What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 87 added, 78 removed, 125 unchanged (57% of the section changed)

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All dollar amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are approximate.

Growth and percentage comparisons made herein generally refer to the three months ended March 31, 2024 compared with the three months ended March 31, 2023 unless otherwise noted.

Growth and percentage comparisons made herein generally refer to the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 unless otherwise noted.

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

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We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Readers should carefully review the risk factors set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 6, 2024 (Annual Report).

Readers should carefully review the risk factors set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes including in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 6, 2024 (Annual Report).

Company Overview

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

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

NAD+ levels may be increased with NAD+ precursors, calorie restriction and moderate exercise.

We are at the forefront of exploring effective methods to increase NAD+ levels and support healthy aging.

In 2013, we commercialized Niagen®, a proprietary form of NR, a novel form of vitamin B3, as both a dietary and food ingredient.

It remains one of the most well-studied and efficient NAD+ precursors on the market.

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

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

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

In 2013, we commercialized food-grade Niagen®, a proprietary form of NRC, a novel form of vitamin B3, as both a dietary and food ingredient.

In 2024, we announced Niagen+, a product line for healthcare practitioners and clinics, featuring pharmaceutical-grade Niagen®.

We anticipate that U.S.

FDA-registered 503B outsourcing facilities will compound and distribute pharmaceutical-grade Niagen® intravenous (Niagen IV) and injectable pharmaceutical-grade Niagen® which will be available exclusively at clinics pursuant to a prescription.

Food-grade Niagen® is authorized for human consumption as a dietary supplement and generally recognized as safe as a food ingredient.

Pharmaceutical-grade Niagen® is authorized by the FDA for compounding by 503B outsourcing facilities.

Niagen+ has not yet had a material impact on our results of operations presented below.

NRC remains one of the most well-studied and efficient NAD+ precursors on the market.

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

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

Food and Drug Administration’s (FDA) new dietary ingredient (NDI) notification program, it has been successfully notified to the FDA as generally recognized as safe (GRAS), and has been approved by Health Canada, the European Commission, the Turkish Ministry of Agriculture and the Therapeutic Goods Administration (TGA) of Australia.

Niagen® has also been approved for inclusion in medical foods by both the Brazilian Health Regulatory Agency (ANVISA) and the Food Standards Australia New Zealand (FSANZ).

Clinical studies of Niagen® have demonstrated a variety of outcomes including increased NAD+ levels, altered body composition, increased cellular metabolism and increased energy production.

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

Food-grade Niagen® has also been approved for inclusion in medical foods by both the Brazilian Health Regulatory Agency (ANVISA) and the Food Standards Australia New Zealand (FSANZ).

Clinical studies of oral, food-grade Niagen® have demonstrated a variety of outcomes including increased NAD+ levels, altered body composition, increased cellular metabolism and increased energy production.

Food-grade Niagen®, pharmaceutical-grade Niagen® and other NAD+ precursors are protected by patents to which we are the owner or have exclusive rights.

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

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Through our ChromaDex External Research Program (CERP®), we have amassed more than 275 research partnerships with leading universities and research institutions around the world including the National Institutes of Health, Cornell, Dartmouth, Harvard, Massachusetts Institute of Technology, University of Cambridge, the Mayo Clinic, Chiba University and Sun Yat-sen University.

The results of the 275+ research agreements have allowed CERP® to help produce the trusted science behind Niagen® and continue to advance the understanding of NAD+ in health, diseases, and aging.

The results of the 275+ research partnerships have allowed CERP® to help produce the trusted science behind Niagen® and continue to advance the understanding of NAD+ in health, diseases, and aging.

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

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

As of March 31, 2024, our cash and cash equivalents totaled approximately $27.6 million, of which $27.4 million was unrestricted.

As of June 30, 2024, our cash and cash equivalents totaled approximately $27.9 million, of which $27.7 million was unrestricted.

We anticipate that our current unrestricted cash and cash equivalents and cash to be generated from net sales will be sufficient to meet our financial obligations as they become due over at least the next twelve months.

We may, however, seek additional capital in the next twelve months, both to meet our projected operating plans after the next twelve months and/or to fund our longer-term strategic objectives.

We currently have three operating segments which offer differentiated services.

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

We deliver Niagen® as the sole active ingredient in our consumer product Tru Niagen®.

We additionally offer consumer products containing Niagen® in combination with other nutrients, such as, but not limited to, Tru Niagen® Immune.

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

We currently have three operating segments that offer differentiated services.

Through our Consumer Products segment, we provide finished dietary supplement products containing our proprietary ingredients directly to consumers and distributors, as well as NAD+ test kits exclusively to healthcare practitioners.

We deliver food-grade Niagen® as the sole or principal dietary ingredient in our consumer product line Tru Niagen®.

Our Ingredients segment develops and commercializes proprietary-based ingredient technologies, including food-grade Niagen® and pharmaceutical-grade Niagen®, and supplies these ingredients as raw materials to the manufacturers of consumer products and U.S.

FDA-registered 503B outsourcing facilities, respectively.

Our Analytical Reference Standards and Services segment focuses on natural product fine chemicals, known as phytochemicals, and related research and development services.

The results of these segments and our consolidated operations are detailed in the discussion that follows.

Our consolidated net sales and net loss for the three months ended on March 31, 2024 and 2023 are as follows:

Three Months Ended March 31,

Our consolidated net sales and net loss for the three and six months ended on June 30, 2024 and 2023 are as follows:

Three Months Ended June 30, Six Months Ended June 30,

(In thousands, except per share data) 2024 2023 2024 2023

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

Three Months Ended March 31,

(In thousands) 2024 2023 % Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2024 2023 % Change 2024 2023 % Change

Consumer Products $ 18,647 $ 16,891 10 % $ 35,998 $ 34,524 4 %

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Total net sales $ 22,739 $ 20,323 12 % $ 44,892 $ 42,879 5 %

Total net sales decreased by approximately $0.4 million for the three months ended March 31, 2024, compared to the same period in 2023.

Total net sales increased by approximately $2.4 million and $2.0 million for the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively.

Changes in net sales were driven by the following:

• Tru Niagen® net sales decreased by $0.3 million for the three months ended March 31, 2024 compared to the corresponding period in 2023.

This decrease primarily resulted from lower sales to A.S.

Watson, a related party, which declined by $0.7 million, largely due to timing of sales, as well as a modest decrease of $0.2 million in sales to other distributor partners.

However, this decline was partially offset by an increase of $0.6 million in e-commerce sales.

• For the three months ended March 31, 2024, total ingredients sales remained relatively consistent compared to the corresponding period in 2023.

This stability stemmed from a modest increase of $0.2 million in Niagen ingredient sales, which was offset by an equal decline of $0.2 million in sales of other ingredients, as compared to the same period in 2023.

• Our analytical reference standards and services segment, which constituted the smallest proportion of total sales, declined a modest $0.1 million during the three months ended March 31, 2024 compared to the corresponding period in 2023.

• Tru Niagen® remained the leading contributor to total net sales growth, increasing by $1.8 million and $1.5 million for the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023.

For the three months ended June 30, 2024, growth was largely driven by higher sales to our distributor partners and A.S.

Watson, a related party, totaling a combined increase of $1.7 million.

The remaining $0.1 million increase was attributable to our e-commerce business.

For the six months ended June 30, 2024, other distributor partners contributed approximately $0.8 million in higher sales, while e-commerce sales drove $0.7 million in growth.

• Total ingredient sales grew by approximately $0.6 million for each of the three and six months ended June 30, 2024, compared to the corresponding periods in 2023.

This growth was primarily driven by timing of sales and modest increases in demand for our Niagen® ingredient from existing partners.

Higher Niagen® ingredient sales were partially offset by lower sales of other ingredients.

• Our analytical reference standards and services segment constituted the smallest proportion of total sales, maintaining relatively stable sales for each of the three and six months ended June 30, 2024 compared to the corresponding periods in 2023.

Cost of Sales

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

Three Months Ended March 31,

Amount % of net sales

Three Months Ended June 30, Six Months Ended June 30,

Amount % of net sales Amount % of net sales

(In thousands) 2024 2023 2024 2023 2024 2023 2024 2023

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Total cost of sales $ 9,046 $ 7,967 40 % 39 % $ 17,743 $ 17,005 40 % 40 %

Overall, cost of sales, as a percentage of net sales, remained relatively stable for the three months ended March 31, 2024 compared to the same period in 2023.

Overall, cost of sales, as a percentage of net sales, remained relatively stable for each of the three and six months ended June 30, 2024 compared to the same periods in 2023.

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

• Cost of sales, as a percentage of net sales, for our consumer products segment can fluctuate due to business mix, product mix, inflationary costs, and optimization efforts in our supply chain, among other factors.

For the three months ended March 31, 2024, our consumer products segment maintained relatively stable cost of sales, as a percentage of net sales, compared to the same period in 2023, improving approximately 100 basis points.

• Cost of sales, as a percentage of net sales, in our ingredients segment and our analytical reference standards and services segment are predominantly influenced by fixed supply chain overhead costs, which remain constant regardless of sales fluctuations.

Consequently, increased sales result in improved labor and overhead utilization rates, while decreased sales lead to lower utilization rates.

In the ingredients segment, both net sales and cost of sales remained relatively consistent during the three months ended March 31, 2024 with an improvement of approximately 100 basis points in cost of sales as a percentage of net sales, compared to the same period in 2023.

For the analytical reference standards and services segment, which experienced modestly lower sales and costs of sales for the three months ended March 31, 2024, compared to the same period in 2023, there was an observed increase of 500 basis points in cost of sales as a percentage of net sales.

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

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

Three Months Ended March 31,

(In thousands) 2024 2023 % Change

Gross profit:

For the three and six months ended June 30, 2024, our consumer products segment maintained relatively stable cost of sales, as a percentage of net sales, compared to the same periods in 2023, with modest impacts from changes in business mix.

• Cost of sales, as a percentage of net sales, in our ingredients segment and our analytical reference standards and services segment are influenced by many factors including inventory purchase costs, fixed supply chain overhead costs and transportation and storage costs.

For the ingredients segment, cost of sales, as a percentage of net sales, during each of the three and six months ended June 30, 2024 remained relatively stable compared to the same periods in 2023.

For the analytical reference standards and services segment, which experienced approximately flat sales and slightly lower costs of sales for the three and six months ended June 30, 2024, compared to the same period in 2023, there was an improvement of 1,600 basis points in cost of sales as a percentage of net sales.

We have restructured supply chain overhead costs related to reference standards which resulted in modest improvements.

Gross Profit (Loss)

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

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

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2024 2023 % Change 2024 2023 % Change

Gross profit (loss):

Consumer Products $ 11,862 $ 10,932 9 % $ 23,059 $ 22,161 4 %

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Total gross profit $ 13,693 $ 12,356 11 % $ 27,149 $ 25,874 5 %

For details supporting the changes in gross profit, refer to the preceding discussions outlining the changes in both our net sales and cost of sales for each respective segment.

For details supporting the changes in gross profit (loss), refer to the preceding discussions outlining the changes in both our net sales and cost of sales for each respective segment.

Operating Expenses-Sales and Marketing

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Sales and marketing expenses by reportable segment were as follows:

Three Months Ended March 31,

Amount % of net sales

Three Months Ended June 30, Six Months Ended June 30,

Amount % of net sales Amount % of net sales

(In thousands) 2024 2023 2024 2023 2024 2023 2024 2023

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Total sales and marketing expenses $ 6,969 $ 6,009 31 % 30 % $ 13,709 $ 13,883 31 % 32 %

• For our consumer products segment, sales and marketing expense, as a percentage of net sales, improved 600 basis points for the three months ended March 31, 2024, compared to the same period in 2023.

This change can be attributed to an investment made during the three months ended March 31, 2023.

Specifically, we invested in a strategic brand-building event aimed at enhancing awareness and driving sales of Tru Niagen on our largest e-commerce platform.

However, during the three months ended March 31, 2024, we did not undertake a similar brand-building event and instead prioritized our investments in more efficient, direct return distribution channels and marketing campaigns.

During fiscal year 2024, we expect our sales and marketing spend to increase with similar efficiencies compared to 2023.

• Sales and marketing expense for our ingredients segment remained minimal throughout the three months ended March 31, 2024 and 2023.

• For our analytical reference standards and services segment, sales and marketing expense, as a percentage of net sales, increased 800 basis points for the three months ended March 31, 2024, compared to the same period in 2023.

• For our consumer products segment, sales and marketing expense, as a percentage of net sales, remained relatively stable for the three months ended June 30, 2024 and improved 300 basis points for the six months ended June 30, 2024 compared to the same periods in 2023.

The improvement during the six months ended June 30, 2024 can be attributed to a shift in sales and marketing strategy compared to the same period in 2023.

During the six months ended June 30, 2023, we invested in a brand-building event.

However, during the six months ended June 30, 2024, we did not undertake a similar brand-building event and instead optimized our marketing strategies with a focus on direct return distribution channels and marketing campaigns.

On a full year basis for 2024, we expect our sales and marketing spend to increase with similar efficiencies compared to 2023.

• Sales and marketing expense for our ingredients segment remained minimal throughout the three and six months ended June 30, 2024 and 2023.

• For our analytical reference standards and services segment, sales and marketing expense, as a percentage of net sales, increased by 300 basis points and 500 basis points for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

This change was driven by increases in employee related expenses.

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Research and development expenses by reportable segment were as follows:

Three Months Ended March 31,

(In thousands) 2024 2023 % Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2024 2023 % Change 2024 2023 % Change

R&D expenses:

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

During the three months ended March 31, 2024, we invested in strategic R&D initiatives to support future launches, leading to a $0.9 million increase in R&D expenses.

R&D expenses fluctuate based on the timing of projects, clinical trials and headcount.

For the three months ended June 30, 2024, R&D expenses were relatively flat compared to the same period in 2023.

During the six months ended June 30, 2024, we invested in strategic R&D initiatives to support future launches, including Niagen+, leading to a $0.9 million increase in R&D expenses.

Our R&D expenses fluctuate based on the timing of projects, clinical trials and headcount.

We anticipate increasing our investment in R&D projects, including clinical trials, throughout 2024 compared to 2023.

Operating Expenses-General and Administrative

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

Three Months Ended March 31,

(In thousands) 2024 2023 % Change

Three Months Ended June 30, Six Months Ended June 30,

(In thousands) 2024 2023 % Change 2024 2023 % Change

General and administrative $ 5,664 $ 7,298 (22) % $ 11,016 $ 13,717 (20) %

Total general and administrative expense decreased by $1.1 million during the three months ended March 31, 2024, compared to the corresponding period in 2023.

The reduction in expense for the three months ended March 31, 2024 was primarily attributable lower executive and other administrative headcount expenses of $0.5 million, a reduction in provisions for credit losses of $0.3 million, lower severance and restructuring expense of $0.2 million and lower share-based compensation expense of $0.1 million.

Total general and administrative expense decreased by $1.6 million and $2.7 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023.

The reduction in expense for the three months ended June 30, 2024 was primarily attributable to lower executive and other administrative headcount expenses of $0.4 million, a reduction in provisions for credit losses of $0.4 million, lower severance and restructuring expense of $0.5 million and lower royalties and commissions expense of $0.3 million.

The reduction in expense for the six months ended June 30, 2024 was primarily attributable to lower executive and other administrative headcount expenses of $0.5 million, a reduction in provisions for credit losses of $0.7 million, lower severance and restructuring expense of $0.6 million, lower royalties and commissions expense of $0.5 million and lower share-based compensation expense of $0.4 million.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

At March 31, 2024 and March 31, 2023, we maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of approximately 0% for the three months ended March 31, 2024 and 2023.

At June 30, 2024 and June 30, 2023, we maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of approximately 0% for the three and six months ended June 30, 2024 and 2023.

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

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Depreciation and Amortization

Depreciation expense was approximately $178,000 and $228,000 for the three months ended March 31, 2024 and 2023, respectively.

Depreciation expense was approximately $348,000 and $460,000 for the six months ended June 30, 2024 and 2023, respectively.

We depreciate our assets on a straight-line basis, based on the estimated useful lives of the respective assets.

Amortization expense of intangible assets was approximately $38,000 and $41,000 for the three months ended March 31, 2024 and 2023, respectively.

Amortization expense of intangible assets was approximately $75,000 and $80,000 for the six months ended June 30, 2024 and 2023, respectively.

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

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

Amortization expense of right of use assets for the three months ended March 31, 2024 was approximately $174,000 compared to $171,000 for the three months ended March 31, 2023.

Amortization expense of right of use assets for the six months ended June 30, 2024 was approximately $337,000 compared to $344,000 for the six months ended June 30, 2023.

Liquidity and Capital Resources

From inception through March 31, 2024, we have incurred aggregate losses of approximately $191.0 million.

From inception through June 30, 2024, we have incurred aggregate losses of approximately $191.0 million.

These losses are primarily due to expenses associated with the development and expansion of our operations and investments to protect our intellectual property, including litigation-related expenses.

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

As of March 31, 2024, we had cash and cash equivalents of $27.6 million, including $152,000 of restricted cash, no material off-balance sheet arrangements and no outstanding borrowings under our line of credit with Western Alliance Bank.

Our cash and cash equivalents as of March 31, 2024 consisted of bank deposits and short-term investments of highly liquid investment-grade debt instruments with an original maturity of three months or less.

Additionally, as of March 31, 2024, we had purchase obligations of $12.5 million related to inventory purchase commitments and future minimum lease obligations of $3.6 million to be paid over approximately nine months and five years, respectively.

As of June 30, 2024, we had cash and cash equivalents of $27.9 million, including $152,000 of restricted cash, no material off-balance sheet arrangements and no outstanding borrowings under our line of credit with Western Alliance Bank.

Our cash and cash equivalents as of June 30, 2024 consisted of bank deposits and short-term investments of highly liquid investment-grade debt instruments with an original maturity of three months or less.

Additionally, as of June 30, 2024, we had purchase obligations of $9.0 million related to inventory purchase commitments and future minimum lease obligations of $3.4 million to be paid over approximately six months and five years, respectively.

However, we may seek additional funds to support both our short-term and long-term operating objectives, either through additional equity or debt financings or collaborative agreements or from other sources.

As a result of various macroeconomic factors such as rising interest rates, inflation, bank failures and geopolitical uncertainties, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability.

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

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

Net cash provided by operating activities:

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

Net cash provided by operating activities was approximately $0.3 million for the three months ended March 31, 2024 compared to $2.8 million for the three months ended March 31, 2023.

The $2.5 million reduction in cash provided by operating activities was primarily driven by relatively greater reductions in accounts payable of $1.6 million and lower reductions in inventory and prepaid expenses and other assets of $0.7 million and $0.5 million, respectively.

Net cash provided by operating activities was approximately $31,000 for the six months ended June 30, 2024 compared to $6.1 million for the six months ended June 30, 2023.

The approximately $6.0 million reduction in cash provided by operating activities was largely driven by a relatively greater increase in trade receivables of $4.2 million and a greater reduction in accounts payable of $2.5 million.

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

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

Cash used in investing activities was $41,000 and $91,000 for the three months ended March 31, 2024 and 2023, respectively.

Net cash used in financing activities:

Financing cash flows consist primarily of the repayment of short-term and long-term debt.

Cash used in financing activities was nominal during each of the three months ended March 31, 2024 and March 31, 2023 consisting entirely of repayments for finance leases and payment of debt issuance costs.

Cash used in investing activities was $53,000 and $96,000 for the six months ended June 30, 2024 and 2023, respectively.

Net cash provided by ( used in) financing activities:

Financing cash flows primarily consists of the repayment of short-term and long-term debt and proceeds from the exercise of stock options.

For the six months ended June 30, 2024, cash provided by financing activities was $0.6 million, compared to a use of cash of $11,000 for the same period in 2023.

This increase of $0.6 million was driven by proceeds from the exercise of stock options in the first half of 2024, whereas no such exercises occurred in the same period of 2023.

Critical Account Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis