Niagen Bioscience, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ChromaDex Corporation and Subsidiaries Condensed Consolidated Balance Sheets September 30, 2020 and December 31, 2019 (In thousands, except per share data) Sep. 30, 2020 Dec. 31, 2019 Assets Current Assets Cash, including restricted cash of $ 0.2 million and $ 0.2 million, respectively $ 15,478 $ 18,812 Trade receivables, net of allowances of $ 0.0 million and $ 2.8 million, respectively; Receivables from Related Party: $ 1.0 million and $ 0.8 million, respectively 3,214 2,175 Inventories 11,031 11,535 Prepaid expenses and other assets 1,005 996 Total current assets 30,728 33,518 Leasehold Improvements and Equipment, net 3,307 3,765 Intangible Assets, net 1,147 1,311 Right of Use Assets 1,323 891 Other Long-term Assets 910 762 Total assets $ 37,415 $ 40,247 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 6,881 $ 9,626 Accrued expenses 5,173 4,415 Current maturities of operating lease obligations 650 595 Current maturities of finance lease obligations 83 258 Customer deposits 228 169 Total current liabilities 13,015 15,063 Deferred Revenue 3,820 3,873 Operating Lease Obligations, Less Current Maturities 1,070 848 Finance Lease Obligations, Less Current Maturities 23 18 Total liabilities 17,928 19,802 Commitments and Contingencies Stockholders' Equity Common stock, $ .001 par value; authorized 150,000 shares; issued and outstanding September 30, 2020 61,587 shares and December 31, 2019 59,562 shares 62 60 Additional paid-in capital 155,156 142,285 Accumulated deficit ( 135,728 ) ( 121,900 ) Cumulative translation adjustments ( 3 ) - Total stockholders' equity 19,487 20,445 Total liabilities and stockholders' equity $ 37,415 $ 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 Nine Month Periods Ended September 30, 2020 and September 30, 2019 (In thousands, except per share data) Three Months Ended Nine Months Ended Sep. 30, 2020 Sep. 30, 2019 Sep. 30, 2020 Sep. 30, 2019 Sales, net $ 14,180 $ 12,053 $ 43,812 $ 33,202 Cost of sales 5,726 5,304 17,959 14,898 Gross profit 8,454 6,749 25,853 18,304 Operating expenses: Sales and marketing 5,223 4,626 14,629 13,108 Research and development 880 1,044 2,741 3,281 General and administrative 6,547 7,967 22,256 24,230 Other - - - 125 Operating expenses 12,650 13,637 39,626 40,744 Operating loss ( 4,196 ) ( 6,888 ) ( 13,773 ) ( 22,440 ) Nonoperating expense: Interest expense, net ( 19 ) ( 314 ) ( 55 ) ( 854 ) Nonoperating expense ( 19 ) ( 314 ) ( 55 ) ( 854 ) Net loss $ ( 4,215 ) $ ( 7,202 ) $ ( 13,828 ) $ ( 23,294 ) Basic and diluted loss per common share $ ( 0.07 ) $ ( 0.12 ) $ ( 0.23 ) $ ( 0.41 ) Basic and diluted weighted average common shares outstanding 61,695 57,658 60,797 56,182 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 September 30, 2020 and September 30, 2019 (In thousands) Additional Cumulative Total Common Stock Paid-in Accumulated Translation Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, June 30, 2020 61,421 61 153,036 ( 131,513 ) ( 3 ) 21,581 Exercise of stock options 166 1 546 - - 547 Share-based compensation - - 1,574 - - 1,574 Net loss - - - ( 4,215 ) - ( 4,215 ) Balance, September 30, 2020 61,587 $ 62 $ 155,156 $ ( 135,728 ) $ ( 3 ) $ 19,487 Additional Cumulative Total Common Stock Paid-in Accumulated Translation Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, June 30, 2019 55,384 $ 55 $ 120,935 $ ( 105,845 ) $ - $ 15,145 Issuance of common stock, net of offering costs of $0.2 million 1,568 1 6,772 - - 6,773 Issuance of common stock for conversion of debt and accrued interest 2,267 2 10,121 - - 10,123 Debt discount to convertible notes - - 282 - - 282 Exercise of stock options 119 1 334 - - 335 Exercise of warrants 44 - - - - - Share-based compensation - - 1,686 - - 1,686 Net loss - - - ( 7,202 ) - ( 7,202 ) Balance, September 30, 2019 59,382 $ 59 $ 140,130 $ ( 113,047 ) $ - $ 27,142 See Notes to Consolidated Financial Statements. 5 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statement of Stockholders' Equity For the Nine Month Periods Ended September 30, 2020 and September 30, 2019 (In thousands) Additional Cumulative Total Common Stock Paid-in Accumulated Translation 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 800 1 2,858 - - 2,859 Share-based compensation - - 5,158 - - 5,158 Translation adjustment - - - - ( 3 ) ( 3 ) Net loss - - - ( 13,828 ) - ( 13,828 ) Balance, September 30, 2020 61,587 $ 62 $ 155,156 $ ( 135,728 ) $ ( 3 ) $ 19,487 Additional Cumulative Total Common Stock Paid-in Accumulated Translation Stockholders' Shares Amount Capital Deficit Adjustments Equity Balance, December 31, 2018 55,089 $ 55 $ 116,876 $ ( 89,753 ) $ - $ 27,178 Issuance of common stock, net of offering costs of $0.2 million 1,568 1 6,772 - - 6,773 Issuance of common stock for conversion of debt and accrued interest 2,267 2 10,121 - - 10,123 Debt discount to convertible notes - - 282 - - 282 Exercise of stock options 247 1 605 - - 606 Exercise of warrants 44 - - - - - Share-based compensation 167 - 5,474 - - 5,474 Net loss - - - ( 23,294 ) - ( 23,294 ) Balance, September 30, 2019 59,382 $ 59 $ 140,130 $ ( 113,047 ) $ - $ 27,142 See Notes to Consolidated Financial Statements. 6 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows For the Nine Month Periods Ended September 30, 2020 and September 30, 2019 (In thousands) Sep. 30, 2020 Sep. 30, 2019 Cash Flows From Operating Activities Net loss $ ( 13,828 ) $ ( 23,294 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of leasehold improvements and equipment 652 559 Amortization of intangibles 182 184 Amortization of right of use assets 284 423 Share-based compensation expense 5,158 5,474 Allowance for doubtful trade receivables ( 2,737 ) ( 4 ) Amortization of convertible notes issuance costs - 846 Non-cash financing costs 75 123 Changes in operating assets and liabilities: Trade receivables 1,698 ( 1,590 ) Inventories 504 ( 1,570 ) Prepaid expenses and other assets ( 185 ) ( 353 ) Accounts payable ( 2,745 ) ( 3,379 ) Accrued expenses 757 ( 619 ) Deferred revenue ( 53 ) 3,873 Customer deposits and other 56 ( 14 ) Principal payments on operating leases ( 440 ) ( 488 ) Net cash used in operating activities ( 10,622 ) ( 19,829 ) Cash Flows From Investing Activities Purchases of leasehold improvements and equipment ( 147 ) ( 463 ) Purchases of intangible assets ( 18 ) ( 10 ) Investment in other long-term assets ( 16 ) ( 48 ) Net cash used in investing activities ( 181 ) ( 521 ) Cash Flows From Financing Activities Proceeds from issuance of common stock, net 4,856 6,773 Proceeds from sale of convertible notes - 10,000 Payment of convertible notes issuance costs - ( 565 ) Proceeds from exercise of stock options 2,859 606 Payment of debt issuance costs ( 30 ) - Principal payments on finance leases ( 216 ) ( 201 ) Net cash provided by financing activities 7,469 16,613 Net decrease in cash ( 3,334 ) ( 3,737 ) 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 $ 15,478 $ 18,879 Supplemental Disclosures of Cash Flow Information Cash payments for interest on finance leases $ 11 $ 26 Supplemental Schedule of Noncash Operating Activity Financing lease obligation incurred for prepayment of licensing fees $ - $ 99 Operating lease obligation incurred for entering into lease amendment $ 716 $ - 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 Supplemental Schedule of Noncash Financing Activity Issuance of common stock for conversion of debt and accrued interest $ - $ 10,123 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 September 30, 2020 and results of operations and cash flows for the three and the nine months ended September 30, 2020 and September 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 nine months ended September 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 $10.6 million for the nine-month period ended September 30, 2020. As of September 30, 2020, cash and cash equivalents totaled approximately $ 15.5 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 nine months ended September 30, 2020 and September 30, 2019: Three Months Ended Nine Months Ended (In thousands, except per share data) Sep. 30, 2020 Sep. 30, 2019 Sep. 30, 2020 Sep. 30, 2019 Net loss $ ( 4,215 ) $ ( 7,202 ) $ ( 13,828 ) $ ( 23,294 ) Basic and diluted loss per common share $ ( 0.07 ) $ ( 0.12 ) $ ( 0.23 ) $ ( 0.41 ) Basic and diluted weighted average common shares outstanding (1): 61,695 57,658 60,797 56,182 Potentially dilutive securities (2): Stock options 11,466 10,787 11,466 10,787 _______________ (1) Includes approximately 0.2 million and 0.2 million nonvested restricted stock for the periods ending Sep. 30, 2020and Sep. 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. Note 6. Related Party Transactions Sale of consumer products Net sales Three months ended Sep. 30, 2020 Net sales Three months ended Sep. 30, 2019 Net sales Nine months ended Sep. 30, 2020 Net sales Nine months ended Sep. 30, 2019 Trade receivable at Sep. 30, 2020 Trade receivable at Dec. 31, 2019 A.S. Watson Group $ 2.5 million $ 2.3 million $ 5.6 million $ 5.5 million $ 1.0 million $ 0.8 million Horizon Ventures (1) - - $ 1.6 million - - - Total $ 2.5 million $ 2.3 million $ 7.2 million $ 5.5 million $ 1.0 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 nine months ended September 30, 2020, Horizon Ventures made purchases to donate to the healthcare workers in Hong Kong hospitals. 9 Table of Contents Note 7. Inventories The amounts of major classes of inventory as of September 30, 2020 and December 31, 2019 are as follows: (In thousands) Sep. 30, 2020 Dec. 31, 2019 Consumer Products - Finished Goods $ 7,242 $ 4,877 Consumer Products - Work in Process 1,971 4,659 Bulk ingredients 1,194 1,364 Reference standards 624 635 $ 11,031 $ 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. Note 9. Leases Operating Leases On August 3, 2020, the Company entered into a lease amendment to lease additional space located in Longmont, Colorado. The lease amendment 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 $ 0.9 million during the term of the lease. As of September 30, 2020, the Company had operating lease assets in right of use assets of approximately $ 1.3 million and corresponding operating lease liabilities of approximately $ 1.7 million. For the three and the nine months ended September 30, 2020 and September 30, 2019, the following were expenses incurred in connection with our operating leases: 10 Table of Contents (In thousands) For the Three Months Ended Sep. 30, 2020 For the Three Months Ended Sep. 30, 2019 For the Nine Months Ended Sep. 30, 2020 For the Nine Months Ended Sep. 30, 2019 Operating leases Operating lease expense $ 120 $ 180 $ 359 $ 540 Variable lease expense 5 61 139 182 Operating lease expense 125 241 498 722 Short-term lease rent expense 63 4 191 7 Total expense $ 188 $ 245 $ 689 $ 729 At Sep. 30, 2020 Weighted-average remaining lease term (years) – operating leases 2.7 Weighted-average discount rate – operating leases 7.2 % Minimum future lease payments under operating leases as of September 30, 2020 are as follows: (In thousands) Nine months ending December 31, 2020 $ 175 Year Ending December 31, 2021 622 Year Ending December 31, 2022 289 Year Ending December 31, 2023 289 Year Ending December 31, 2024 306 Year Ending December 31, 2025 316 Total 1,996 Less present value discount 276 Operating lease liabilities 1,720 Less current portion 650 Long-term obligations under operating leases $ 1,070 Finance Leases As of September 30, 2020, the Company had finance lease assets in equipment assets of approximately $ 0.4 million and corresponding finance lease liabilities of approximately $ 0.1 million. For the three and the nine months ended September 30, 2020 and September 30, 2019, the following were expenses incurred in connection with our finance leases: 11 Table of Contents (In thousands) For the Three Months Ended Sep. 30, 2020 For the Three Months Ended Sep. 30, 2019 For the Nine Months Ended Sep. 30, 2020 For the Nine Months Ended Sep. 30, 2019 Finance leases Amortization of equipment assets $ 22 $ 19 $ 83 $ 56 Interest on lease liabilities 2 8 11 26 Total expenses $ 24 $ 27 $ 94 $ 82 At Sep. 30, 2020 Weighted-average remaining lease term (years) – finance leases 1.1 Weighted-average discount rate – finance leases 7.7 % Minimum future lease payments under finance leases as of September 30, 2020 are as follows: (In thousands) Three Months Ending December 31, 2020 $ 58 Year Ending December 31, 2021 32 Year Ending December 31, 2022 21 Total 111 Less present value discount 5 Finance lease liabilities 106 Less current portion 83 Long-term obligations under finance leases $ 23 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 September 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 6.7 million shares at September 30, 2020. 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. 12 Table of Contents The fair value of the Company’s stock options that are not market based is 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 nine months ended September 30, 2020. Nine months Ended September 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 September 30, 2020 and changes during the nine 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 9509 $ 3.86 6.9 Options Granted 2,601 3.87 10.0 $ 2.27 Options Exercised ( 758 ) 3.67 $ 1,024 Options Expired ( 259 ) 4.66 Options Forfeited ( 708 ) 3.49 Outstanding at Sep. 30, 2020 10,385 $ 3.88 7.0 $ 4,508 * Exercisable at Sep. 30, 2020 6,495 $ 3.81 5.7 $ 3,314 * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 4.01 , which is the closing price of the Company’s stock on the last day of business for the period ended September 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 September 30, 2020 and changes during the nine 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 ( 83 ) 4.34 Outstanding at Sep. 30, 2020 81 $ 4.34 3.3 $ 0 * Exercisable at Sep. 30, 2020 81 $ 4.34 3.3 $ 0 * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $4.01, which is the closing price of the Company’s stock on the last day of business for the period ended September 30, 2020. Total Remaining Unamortized Compensation for Stock Options As of September 30, 2020, there was approximately $ 7.8 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 Nine months ending (In thousands) Sep. 30, 2020 Sep. 30, 2019 Sep. 30, 2020 Sep. 30, 2019 Share-based compensation expense Cost of sales $ 42 $ 34 $ 117 $ 94 Sales and marketing 336 215 810 479 Research and development 133 139 405 389 General and administrative 1,063 1,298 3,826 4,512 Total $ 1,574 $ 1,686 $ 5,158 $ 5,474 14 Table of Contents Note 11. Business Segments The Company has the following three reportable segments for the three- and nine-month periods ended September 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 September 30, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 11,904 $ 1,510 $ 766 $ - $ 14,180 Cost of sales 4,404 599 723 - 5,726 Gross profit 7,500 911 43 - 8,454 Operating expenses: Sales and marketing 5,018 47 158 - 5,223 Research and development 819 61 - - 880 General and administrative - - - 6,547 6,547 Operating expenses 5,837 108 158 6,547 12,650 Operating income (loss) $ 1,663 $ 803 $ ( 115 ) $ ( 6,547 ) $ ( 4,196 ) Three months ended Consumer Analytical Reference September 30, 2019 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 9,725 $ 1,239 $ 1,089 $ - $ 12,053 Cost of sales 3,901 614 789 - 5,304 Gross profit 5,824 625 300 - 6,749 Operating expenses: Sales and marketing 4,451 45 130 - 4,626 Research and development 910 134 - - 1,044 General and administrative - - - 7,967 7,967 Other - - - - - Operating expenses 5,361 179 130 7,967 13,637 Operating income (loss) $ 463 $ 446 $ 170 $ ( 7,967 ) $ ( 6,888 ) 15 Table of Contents Nine months ended Consumer Analytical Reference September 30, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 34,768 $ 6,835 $ 2,209 $ - $ 43,812 Cost of sales 13,045 2,790 2,124 - 17,959 Gross profit 21,723 4,045 85 - 25,853 Operating expenses: Sales and marketing 14,170 39 420 - 14,629 Research and development 2,406 335 - - 2,741 General and administrative - - - 22,256 22,256 Operating expenses 16,576 374 420 22,256 39,626 Operating income (loss) $ 5,147 $ 3,671 $ ( 335 ) $ ( 22,256 ) $ ( 13,773 ) Nine months ended Consumer Analytical Reference September 30, 2019 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 25,923 $ 4,120 $ 3,159 $ - $ 33,202 Cost of sales 10,491 2,068 2,339 - 14,898 Gross profit 15,432 2,052 820 - 18,304 Operating expenses: Sales and marketing 12,440 236 432 - 13,108 Research and development 2,754 527 - - 3,281 General and administrative - - - 24,230 24,230 Other - - - 125 125 Operating expenses 15,194 763 432 24,355 40,744 Operating income (loss) $ 238 $ 1,289 $ 388 $ ( 24,355 ) $ ( 22,440 ) Consumer Analytical Reference At September 30, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Total assets $ 12,956 $ 2,036 $ 928 $ 21,495 $ 37,415 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 16 Table of Contents 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 September 30, 2020 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 11,904 $ - $ - $ 11,904 NIAGEN® Ingredient - 879 - 879 Subtotal NIAGEN Related $ 11,904 $ 879 $ - $ 12,783 Other Ingredients - 631 - 631 Reference Standards - - 695 695 Consulting and Other - - 71 71 Subtotal Other Goods and Services $ - $ 631 $ 766 $ 1,397 Total Net Sales $ 11,904 $ 1,510 $ 766 $ 14,180 Three Months Ended September 30, 2019 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 9,725 $ - $ - $ 9,725 NIAGEN® Ingredient - 731 - 731 Subtotal NIAGEN Related $ 9,725 $ 731 $ - $ 10,456 Other Ingredients - 508 - 508 Reference Standards - - 764 764 Consulting and Other - - 325 325 Subtotal Other Goods and Services $ - $ 508 $ 1,089 $ 1,597 Total Net Sales $ 9,725 $ 1,239 $ 1,089 $ 12,053 17 Table of Contents Nine Months Ended September 30, 2020 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 34,768 $ - $ - $ 34,768 NIAGEN® Ingredient - 4,835 - 4,835 Subtotal NIAGEN Related $ 34,768 $ 4,835 $ - $ 39,603 Other Ingredients - 2,000 - 2,000 Reference Standards - - 2,054 2,054 Consulting and Other - - 155 155 Subtotal Other Goods and Services $ - $ 2,000 $ 2,209 $ 4,209 Total Net Sales $ 34,768 $ 6,835 $ 2,209 $ 43,812 Nine Months Ended September 30, 2019 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN®, Consumer Product $ 25,923 $ - $ - $ 25,923 NIAGEN® Ingredient - 2,921 - 2,921 Subtotal NIAGEN Related $ 25,923 $ 2,921 $ - $ 28,844 Other Ingredients - 1,199 - 1,199 Reference Standards - - 2,311 2,311 Consulting and Other - - 848 848 Subtotal Other Goods and Services $ - $ 1,199 $ 3,159 $ 4,358 Total Net Sales $ 25,923 $ 4,120 $ 3,159 $ 33,202 Disclosure of Major Customers Major customers who accounted for more than 10% of the Company’s total sales were as follows: Three months ended Nine months ended Major Customers Sep. 30, 2020 Sep. 30, 2019 Sep. 30, 2020 Sep. 30, 2019 A.S. Watson Group - Related Party 17.7 % 18.8 % 12.9 % 16.5 % 18 Table of Contents 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 September 30, 2020 At December 31, 2019 A.S. Watson Group - Related Party 30.6 % 39.0 % Amazon Marketplaces 15.9 % 10.3 % Life Extension 15.7 % 27.4 % Matakana Health 13.4 % * * Represents less than 10%. Note 12. Commitments and Contingencies Inventory Purchase Obligations In the third quarter of 2020, the Company entered into an amended manufacturing and supply agreement whereby the Company is obligated to purchase approximately $ 18.3 million of total inventory through December 31, 2021. The Company’s remaining purchase obligations as of September 30, 2020 were as follows: Three Months Ending December 31, 2020 $ 3.7 Million Twelve Months Ending December 31, 2021 $ 14.6 Million Total $ 18.3 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. 19 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. On October 21, 2020, the court ordered the parties to confer and submit by no later than November 4, 2020, a joint status report that includes a proposed trial date. 20 Table of Contents (B) Southern District of New York Action On September 27, 2017, Elysium Health Inc. ("Elysium Health") filed a complaint in the United States District Court for the Southern District of New York, against ChromaDex, 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. 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. 21 Table of Contents 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 September 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. (C) 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. 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. The Court held a hearing on the motion for leave to amend the complaint and Elysium’s motion to dismiss on September 16, 2020, but has not yet issued a ruling. 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. 22 Table of Contents