What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-08-07 · 81 added, 62 removed, 150 unchanged (49% 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 and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 unless otherwise noted.

Growth and percentage comparisons made herein generally refer to the three and nine months ended September 30, 2024 compared with the three and nine months ended September 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 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).

Readers should carefully review the risk factors set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes included 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, calorie restriction and moderate exercise.

NAD+ levels may be increased with administration of 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 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.

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

We supply pharmaceutical-grade Niagen® to U.S.

FDA-registered 503B outsourcing facilities to compound and distribute Niagen® intravenous (Niagen IV) and injectable Niagen®.

These pharmaceutical-grade Niagen® products are available exclusively at clinics with 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.

Data from numerous preclinical studies and human clinical trials show that orally administered 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.

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Vilhelm (Will) Bohr, M.D., Ph.D., D.Sc., former Chief of the Laboratory of Molecular Genetics at the National Institute on Aging of the National Institutes of Health.

Recent Developments

During the third quarter of 2024, we entered into a Tenth Amendment (Tenth Amendment) to the Manufacturing and Supply Agreement (such agreement as amended, the “Grace Manufacturing Agreement” or “Agreement”), effective as of January 1, 2025 and originally effective in January 2016 with W.R.

In January 2019, Grace was issued patents related to the crystalline form of NR chloride which limit our ability to find alternatives for supply (Grace Patents).

Pursuant to the Tenth Amendment, we committed to purchase approximately $4.8 million of total inventory between January 1, 2025 and March 31, 2025.

In addition, we have remaining purchase commitments from the Ninth Amendment totaling $5.2 million to be purchased during the three months ended December 31, 2024.

The Grace Manufacturing Agreement will expire on March 31, 2025, subject to further renewal of the Agreement to be negotiated by the parties.

If we are unable to extend the agreement on satisfactory terms, it could have a material adverse impact to our financial results and strategic position in the market.

Risk Factors, “ We rely on single supplier, W.R.

Grace, for NR and a limited number of third-party suppliers for the raw materials required to produce our products.” for more information.

As previously disclosed, on October 8, 2024, Marcum LLP (Marcum) notified the Company that it is resigning, effective October 31, 2024, as the independent registered public accounting firm for the Company due to independence concerns relating to Marcum’s impending merger with CBIZ Inc., which provides human resources consulting and health insurance brokerage services to the Company.

Marcum is not required to obtain, and did not seek, the Company’s consent to its decision to resign as the Company’s independent registered public accounting firm.

Financial Condition and Results of Operations

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

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

As of September 30, 2024, our cash and cash equivalents totaled approximately $32.4 million, of which $32.2 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.

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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 and six months ended on June 30, 2024 and 2023 are as follows:

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

Our consolidated net sales, net income (loss) and earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 are as follows:

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

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

Net sales $ 25,580 $ 19,495 $ 70,472 $ 62,374

Net loss (15) (2,191) (507) (4,093)

Basic and diluted loss per common share $ 0.00 $ (0.03) $ (0.01) $ (0.05)

Net income (loss) 1,878 (959) 1,371 (5,052)

Earnings (Loss) Per Share:

Basic net income (loss) per common share $ 0.02 $ (0.01) $ 0.02 $ (0.07)

Diluted net income (loss) per common share $ 0.02 $ (0.01) $ 0.02 $ (0.07)

Net sales consist of gross sales less discounts and returns.

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

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

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

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

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Total net sales $ 25,580 $ 19,495 31 % $ 70,472 $ 62,374 13 %

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.

Total net sales increased by approximately $6.1 million and $8.1 million for the three and nine months ended September 30, 2024, compared to the same periods in 2023, respectively.

Changes in net sales were driven by the following:

• 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.

• Tru Niagen® sales increased by approximately $0.7 million and $2.2 million for the three and nine months ended September 30, 2024, respectively, compared to the corresponding periods in 2023.

For both periods, the growth was primarily driven by higher sales through our e-commerce business.

In the three months ended September 30, 2024, e-commerce sales grew by $2.1 million, which was partially offset by lower sales to A.S.

Watson, a former related party, and other distributors.

Similarly, for the nine months ended September 30, 2024, e-commerce sales contributed $2.8 million to the overall increase, along with $0.5 million in higher sales from other distributor partners, while lower sales to A.S.

Watson partially offset these gains.

• Total ingredient sales were the largest contributors to our overall net sales growth, increasing by approximately $5.2 million and $5.8 million for the three and nine months ended September 30, 2024, compared to the same periods in 2023.

For both periods, this growth was primarily driven by increased sales to key food-grade Niagen® partners and the launch of pharmaceutical-grade Niagen®.

For the nine months ended September 30, 2024, these higher sales were partially offset by $0.3 million decline in sales of other ingredients.

Additionally, we recognized $0.7 million in revenue from deferred revenue during the three and nine months ended September 30, 2024 due to an updated estimate of the total forecasted deliverables over the contract term.

For further discussion of the deferred revenue recognition, see Note 14, Deferred Revenue - NHSc in the Notes to the Unaudited Condensed Consolidated Financial Statements.

• Our analytical reference standards and services segment constituted the smallest proportion of total sales, growing $0.1 million for each of the three and nine months ended September 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 June 30, Six Months Ended June 30,

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

Amount % of net sales Amount % of net sales

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Total cost of sales $ 9,340 $ 7,526 37 % 39 % $ 27,083 $ 24,531 38 % 39 %

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.

Total cost of sales, as a percentage of net sales, improved a modest 200 basis points and 100 basis points for the three and nine months ended September 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 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.

For the three and nine months ended September 30, 2024, our consumer products segment maintained relatively stable cost of sales, as a percentage of net sales, increasing a slight 100 basis points compared to the same periods in 2023.

• Cost of sales, as a percentage of net sales, in our ingredients 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, improved 1,900 basis points and 700 basis points for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023.

For both periods, the improvement is driven by improved labor and overhead utilization rates as sales increased, shifts in product mix with the launch of our pharmaceutical-grade Niagen® and the recognition of deferred revenue which has no corresponding cost of sales.

• Cost of sales, as a percentage of net sales, in 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 analytical reference standards and services segment, which experienced relatively stable sales and slightly lower costs of sales for the three and nine months ended September 30, 2024, compared to the same period in 2023, there was an improvement of 3,100 basis points and 1,300 basis points, respectively, in cost of sales as a percentage of net sales.

During 2024, we restructured supply chain overhead costs related to reference standards which resulted in modest cost improvements.

Gross Profit (Loss)

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

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

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

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

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Sales and marketing expenses by reportable segment were as follows:

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

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

Amount % of net sales Amount % of net sales

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Total sales and marketing expenses $ 7,044 $ 6,035 28 % 31 % $ 20,753 $ 19,918 29 % 32 %

• 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.

• For our consumer products segment, sales and marketing expense, as a percentage of net sales, increased 400 basis points during the three months ended September 30, 2024 and decreased a modest 100 basis points for the nine months ended September 30, 2024 compared to the same periods in 2023.

The increase in the three months ended September 30, 2024 is primarily due to our increased efforts in testing new marketing strategies with less direct return than in prior periods, as well as lower sales with A.S.

Watson, a former related party whose sales do not affect our sales and marketing expenses.

The modest improvement during the nine months ended September 30, 2024 is attributable to shifts in marketing strategies in each period, including a larger brand-building event in the prior year, which was not repeated in the current year.

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.

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

• For our analytical reference standards and services segment, sales and marketing expense, as a percentage of net sales, remained stable for the three months ended September 30, 2024 and increased 400 basis points for the nine months ended September 30, 2024 compared to the same periods in 2023.

The change during the nine months ended September 30, 2024 was driven by increases in employee related expenses.

Operating Expenses-Research and Development

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Research and development expenses by reportable segment were as follows:

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

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

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

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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.

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.

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

During the nine months ended September 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.

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

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

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

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

General and administrative $ 6,304 $ 5,840 8 % $ 17,320 $ 19,557 (11) %

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.

Total general and administrative expense increased by $0.5 million during the three months ended September 30, 2024 and decreased by $2.2 million during the nine months ended September 30, 2024, compared to the corresponding periods in 2023.

The increase in expense for the three months ended September 30, 2024 was primarily attributable to higher legal expenses of $0.5 million to help support our Niagen+ launch and litigation matters to protect our patents.

The reduction in expense for the three months ended September 30, 2024 was primarily attributable to lower severance and restructuring expense and related bonuses of $0.7 million, lower royalties and commissions expense of $0.7 million and a reduction in provisions for credit losses of $0.8 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 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.

At September 30, 2024 and September 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 nine months ended September 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.

During the first quarter of 2024, the Company was notified that it was selected for examination by the Internal Revenue Service (IRS) for its federal income tax return for the fiscal year 2021 period.

The Company is not currently under examination by any other major income tax jurisdiction.

During the first quarter of 2024, the Company was notified that it was selected for examination by the IRS for its federal income tax return for the fiscal year 2021 period.

The examination was completed in the third quarter of 2024, with no changes recommended.

As of the date of this report, the Company is not under examination by any major income tax jurisdiction.

Depreciation and Amortization

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

Depreciation expense was approximately $512,000 and $693,000 for the nine months ended September 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 $75,000 and $80,000 for the six months ended June 30, 2024 and 2023, respectively.

Amortization expense of intangible assets was approximately $113,000 and $119,000 for the nine months ended September 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 six months ended June 30, 2024 was approximately $337,000 compared to $344,000 for the six months ended June 30, 2023.

Amortization expense of right of use assets for the nine months ended September 30, 2024 was approximately $501,000 compared to $520,000 for the nine months ended September 30, 2023.

Liquidity and Capital Resources

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

From inception through September 30, 2024, we have incurred aggregate losses of approximately $189.1 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 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.

As of September 30, 2024, we had cash and cash equivalents of $32.4 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 September 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 September 30, 2024, we had purchase obligations of $5.2 million and $4.8 million related to inventory purchase commitments to be paid during the three months ended December 31, 2024 and March 31, 2025, respectively, as well as future minimum lease obligations of $3.1 million to be paid over approximately four years.

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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 $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.

Net cash provided by operating activities was approximately $3.5 million for the nine months ended September 30, 2024 compared to $6.5 million for the nine months ended September 30, 2023.

The approximately $2.9 million reduction in cash provided by operating activities was largely driven by a relatively greater increase in trade receivables of $3.8 million, a greater reduction in accounts payable and accrued expenses of $2.8 million and $1.8 million, respectively, and lower provisions for credit losses of $0.9 million, offset by a $6.4 million improvement in net income (loss).

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 $53,000 and $96,000 for the six months ended June 30, 2024 and 2023, respectively.

Cash used in investing activities was $74,000 and $122,000 for the nine months ended September 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.

For the nine months ended September 30, 2024, cash provided by financing activities was $1.6 million, compared to a use of cash of $14,000 for the same period in 2023.

This increase of $1.6 million was driven by proceeds from the exercise of stock options 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