On October 12, 2022, Thorne filed a notice of appeal.

On April 4, 2023, the court of appeals stayed the appeal pending issuance of the mandate in the pending appeal from the Delaware patent infringement action.

ChromaDex Corporation and Subsidiaries

12 unchanged sentences

On October 26, 2022, the parties filed a further status report agreeing to continue the stay through resolution of the appeals.

Erica Martinez

(A) California Action

On October 1, 2021, Erica Martinez, a former employee of ChromaDex, filed a complaint in the Orange County Superior Court alleging claims against ChromaDex for:

(1) disability discrimination, (2) failure to accommodate a disability, (3) failure to engage in the interactive process, (4) retaliation for taking California Family Rights Act leave, and (5) failure to prevent discrimination and harassment.

Martinez’s allegations are based primarily upon Martinez’s claim that her son was allegedly diagnosed with Autism Spectrum Disorder in or around July 17, 2019, and ChromaDex allegedly retaliated against, and ultimately terminated, her for taking time off to care for her son and attend his doctors’ appointments.

ChromaDex has not been served with the Summons and Complaint.

The parties have settled this matter and the request for dismissal, with prejudice, of Martinez’s claims was entered on January 25, 2022.

The resolution of such matter was not material to the Company.

(A) Florida Action

On April 18, 2022, Lynda Power, a citizen of the state of Florida, filed a complaint in the United States District Court for the Middle District of Florida, Orlando Division alleging claims against the Company for (1) product liability (2) personal injury (3) strict liability and (4) negligence.

Power's allegations are based primarily upon Power's claim that she suffered an adverse event after consuming the Company’s products.

On April 26, 2022, the Court ordered Power to serve an amended complaint due to the failure to properly plead subject matter jurisdiction.

On May 6, 2022, Power filed an amended complaint.

On May 11, 2022, the Court issued another order that Power had not properly pleaded subject matter jurisdiction.

On May 23, 2022, Power filed a second amended complaint.

On August 2, 2022, the Magistrate Judge issued a Report and Recommendation on Power’s motion to proceed in forma pauperis , which included an analysis of the second amended complaint.

The Report and Recommendation recommended that the Court (i) deny the motion to proceed in forma pauperis , (ii) dismiss the second amended complaint with prejudice, and (iii) direct the Clerk of the Court to close the file.

On August 2, 2022, Power filed an objection to the Report and Recommendation.

On September 20, 2022, the Court (i) dismissed the complaint without prejudice, but without leave to amend (ii) denied the motion to proceed in forma pauperis , and (iii) directed the Clerk of the Court to close the file.

On October 11, 2022, Power filed a motion to extend the time to object to the Report and Recommendation.

On October 28, 2022, the Court denied the motion to extend.

As of November 2, 2022, the Company has not been served with the complaint.

The Company believes these claims are without merit, will aggressively defend itself, and does not anticipate that the ultimate resolution of this matter will be material to the Company’s operations, financial condition, or cash flows.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

(A) Rejuvenation Therapeutics

On September 15, 2020, the Company received a letter from a customer, Rejuvenation Therapeutics Corp.

(Rejuvenation), and has received subsequent correspondence, requesting a full refund of approximately $ 1.6 million of Niagen® it purchased, alleging breaches of the supply agreement between the parties.

On May 13, 2021, Rejuvenation filed a complaint in the Superior Court of the State of California, County of Orange, asserting causes of action for Concealment and Negligent Misrepresentation.

On July 20, 2021, Rejuvenation filed an amended complaint adding a claim for Declaratory Relief.

The Company filed a demurrer on September 3, 2021.

On February 1, 2022, the Court sustained ChromaDex’s demurrer in its entirety with leave to amend as to the claims for Concealment and Negligent Misrepresentation, and without leave to amend as to the claim for Declaratory Relief.

On February 16, 2022, Rejuvenation filed a Second Amended Complaint, asserting causes of action for Fraud and Negligent Misrepresentation.

On May 16, 2022, ChromaDex filed a demurrer to the Second Amended Complaint.

On June 23, 2022, Rejuvenation filed for a motion for leave to file a third amended complaint.

On October 21, 2022, the parties reached a settlement on confidential terms and the resolution was not material to the Company.

Contingencies

24 unchanged sentences

During the quarter ended September 30, 2022, the Company recorded an aggregate benefit of approximately $ 2.1 million in Other income, net - Employee Retention Tax Credit in its Unaudited Condensed Consolidated Statements of Operations to reflect the ERTC for all eligible quarters.

The receivable for the ERTC benefit is included within Prepaid expenses and other current assets on the Company’s Unaudited Condensed Consolidated Balance Sheets at September 30, 2022.

During the fourth quarter of 2022, the Company received $ 0.6 million related to the ERTC.

During the first quarter of 2023, the Company received another $ 0.8 million related to the ERTC.

As of March 31, 2023, the Company's Consolidated Balance Sheets include an ERTC benefit of $ 1.0 million and associated commissions payable of $ 0.2 million recorded within prepaid expenses and other current assets and accrued expenses, respectively.

Subsequent to March 31, 2023, the Company received an additional $ 0.1 million related to the ERTC.

Joint Venture Agreement

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 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.

ChromaDex Corporation and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Subsequent Events

Securities Purchase Agreement and Registration Rights Agreement - Related Parties

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 “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.

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 Financing and received proceeds of approximately $ 2.9 million, net of offering costs of $ 0.2 million.

In connection with the 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.

In the event that such registration statements are not filed or declared effective within the timeframes set forth in the Registration Rights Agreement, any such effective registration statements subsequently become 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).

NHSc Agreement

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.

The Supply Agreement additionally 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.

In connection with the entry into the Supply Agreement, the Company 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 ten 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.

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”).

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 March 31, 2023, it is uncertain when Blue Hat Registration will be achieved.

Operating activity under the JV was not material during the three months ended March 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements