Niagen Bioscience, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ChromaDex Corporation and Subsidiaries Condensed Consolidated Balance Sheets June 30, 2020 and December 31, 2019 (In thousands, except per share data) Jun. 30, 2020 Dec. 31, 2019 Assets Current Assets Cash, including restricted cash of $ 0.2 million and $ 0.2 million, respectively $ 18,890 $ 18,812 Trade receivables, net of allowances of $ 0.0 million and $ 2.8 million, respectively; Receivables from Related Party: $ 1.1 million and $ 0.8 million, respectively 3,954 2,175 Inventories 12,338 11,535 Prepaid expenses and other assets 584 996 Total current assets 35,766 33,518 Leasehold Improvements and Equipment, net 3,487 3,765 Intangible Assets, net 1,189 1,311 Right of Use Assets 705 891 Other Long-term Assets 845 762 Total assets $ 41,992 $ 40,247 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 9,780 $ 9,626 Accrued expenses 5,246 4,415 Current maturities of operating lease obligations 632 595 Current maturities of finance lease obligations 134 258 Customer deposits 250 169 Total current liabilities 16,042 15,063 Deferred Revenue 3,820 3,873 Operating Lease Obligations, Less Current Maturities 522 848 Finance Lease Obligations, Less Current Maturities 27 18 Total liabilities 20,411 19,802 Commitments and Contingencies Stockholders' Equity Common stock, $ .001 par value; authorized 150,000 shares; issued and outstanding June 30, 2020 61,421 shares and December 31, 2019 59,562 shares 61 60 Additional paid-in capital 153,036 142,285 Accumulated deficit ( 131,513 ) ( 121,900 ) Cumulative translation adjustments ( 3 ) - Total stockholders' equity 21,581 20,445 Total liabilities and stockholders' equity $ 41,992 $ 40,247 See Notes to Consolidated Financial Statements. 3 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statements of Operations For the Three and the Six Month Periods Ended June 30, 2020 and June 30, 2019 (In thousands, except per share data) Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Sales, net $ 15,287 $ 11,101 $ 29,632 $ 21,149 Cost of sales 6,199 4,847 12,233 9,594 Gross profit 9,088 6,254 17,399 11,555 Operating expenses: Sales and marketing 4,959 4,308 9,406 8,482 Research and development 942 1,069 1,861 2,237 General and administrative 6,874 7,932 15,709 16,263 Other - 125 - 125 Operating expenses 12,775 13,434 26,976 27,107 Operating loss ( 3,687 ) ( 7,180 ) ( 9,577 ) ( 15,552 ) Nonoperating expense: Interest expense, net ( 24 ) ( 575 ) ( 36 ) ( 540 ) Nonoperating expense ( 24 ) ( 575 ) ( 36 ) ( 540 ) Net loss $ ( 3,711 ) $ ( 7,755 ) $ ( 9,613 ) $ ( 16,092 ) Basic and diluted loss per common share $ ( 0.06 ) $ ( 0.14 ) $ ( 0.16 ) $ ( 0.29 ) Basic and diluted weighted average common shares outstanding 60,906 55,539 60,344 55,433 See Notes to Consolidated Financial Statements. 4 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statement of Stockholders' Equity For the Three Month Periods Ended June 30, 2020 and June 30, 2019 (In thousands) Common Stock Additional Paid-in Accumulated Cumulative Translation Total Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, March 31, 2020 59,605 60 144,290 ( 127,802 ) - 16,548 Issuance of common stock, net of offering costs of $0.1 million 1,225 1 4,855 - - 4,856 Exercise of stock options 591 - 2,180 - - 2,180 Share-based compensation - - 1,711 - - 1,711 Translation adjustment - - - - ( 3 ) ( 3 ) Net loss - - - ( 3,711 ) - ( 3,711 ) Balance, June 30, 2020 61,421 $ 61 $ 153,036 $ ( 131,513 ) $ ( 3 ) $ 21,581 Common Stock Additional Paid-in Accumulated Cumulative Translation Total Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, March 31, 2019 55,321 $ 55 $ 119,012 $ ( 98,090 ) $ - $ 20,977 Exercise of stock options 63 - 164 - - 164 Share-based compensation - - 1,759 - - 1,759 Net loss - - - ( 7,755 ) - ( 7,755 ) Balance, June 30, 2019 55,384 $ 55 $ 120,935 $ ( 105,845 ) $ - $ 15,145 See Notes to Consolidated Financial Statements. 5 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statement of Stockholders' Equity For the Six Month Periods Ended June 30, 2020 and June 30, 2019 (In thousands) Common Stock Additional Paid-in Accumulated Cumulative Translation Total Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, December 31, 2019 59,562 $ 60 $ 142,285 $ ( 121,900 ) $ - $ 20,445 Issuance of common stock, net of offering costs of $0.1 million 1,225 1 4,855 - - 4,856 Exercise of stock options 634 - 2,312 - - 2,312 Share-based compensation - - 3,584 - - 3,584 Translation adjustment - - - - ( 3 ) ( 3 ) Net loss - - - ( 9,613 ) - ( 9,613 ) Balance, June 30, 2020 61,421 $ 61 $ 153,036 $ ( 131,513 ) $ ( 3 ) $ 21,581 Common Stock Additional Paid-in Accumulated Cumulative Translation Total Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, December 31, 2018 55,089 $ 55 $ 116,876 $ ( 89,753 ) $ - $ 27,178 Exercise of stock options 128 - 271 - - 271 Share-based compensation 167 - 3,788 - - 3,788 Net loss - - - ( 16,092 ) - ( 16,092 ) Balance, June 30, 2019 55,384 $ 55 $ 120,935 $ ( 105,845 ) $ - $ 15,145 See Notes to Consolidated Financial Statements. 6 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows For the Six Month Periods Ended June 30, 2020 and June 30, 2019 (In thousands) June 30, 2020 June 30, 2019 Cash Flows From Operating Activities Net loss $ ( 9,613 ) $ ( 16,092 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of leasehold improvements and equipment 432 363 Amortization of intangibles 122 122 Amortization of right of use assets 187 279 Share-based compensation expense 3,584 3,788 Allowance for doubtful trade receivables ( 2,730 ) ( 8 ) Amortization of convertible notes issuance costs - 552 Non-cash financing costs 51 - Changes in operating assets and liabilities: Trade receivables 952 ( 1,373 ) Contract assets - 4 Inventories ( 804 ) ( 2,465 ) Prepaid expenses and other assets 322 50 Accounts payable 154 ( 224 ) Accrued expenses 830 ( 671 ) Deferred revenue ( 53 ) 3,873 Customer deposits and other 78 18 Principal payments on operating leases ( 289 ) ( 285 ) Net cash used in operating activities ( 6,777 ) ( 12,069 ) Cash Flows From Investing Activities Purchases of leasehold improvements and equipment ( 107 ) ( 308 ) Purchases of intangible assets - ( 10 ) Investment in other long-term assets ( 15 ) ( 47 ) Net cash used in investing activities ( 122 ) ( 365 ) Cash Flows From Financing Activities Proceeds from issuance of common stock, net 4,856 - Proceeds from sale of convertible notes - 10,000 Payment of convertible notes issuance costs - ( 565 ) Proceeds from exercise of stock options 2,312 271 Payment of debt issuance costs ( 30 ) - Principal payments on finance leases ( 161 ) ( 128 ) Net cash provided by financing activities 6,977 9,578 Net increase (decrease) in cash 78 ( 2,856 ) Cash Beginning of Period, including restricted cash of $ 0.2 million for both 2020 and 2019 18,812 22,616 Cash Ending of Period, including restricted cash $ 0.2 million for both 2020 and 2019 $ 18,890 $ 19,760 Supplemental Disclosures of Cash Flow Information Cash payments for interest on finance leases $ 9 $ 17 Supplemental Schedule of Noncash Operating Activity Financing lease obligation incurred for prepayment of licensing fees $ - $ 99 Supplemental Schedule of Noncash Investing Activity Financing lease obligation incurred for purchase of computer equipment and software $ 47 $ 143 Operating lease obligation incurred for tenant improvement credit received $ - $ 64 See Notes to Consolidated Financial Statements. 7 Table of Contents Note 1. Interim Financial Statements The accompanying financial statements of ChromaDex Corporation and its wholly owned subsidiaries, ChromaDex, Inc., Healthspan Research, LLC, ChromaDex Analytics, Inc. and ChromaDex Asia Limited (collectively referred to herein as “ChromaDex” or the “Company” or, in the first person as “we”, “us” and “our”) include all adjustments, consisting of normal recurring adjustments and accruals, that, in the opinion of the management of the Company, are necessary for a fair presentation of the Company’s financial position as of June 30, 2020 and results of operations and cash flows for the three and the six months ended June 30, 2020 and June 30, 2019. These unaudited interim financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2019 appearing in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 10, 2020, as amended on May 18, 2020. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results to be achieved for the full year ending on December 31, 2020.The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The balance sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. Note 2. Nature of Business ChromaDex is a science-based integrated nutraceutical company devoted to improving the way people age. ChromaDex scientists partner with leading universities and research institutions worldwide to discover, develop and create solutions to deliver the full potential of nicotinamide adenine dinucleotide and its impact on human health.Its flagship ingredient, NIAGEN® nicotinamide riboside, sold directly to consumers as TRU NIAGEN®, is backed with clinical and scientific research, as well as extensive intellectual property protection.The Company also has analytical reference standards and services segment, which focuses on natural product fine chemicals (known as “phytochemicals”) and related chemistry services. Note 3. Liquidity The Company's net cash outflow from operating activities was approximately $6.8 million for the six-month period ended June 30, 2020.As of June 30, 2020, cash and cash equivalents totaled approximately $ 18.9 million, which includes restricted cash of approximately $ 0.2 million. The Company anticipates that its current cash, cash equivalents, cash to be generated from operations and available line of credit up to $ 7.0 million from Western Alliance Bank will be sufficient to meet its projected operating plans through at least the next twelve months from the issuance date of this report. The Company may, however, seek additional capital within the next twelve months, both to meet its projected operating plans within the next twelve months and/or to fund its longer-term strategic objectives. Note 4. Significant Accounting Policies Basis of presentation :The financial statements and accompanying notes have been prepared on a consolidated basis and reflect the consolidated financial position of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated from these financial statements. The Company’s fiscal year ends on December 31. 8 Table of Contents Recent accounting standards : In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard’s main goal is to improve financial reporting by requiring earlier recognition of credit losses on financing receivables and other financial assets in scope. The new guidance represents significant changes to accounting for credit losses: (i) full lifetime expected credit losses will be recognized upon initial recognition of an asset in scope; (ii) the current incurred loss impairment model that recognizes losses when a probable threshold is met will be replaced with the expected credit loss impairment method without recognition threshold; and (iii) the expected credit losses estimate will be based upon historical information, current conditions, and reasonable and supportable forecasts. ASU 2016-13 introduces two distinctive credit loss impairment models: (i) current expected credit loss impairment model (Subtopic 326-20) applicable to financial assets measured at amortized cost; and (ii) available-for-sale debt securities impairment model (Subtopic 326-30). ASU 2016-13 is effective for public entities for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company can elect to defer compliance effective for fiscal years beginning after December 15, 2022. We are currently evaluating the impact of our pending adoption of ASU 2016-13 on our consolidated financial statements. Note 5. 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 the six months ended June 30, 2020 and June 30, 2019: Three Months Ended Six Months Ended (In thousands, except per share data) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net loss $ ( 3,711 ) $ ( 7,755 ) $ ( 9,613 ) $ ( 16,092 ) Basic and diluted loss per common share $ ( 0.06 ) $ ( 0.14 ) $ ( 0.16 ) $ ( 0.29 ) Basic and diluted weighted average common shares outstanding (1): 60,906 55,539 60,344 55,433 Potentially dilutive securities (2): Stock options 11,457 10,174 11,457 10,174 Warrants - 140 - 140 Convertible notes - 2,192 - 2,192 ____________________________ (1) Includes approximately 0.2 million and 0.2 million nonvested restricted stock for the periods ending June 30, 2020and June 30, 2019, respectively, which are participating securities that feature voting and dividend rights. (2) Excluded from the computation of loss per share as their impact is antidilutive. 9 Table of Contents Note 6. Related Party Transactions Sale of consumer products Net sales Three months ended Jun. 30, 2020 Net sales Three months ended Jun. 30, 2019 Net sales Six months ended Jun. 30, 2020 Net sales Six months ended Jun. 30, 2019 Trade receivable at Jun. 30, 2020 Trade receivable at Dec. 31, 2019 A.S. Watson Group $ 1.3 million $ 1.9 million $ 3.1 million $ 3.2 million $ 1.0 million $ 0.8 million Horizon Ventures (1) $ 1.6 million - $ 1.6 million - $ 0.1 million - Total $ 2.9 million $ 1.9 million $ 4.7 million $ 3.2 million $ 1.1 million $ 0.8 million *A.S. Watson Group and Horizon Ventures are related parties through common ownership of an enterprise that beneficially owns more than 10% of the common stock of the Company. (1) For the three and six months ended June 30, 2020, Horizon Ventures made purchases to donate to the healthcare workers in Hong Kong hospitals. Note 7. Inventories The amounts of major classes of inventory as of June 30, 2020 and December 31, 2019 are as follows: (In thousands) Jun. 30, 2020 Dec. 31, 2019 Consumer Products - Finished Goods $ 7,994 4,877 Consumer Products - Work in Process 2,996 4,659 Bulk ingredients 684 $ 1,364 Reference standards 664 635 $ 12,338 $ 11,535 Note 8. Stock Issuance On April 27, 2020, the Company entered into a Securities Purchase Agreement with related parties pursuant to which the Company agreed to sell and issue approximately 1.2 million shares for $ 5.0 million, or $ 4.08 per share. The selling price was determined by the average closing price over the ten trading days immediately preceding the date of Securities Purchase Agreement (the “Financing”).On May 7, 2020, the Company closed the Financing and received proceeds of $ 4.9 million, net of offering costs. 10 Table of Contents Note 9. Leases Operating Leases As of June 30, 2020, the Company had operating lease assets in right of use assets of approximately $ 0.7 million and corresponding operating lease liabilities of approximately $ 1.2 million.For the three and the six months ended June 30, 2020 and June 30, 2019, the following were expenses incurred in connection with our operating leases: For the Three Months Ended Jun. 30, 2020 For the Three Months Ended Jun. 30, 2019 For the Six Months Ended Jun. 30, 2020 For the Six Months Ended Jun. 30, 2019 (In thousands) Operating leases Operating lease expense $ 120 $ 180 $ 240 $ 360 Variable lease expense 65 66 134 121 Operating lease expense 185 246 374 481 Short-term lease rent expense 64 1 127 3 Total expense $ 249 $ 247 $ 501 $ 484 Weighted-average remaining lease term (years) – operating leases 1.6 Weighted-average discount rate – operating leases 8.0 % Minimum future lease payments under operating leases as of June 30, 2020 are as follows: Six months ending December 31, 2020 $ 347 Year Ending December 31, 2021 614 Year Ending December 31, 2022 138 Year Ending December 31, 2023 143 Year Ending December 31, 2024 25 Total 1,267 Less present value discount 113 Operating lease liabilities 1,154 Long-term obligations under operating leases $ 522 11 Table of Contents Finance Leases As of June 30, 2020, the Company had finance lease assets in equipment assets of approximately $ 0.4 million and corresponding finance lease liabilities of approximately $ 0.2 million.For the three and the six months ended June 30, 2020 and June 30, 2019, the following were expenses incurred in connection with our finance leases: For the Three Months Ended Jun. 30, 2020 For the Three Months Ended Jun. 30, 2019 For the Six Months Ended Jun. 30, 2020 For the Six Months Ended Jun. 30, 2019 (In thousands) Finance leases Amortization of equipment assets $ 29 $ 15 $ 57 $ 37 Interest on lease liabilities 3 10 9 17 Total expenses $ 32 $ 25 $ 66 $ 54 At Jun. 30, 2020 Weighted-average remaining lease term (years) finance leases 1.1 Weighted-average discount rate finance leases 7.9 % Minimum future lease payments under finance leases as of June 30, 2020 are as follows: (In thousands) Six Months Ending December 31, 2020 $ 115 Year Ending December 31, 2021 32 Year Ending December 31, 2022 21 Total 168 Less present value discount 7 Finance lease liabilities 161 Less current portion 134 Long-term obligations under finance leases $ 27 Note 10. Share-Based Compensation Equity Plans On June 20, 2017, the stockholders of the Company approved the ChromaDex Corporation 2017 Equity Incentive Plan (the "2017 Plan"). The Company's Board of Directors amended the 2017 Plan in January 2018 and the stockholders of the Company approved amendments to the 2017 Plan in June 2018 and June 2020. The 2017 Plan is the successor to the ChromaDex Corporation Second Amended and Restated 2007 Equity Incentive Plan (the "2007 Plan"). As of June 30, 2020, under the 2017 Plan, the Company is authorized to issue shares subject to awards that total no more than the sum of (i) 14,500,000 new shares, (ii) approximately 384,000 unallocated shares remaining available for the grant of new awards under the 2007 Plan, (iii) any returning shares from the 2007 Plan or the 2017 Plan, such as forfeited, cancelled, or expired shares and (iv) 500,000 shares pursuant to an inducement award. The remaining number of shares available for issuance under the 2017 Plan totaled approximately 6.9 million shares at June 30, 2020. 12 Table of Contents General Vesting Conditions The stock option awards generally vest ratably over a three-year period following grant date after a passage of time. However, some stock option awards are market or performance based and vest based on certain triggering events established by the Compensation Committee of the Board of Directors. The fair value of the Company’s stock options that are not market based was estimated at the date of grant using the Black-Scholes option pricing model. The table below outlines the weighted average assumptions for options granted during the six months ended June 30, 2020. Six months Ended June 30, 2020 Expected term 6 years Expected volatility 66 % Risk-free rate 1 % Expected dividends 0 % Service Period Based Stock Options The following table summarizes activity of service period-based stock options at June 30, 2020 and changes during the six months then ended (in thousands except per-share data and remaining contractual term): Weighted Average Remaining Aggregate Number of Exercise Contractual Fair Intrinsic Shares Price Term (Years) Value Value Outstanding at Dec. 31, 2019 9,509 $ 3.86 6.9 Options Granted 2,133 3.62 10.0 $ 2.13 Options Exercised ( 592 ) 3.77 $ 719 Options Expired ( 239 ) 4.70 Options Forfeited ( 518 ) 3.44 Outstanding at Jun. 30, 2020 10,293 $ 3.82 7.1 $ 9,322 * Exercisable at Jun. 30, 2020 6,126 $ 3.76 5.7 $ 6,252 * ______________ *The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 4.59 , which is the closing price of the Company’s stock on the last day of business for the period ended June 30, 2020. Performance Based Stock Options The Company also grants stock option awards that are performance based and vest based on the achievement of certain criteria established from time to time by the Compensation Committee of the Board of Directors. If these performance criteria are not met, the compensation expenses are not recognized and the expenses that have been recognized will be reversed. 13 Table of Contents The following table summarizes performance based stock options activity at June 30, 2020 and changes during the six months then ended (in thousands except per share data and remaining contractual term): Weighted Average Remaining Aggregate Number of Exercise Contractual Fair Intrinsic Shares Price Term (Years) Value Value Outstanding at Dec. 31, 2019 42 $ 1.89 3.1 Options Granted 164 4.34 4.0 $ 2.26 Options Exercised ( 42 ) 1.89 $ 100 Options Forfeited - - Outstanding at Jun. 30, 2020 164 $ 4.34 3.6 $ 41 * Exercisable at Jun. 30, 2020 - - - - _________________ *The aggregate intrinsic values in the table above are based on the Company’s stock price of $4.59, which is the closing price of the Company’s stock on the last day of business for the period ended June 30, 2020. Total Remaining Unamortized Compensation for Stock Options As of June 30, 2020, there was approximately $ 8.4 million of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the plans for employee stock options.That cost is expected to be recognized over a weighted average period of 2 years. Share-Based Compensation Share-based compensation expenses were as follows: Three months ending Six months ending (In thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Share-based compensation expense Cost of sales $ 42 $ 34 $ 75 $ 60 Sales and marketing 242 144 474 263 Research and development 134 127 272 250 General and administrative 1,293 1,454 2,763 3,215 Total $ 1,711 $ 1,759 $ 3,584 $ 3,788 14 Table of Contents Note 11. Business Segments The Company has the following three reportable segments for the three- and six-month periods ended June 30, 2020: · Consumer products segment: provides finished dietary supplement products that contain the Company's proprietary ingredients directly to consumers as well as to distributors. · Ingredients segment: develops and commercializes proprietary-based ingredient technologies and supplies these ingredients as raw materials to the manufacturers of consumer products. · Analytical reference standards and services segment: includes supply of phytochemical reference standards and other research and development services. The “Corporate and other” classification includes corporate items not allocated by the Company to each reportable segment. Further, there are no intersegment sales that require elimination. The Company evaluates performance and allocates resources based on reviewing gross margin by reportable segment. Three months ended Consumer Analytical Reference June 30, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 11,720 $ 2,850 $ 717 $ - $ 15,287 Cost of sales 4,339 1,135 725 - 6,199 Gross profit 7,381 1,715 ( 8 ) - 9,088 Operating expenses: Sales and marketing 4,743 76 140 - 4,959 Research and development 805 137 - - 942 General and administrative - - - 6,874 6,874 Operating expenses 5,548 213 140 6,874 12,775 Operating income (loss) $ 1,833 $ 1,502 $ ( 148 ) $ ( 6,874 ) $ ( 3,687 ) Three months ended Consumer Analytical Reference June 30, 2019 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 8,744 $ 1,387 $ 970 $ - $ 11,101 Cost of sales 3,519 641 687 - 4,847 Gross profit 5,225 746 283 - 6,254 Operating expenses: Sales and marketing 4,072 79 157 - 4,308 Research and development 875 194 - - 1,069 General and administrative - - - 7,932 7,932 Other - - - 125 125 Operating expenses 4,947 273 157 8,057 13,434 Operating income (loss) $ 278 $ 473 $ 126 $ ( 8,057 ) $ ( 7,180 ) 15 Table of Contents Six months ended Consumer Analytical Reference June 30, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 22,864 $ 5,325 $ 1,443 $ - $ 29,632 Cost of sales 8,641 2,191 1,401 - 12,233 Gross profit 14,223 3,134 42 - 17,399 Operating expenses: Sales and marketing 9,152 ( 8 ) 262 - 9,406 Research and development 1,587 274 - - 1,861 General and administrative - - - 15,709 15,709 Operating expenses 10,739 266 262 15,709 26,976 Operating income (loss) $ 3,484 $ 2,868 $ ( 220 ) $ ( 15,709 ) $ ( 9,577 ) Six months ended Consumer Analytical Reference June 30, 2019 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 16,198 $ 2,881 $ 2,070 $ - $ 21,149 Cost of sales 6,590 1,454 1,550 - 9,594 Gross profit 9,608 1,427 520 - 11,555 Operating expenses: Sales and marketing 7,989 191 302 - 8,482 Research and development 1,844 393 - - 2,237 General and administrative - - - 16,263 16,263 Other - - - 125 125 Operating expenses 9,833 584 302 16,388 27,107 Operating income (loss) $ ( 225 ) $ 843 $ 218 $ ( 16,388 ) $ ( 15,552 ) 16 Table of Contents Consumer Analytical Reference At June 30, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Total assets $ 14,392 $ 2,280 $ 950 $ 24,370 $ 41,992 Consumer Analytical Reference At December 31, 2019 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Total assets $ 12,137 $ 2,135 $ 918 $ 25,057 $ 40,247 Disaggregation of Revenue We disaggregate our revenue from contracts with customers by type of goods or services for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below. Three Months Ended June 30, 2020 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 11,720 $ - $ - $ 11,720 NIAGEN® Ingredient - 1,995 - 1,995 Subtotal NIAGEN Related $ 11,720 $ 1,995 $ - $ 13,715 Other Ingredients - 855 - 855 Reference Standards - - 686 686 Consulting and Other - - 31 31 Subtotal Other Goods and Services $ - $ 855 $ 717 $ 1,572 Total Net Sales $ 11,720 $ 2,850 $ 717 $ 15,287 17 Table of Contents Three Months Ended June 30, 2019 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN , Consumer Product $ 8,744 $ - $ - $ 8,744 NIAGEN Ingredient - 1,080 - 1,080 Subtotal NIAGEN Related $ 8,744 $ 1,080 $ - $ 9,824 Other Ingredients - 307 - 307 Reference Standards - - 717 717 Consulting and Other - - 253 253 Subtotal Other Goods and Services $ - $ 307 $ 970 $ 1,277 Total Net Sales $ 8,744 $ 1,387 $ 970 $ 11,101 Six Months Ended June 30, 2020 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 22,864 $ - $ - $ 22,864 NIAGEN® Ingredient - 3,956 - 3,956 Subtotal NIAGEN Related $ 22,864 $ 3,956 $ - $ 26,820 Other Ingredients - 1,369 - 1,369 Reference Standards - - 1,359 1,359 Consulting and Other - - 84 84 Subtotal Other Goods and Services $ - $ 1,369 $ 1,443 $ 2,812 Total Net Sales $ 22,864 $ 5,325 $ 1,443 $ 29,632 18 Table of Contents Six Months Ended June 30, 2019 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 16,198 $ - $ - $ 16,198 NIAGEN® Ingredient - 2,190 - 2,190 Subtotal NIAGEN Related $ 16,198 $ 2,190 $ - $ 18,388 Other Ingredients - 691 - 691 Reference Standards - - 1,547 1,547 Consulting and Other - - 523 523 Subtotal Other Goods and Services $ - $ 691 $ 2,070 $ 2,761 Total Net Sales $ 16,198 $ 2,881 $ 2,070 $ 21,149 Disclosure of Major Customers Major customers who accounted for more than 10% of the Company’s total sales were as follows: Three months ended Six months ended Major Customers Jun. 30, 2020 Jun. 30, 2019 Jun. 30, 2020 Jun. 30, 2019 Horizon Ventures - Related Party 10.2 % * * * A.S. Watson Group - Related Party * 17.2 % 10.6 % 15.1 % Major accounts which had more than 10% of the Company’s total trade receivables were as follows: Percentage of the Company's Total Trade Receivables Major Accounts At June 30, 2020 At December 31, 2019 A.S. Watson Group - Related Party (1) 26.7 % 39.0 % Dr. Loges 15.4 % * Thorne Research 12.1 % * Life Extension 10.1 % 27.4 % Amazon Marketplaces * 10.3 % _____________________ * Represents less than 10%. (1) Includes approximately $0.1 million trade receivables from Horizon Ventures. 19 Table of Contents Note 12. Commitments and Contingencies Inventory Purchase Obligations In the second quarter of 2020, the Company entered into an amended manufacturing and supply agreement whereby the Company is obligated to purchase approximately $ 17.4 million of total inventory through June 30, 2021.The Company’s remaining purchase obligations as of June 30, 2020 were as follows: Six Months Ending December 31, 2020 $ 7.3 Million Six Months Ending June 30, 2021 $ 4.3 Million Total $ 11.6 Million Legal proceedings - Elysium Health, LLC (A) California Action On December 29, 2016, ChromaDex, Inc. filed a complaint in the United States District Court for the Central District of California, naming Elysium Health, Inc. (together with Elysium Health, LLC, “Elysium”) as defendant (the “Complaint”). On January 25, 2017, Elysium filed an answer and counterclaims in response to the Complaint (together with the Complaint, the “California Action”). Over the course of the California Action, the parties have each filed amended pleadings several times and have each engaged in several rounds of motions to dismiss and one round of motion for judgment on the pleadings with respect to various claims. Most recently, on November 27, 2018, ChromaDex, Inc. filed a fifth amended complaint that added an individual, Mark Morris, as a defendant. Elysium and Morris (“the Defendants”) moved to dismiss on December 21, 2018. The court denied Defendants’ motion on February 4, 2019. Defendants filed their answer to ChromaDex, Inc.'s fifth amended complaint on February 19, 2019. ChromaDex, Inc. filed an answer to Elysium’s restated counterclaims on March 5, 2019. Discovery closed on August 9, 2019. On August 16, 2019, the parties filed motions for partial summary judgment as to certain claims and counterclaims. The parties filed opposition briefs on August 28, 2019, and reply briefs on September 4, 2019. On October 9, 2019, among other things, the court vacated the previously scheduled trial date, ordered supplemental briefing with respect to certain issues related to summary judgment. Elysium filed its opening supplemental brief on October 30, 2019, ChromaDex filed its opening supplemental brief on November 18, 2019, and Elysium filed a reply brief on November 27, 2019, and the court heard argument on January 13, 2020. On January 16, 2020, the court granted both parties’ motions for summary judgment in part and denied both in part. On ChromaDex’s motion, the court granted summary judgment in favor of ChromaDex on Elysium’s counterclaims for (i) breach of contract related to manufacturing NIAGEN® according to the defined standard, selling NIAGEN and ingredients that are substantially similar to pterostilbene to other customers, distributing the NIAGEN® product specifications, and failing to provide information concerning the quality and identity of NIAGEN®, and (ii) breach of the implied covenant of good faith and fair dealing. The court denied summary judgment on Elysium’s counterclaims for (i) fraudulent inducement of the Trademark License and Royalty Agreement, dated February 3, 2014, by and between ChromaDex, Inc. and Elysium (the “License Agreement”), (ii) patent misuse, and (iii) unjust enrichment. On Elysium’s motion, the court granted summary judgment in favor of Elysium on ChromaDex’s claim for damages related to $ 110,000 in avoided costs arising from documents that Elysium used in violation of the Supply Agreement, dated February 3, 2014, by and between ChromaDex, Inc. and Elysium, as amended (the “NIAGEN® Supply Agreement”). The court denied summary judgment on Elysium’s counterclaim for breach of contract related to certain refunds or credits to Elysium. The court also denied summary judgment on ChromaDex’s breach of contract claim against Morris and claims for disgorgement of $8.3 million in Elysium’s resale profits, $600,000 for a price discount received by Elysium, and $684,781 in Morris’s compensation. 20 Table of Contents Following the court’s January 16, 2020 order, the claims that ChromaDex, Inc. presently asserts in the California Action, among other allegations, are that (i) Elysium breached the Supply Agreement, dated June 26, 2014, by and between ChromaDex, Inc. and Elysium (the “pTeroPure® Supply Agreement”), by failing to make payments to ChromaDex, Inc. for purchases of pTeroPure® and by improper disclosure of confidential ChromaDex, Inc. information pursuant to the pTeroPure® Supply Agreement, (ii) Elysium breached the NIAGEN® Supply Agreement, by failing to make payments to ChromaDex, Inc. for purchases of NIAGEN®, (iii) Defendants willfully and maliciously misappropriated ChromaDex, Inc. trade secrets concerning its ingredient sales business under both the California Uniform Trade Secrets Act and the Federal Defend Trade Secrets Act, (iv) Morris breached two confidentiality agreements he signed by improperly stealing confidential ChromaDex, Inc. documents and information, (v) Morris breached his fiduciary duty to ChromaDex, Inc. by lying to and competing with ChromaDex, Inc. while still employed there, and (vi) Elysium aided and abetted Morris’s breach of fiduciary duty. ChromaDex, Inc. is seeking damages and interest for Elysium’s alleged breaches of the NIAGEN® Supply Agreement and pTeroPure® Supply Agreement and Morris’s alleged breaches of his confidentiality agreements, compensatory damages and interest, punitive damages, injunctive relief, and attorney’s fees for Defendants’ alleged willful and malicious misappropriation of ChromaDex, Inc.’s trade secrets, and compensatory damages and interest, disgorgement of all benefits received, and punitive damages for Morris’s alleged breach of his fiduciary duty and Elysium’s aiding and abetting of that alleged breach. The claims that Elysium presently alleges in the California Action are that (i) ChromaDex, Inc. breached the NIAGEN® Supply Agreement by not issuing certain refunds or credits to Elysium, (ii) ChromaDex, Inc. fraudulently induced Elysium into entering into the License Agreement, (iv) ChromaDex, Inc.’s conduct constitutes misuse of its patent rights, and (v) ChromaDex, Inc. was unjustly enriched by the royalties Elysium paid pursuant to the License Agreement. Elysium is seeking damages for ChromaDex, Inc.’s alleged breaches of the NIAGEN® Supply Agreement, and compensatory damages, punitive damages, and/or rescission of the License Agreement and restitution of any royalty payments conveyed by Elysium pursuant to the License Agreement, and a declaratory judgment that ChromaDex, Inc. has engaged in patent misuse. On January 17, 2020, Elysium moved to substitute its counsel. The same day, the court ordered hearing on that motion for January 21, 2020, and granted Elysium’s motion at the hearing. On January 23, 2020, the court issued a scheduling order that, among other things, set trial on the remaining claims to begin on May 12, 2020. On March 19, 2020, in light of the global COVID-19 pandemic and ongoing private mediation efforts, the parties jointly stipulated to adjourn the trial date. The Court vacated the trial date on March 20, 2020. The Court held a telephonic status conference on June 9, 2020, during which the Court indicated that it will reschedule the jury trial as soon as conditions permit. (B) Patent Office Proceedings On July 17, 2017, Elysium filed petitions with the U.S. Patent and Trademark Office for inter partes review of U.S. Patents 8,197,807 (the “’807 Patent”) and 8,383,086 (the “’086 Patent”), patents to which ChromaDex, Inc. is the exclusive licensee. The Patent Trial and Appeal Board (“PTAB”) denied institution of the inter partes review for the ’807 Patent on January 18, 2018. On January 29, 2018, the PTAB granted institution of the inter partes review as to claims 1 and 3-5 and denied institution as to claim 2 of the ’086 Patent. Based upon a recent U.S. Supreme Court decision, and solely on a procedural basis, the PTAB was required to include claim 2 in the trial of the inter partes review. The matter was heard on October 2, 2018. The PTAB issued its written decision on January 16, 2019, upholding claim 2 of the ’086 Patent which relates to the use of isolated NR in a pharmaceutical composition as valid. Elysium is now prevented from raising invalidity arguments against the ’086 Patent in the ongoing patent litigation in Delaware that it brought or could have brought before the PTAB in its inter partes review. Elysium appealed the PTAB’s decision with respect to claim 2 on March 6, 2019. A cross-appeal with respect to claims 1 and 3–5 was filed on March 20, 2019. Elysium filed its opening brief on June 17, 2019. Dartmouth moved to voluntarily dismiss its cross-appeal on August 14, 2019. The motion was granted on August 18, 2019. Dartmouth’s response brief was filed on August 28, 2019. Elysium’s reply brief was filed on October 9, 2019. Oral argument on Elysium’s appeal was heard on March 5, 2020. On March 6, 2020, the United States Court of Appeals for the Federal Circuit affirmed the PTAB’s decision, rejecting Elysium's attempt to invalidate claim 2 of the '086 patent. (C) Southern District of New York Action On September 27, 2017, Elysium Health Inc. ("Elysium Health") filed a complaint in the United States District Court for the Southern District of New York, against ChromaDex, Inc. (the “Elysium SDNY Complaint”). Elysium Health alleges in the Elysium SDNY Complaint that ChromaDex, Inc. made false and misleading statements in a citizen petition to the Food and Drug Administration it filed on or about August 18, 2017. Among other allegations, Elysium Health avers that the citizen petition made Elysium Health’s product appear dangerous, while casting ChromaDex, Inc.’s own product as safe. The Elysium SDNY Complaint asserts four claims for relief: (i) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (ii) trade libel; (iii) deceptive business practices under New York General Business Law § 349; and (iv) tortious interference with prospective economic relations. ChromaDex, Inc. denies the claims in the Elysium SDNY Complaint and intends to defend against them vigorously. On October 26, 2017, ChromaDex, Inc. moved to dismiss the Elysium SDNY Complaint on the grounds that, inter alia, its statements in the citizen petition are immune from liability under the Noerr-Pennington Doctrine, the litigation privilege, and New York’s Anti-SLAPP statute, and that the Elysium SDNY Complaint failed to state a claim. Elysium Health opposed the motion on November 2, 2017. ChromaDex, Inc. filed its reply on November 9, 2017. 21 Table of Contents On October 26, 2017, ChromaDex, Inc. filed a complaint in the United States District Court for the Southern District of New York against Elysium Health (the “ChromaDex SDNY Complaint”). ChromaDex, Inc. alleges that Elysium Health made material false and misleading statements to consumers in the promotion, marketing, and sale of its health supplement product, Basis, and asserts five claims for relief: (i) false advertising under the Lanham Act, 15 U.S.C. §1125(a); (ii) unfair competition under 15 U.S.C. § 1125(a); (iii) deceptive practices under New York General Business Law § 349; (iv) deceptive practices under New York General Business Law § 350; and (v) tortious interference with prospective economic advantage. On November 16, 2017, Elysium Health moved to dismiss for failure to state a claim. ChromaDex, Inc. opposed the motion on November 30, 2017 and Elysium Health filed a reply on December 7, 2017. On November 3, 2017, the Court consolidated the Elysium SDNY Complaint and the ChromaDex SDNY Complaint actions under the caption In re Elysium Health-ChromaDex Litigation, 17-cv-7394, and stayed discovery in the consolidated action pending a Court-ordered mediation. The mediation was unsuccessful. On September 27, 2018, the Court issued a combined ruling on both parties’ motions to dismiss. For ChromaDex’s motion to dismiss, the Court converted the part of the motion on the issue of whether the citizen petition is immune under the Noerr-Pennington Doctrine into a motion for summary judgment, and requested supplemental evidence from both parties, which were submitted on October 29, 2018. The Court otherwise denied the motion to dismiss. On January 3, 2019, the Court granted ChromaDex, Inc.’s motion for summary judgment under the Noerr-Pennington Doctrine and dismissed all claims in the Elysium SDNY Complaint. Elysium moved for reconsideration on January 17, 2019. The Court denied Elysium’s motion for reconsideration on February 6, 2019, and issued an amended final order granting ChromaDex, Inc.’s motion for summary judgment on February 7, 2019. The Court granted in part and denied in part Elysium’s motion to dismiss, sustaining three grounds for ChromaDex’s Lanham Act claims while dismissing two others, sustaining the claim under New York General Business Law § 349, and dismissing the claims under New York General Business Law § 350 and for tortious interference. Elysium filed an answer and counterclaims on October 10, 2018, alleging claims for (i) false advertising under the Lanham Act, 15 U.S.C. §1125(a); (ii) unfair competition under 15 U.S.C. § 1125(a); and (iii) deceptive practices under New York General Business Law § 349. ChromaDex answered Elysium’s counterclaims on November 2, 2018. ChromaDex, Inc. filed an amended complaint on March 27, 2019, adding new claims against Elysium Health for false advertising and unfair competition under the Lanham Act, 15 U.S.C. § 1125(a). On April 10, 2019, Elysium Health answered the amended complaint and filed amended counterclaims, also adding new claims against ChromaDex, Inc. for false advertising and unfair competition under the Lanham Act, 15 U.S.C. § 1125(a). On July 1, 2019, Elysium Health filed further amended counterclaims, adding new claims under the Copyright Act §§ 106 & 501. On February 9, 2020, ChromaDex, Inc. filed a motion for leave to amend its complaint to add additional claims against Elysium Health for false advertising and unfair competition. On February 10, 2020, Elysium Health filed a motion for leave to amend its counterclaims to identify allegedly false and misleading statements in ChromaDex’s advertising. Those motions were both granted after respective stipulations. On March 12, 2020, Elysium Health answered the second amended complaint. On March 13, 2020, ChromaDex, Inc. filed an answer and objection to Elysium Health’s third amended counterclaims. The Company is unable to predict the outcome of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceedings discussed herein. As of June 30, 2020, ChromaDex, Inc. did not accrue a potential loss for the California Action or the Elysium SDNY Complaint because ChromaDex, Inc. believes that the allegations are without merit and thus it is not probable that a liability has been incurred. (D) Delaware – Patent Infringement Action On September 17, 2018, ChromaDex, Inc. and Trustees of Dartmouth College filed a patent infringement complaint in the United States District Court for the District of Delaware against Elysium Health, Inc. The complaint alleges that Elysium’s BASIS® dietary supplement violates U.S. Patents 8,197,807 (the “’807 Patent”) and 8,383,086 (the “’086 Patent”) that comprise compositions containing isolated nicotinamide riboside held by Dartmouth and licensed exclusively to ChromaDex, Inc. On October 23, 2018, Elysium filed an answer to the complaint. The answer asserts various affirmative defenses and denies that Plaintiffs are entitled to any relief. 22 Table of Contents On November 7, 2018, Elysium filed a motion to stay the patent infringement proceedings pending resolution of (1) the inter partes review of the ’807 Patent and the ’086 Patent before the Patent Trial and Appeal Board (“PTAB”) and (2) the outcome of the litigation in the California Action. ChromaDex, Inc. filed an opposition brief on November 21, 2018 detailing the issues with Elysium’s motion to stay. In particular, ChromaDex, Inc. argued that given claim 2 of the ’086 Patent was only included in the PTAB’s inter partes review for procedural reasons the PTAB was unlikely to invalidate claim 2 and therefore litigation in Delaware would continue regardless. In addition, ChromaDex, Inc. argued that the litigation in the California Action is unlikely to have a significant effect on the ongoing patent litigation. After the PTAB released its written decision upholding claim 2 of the ’086 Patent, proving right ChromaDex, Inc.’s prediction, ChromaDex, Inc. informed the Delaware court of the PTAB’s decision on January 17, 2019. On June 19, 2019, the Delaware court granted in part and denied in part Elysium’s motion, ordering that the case was stayed pending the resolution of Elysium’s patent misuse counterclaim in the California Action. On November 1, 2019, ChromaDex, Inc. filed a motion to lift the stay due to changed circumstances in the California Action, among other reasons. Briefing on the motion was completed on November 22, 2019. On January 6, 2020, the Delaware court issued an oral order instructing the parties to submit a joint status report after the January 13, 2020 motions hearing in the California Action. The joint status report was submitted on January 30, 2020. On February 4, 2020, the Delaware court issued an order granting ChromaDex, Inc.’s motion to lift the stay and setting a scheduling conference for March 10, 2020. On March 19, 2020, the Delaware court entered a scheduling order, which, among other things, set the claim-construction hearing for December 17, 2020 and trial for the week of September 27, 2021. On April 17, 2020, ChromaDex, Inc. served infringement contentions. On April 24, 2020, ChromaDex, Inc. moved for leave to amend the complaint to add Healthspan Research, LLC as a plaintiff. On May 5, 2020, Elysium filed its opposition to ChromaDex, Inc.’s motion for leave to amend and moved to dismiss ChromaDex, Inc. for alleged lack of standing. ChromaDex, Inc. filed its opposition to Elysium’s motion to dismiss and reply in support of its motion to amend on May 19, 2020. Elysium filed its reply in support of its motion to dismiss on May 26, 2020. Elysium filed a Second Amended Answer on July 10, 2020. On July 22, 2020 the parties filed a Joint Claim Construction Chart and respective motions for claim construction. The parties’ Joint Claim Construction Brief is due on November 5, 2020. The Court will hold a Markman hearing on claim-construction issues on December 17, 2020. From time to time we are involved in legal proceedings arising in the ordinary course of our business. We believe that there is no other litigation pending that is likely to have, individually or in the aggregate, a material adverse effect on our financial condition or results of operations. Contingencies In September 2019, the Company received a letter from a licensor stating that the Company owed the licensor $1.6 million plus interest of sublicense fees as a result of the Company entering into the supply agreement with a customer. After reviewing the relevant facts and circumstances, the Company believes that the Company does not owe any sublicense fees to the licensor and has corresponded with the licensor to resolve the matter. The Company does not believe that the ultimate resolution of this matter will be material to the Company’s results of operations, financial condition or cash flows. Note 13. Subsequent Event Subsequent to the period ended June 30, 2020, the Company entered into a lease amendment to lease additional space located in Longmont, Colorado. The lease amendment also extends the expiration of the lease period from February 2024 to December 2025 . Pursuant to the lease amendment, the Company will make additional total lease payments of approximately $ 1.1 million during the term of the lease. 23 Table of Contents