Niagen Bioscience, Inc. 10-Q

Item 1. Financial Statements (UNAUDITED) ChromaDex Corporation and Subsidiaries Condensed Consolidated Balance Sheets March 31, 2021 and December 31, 2020 (In thousands, except per share data) Mar. 31, 2021 Dec. 31, 2020 Assets Current Assets Cash, including restricted cash of $ 0.2 million and $ 0.2 million, respectively $ 44,691 $ 16,697 Trade receivables, net of allowances of $ 0.2 million and $ 0.2 million, respectively; Receivables from Related Party: $ 1.3 million and $ 0.9 million, respectively 4,647 2,694 Inventories 12,762 11,683 Prepaid expenses and other assets 1,119 1,145 Total current assets 63,219 32,219 Leasehold Improvements and Equipment, net 3,058 3,206 Intangible Assets, net 1,022 1,082 Right of Use Assets 1,100 1,226 Other Long-term Assets 594 625 Total assets $ 68,993 $ 38,358 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 11,693 $ 9,445 Accrued expenses 7,328 6,133 Current maturities of operating lease obligations 485 589 Current maturities of finance lease obligations 19 31 Customer deposits 231 278 Total current liabilities 19,756 16,476 Deferred Revenue 4,441 4,441 Operating Lease Obligations, Less Current Maturities 947 997 Finance Lease Obligations, Less Current Maturities 17 20 Total liabilities 25,161 21,934 Commitments and Contingencies Stockholders' Equity Common stock, $ .001 par value; authorized 150,000 shares; issued and outstanding March 31, 2021 67,702 shares and December 31, 2020 61,881 shares 68 62 Additional paid-in capital 192,972 158,190 Accumulated deficit ( 149,206 ) ( 141,825 ) Cumulative translation adjustments ( 2 ) ( 3 ) Total stockholders' equity 43,832 16,424 Total liabilities and stockholders' equity $ 68,993 $ 38,358 See Notes to Consolidated Financial Statements. 5 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statements of Operations For the Three Month Periods Ended March 31, 2021 and March 31, 2020 (In thousands, except per share data) Mar. 31, 2021 Mar. 31, 2020 Sales, net $ 14,683 $ 14,345 Cost of sales 5,449 6,034 Gross profit 9,234 8,311 Operating expenses: Sales and marketing 6,258 4,447 Research and development 824 919 General and administrative 9,514 8,835 Operating expenses 16,596 14,201 Operating loss ( 7,362 ) ( 5,890 ) Nonoperating expense: Interest expense, net ( 19 ) ( 12 ) Nonoperating expense ( 19 ) ( 12 ) Net loss $ ( 7,381 ) $ ( 5,902 ) Basic and diluted loss per common share $ ( 0.12 ) $ ( 0.10 ) Basic and diluted weighted average common shares outstanding 64,164 59,782 See Notes to Consolidated Financial Statements. 6 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statement of Stockholders' Equity For the Three Month Periods Ended March 31, 2021 and March 31, 2020 (In thousands) Common Stock Additional Cumulative Total Shares Amount Paid-in Capital Accumulated Deficit Translation Adjustments Stockholders' Equity Balance, January 1, 2021 61,881 $ 62 $ 158,190 $ ( 141,825 ) $ ( 3 ) $ 16,424 Issuance of common stock, net of offering costs of $0.1 million 3,846 4 24,867 - - 24,871 Exercise of stock options 1,975 2 8,631 - - 8,633 Share-based compensation - - 1,284 - - 1,284 Net loss - - - ( 7,381 ) 1 ( 7,380 ) Balance, March 31, 2021 67,702 $ 68 $ 192,972 $ ( 149,206 ) $ ( 2 ) $ 43,832 Common Stock Additional Cumulative Total Shares Amount Paid-in Capital Accumulated Deficit Translation Adjustments Stockholders' Equity Balance, January 1, 2020 59,562 $ 60 $ 142,285 $ ( 121,900 ) $ - $ 20,445 Exercise of stock options 43 - 132 - - 132 Share-based compensation - - 1,873 - - 1,873 Net loss - - - ( 5,902 ) ( 5,902 ) Balance, March 31, 2020 59,605 $ 60 $ 144,290 $ ( 127,802 ) $ - $ 16,548 See Notes to Consolidated Financial Statements. 7 Table of Contents ChromaDex Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows For the Three Month Periods Ended March 31, 2021 and March 31, 2020 (In thousands) Mar. 31, 2021 Mar. 31, 2020 Cash Flows From Operating Activities Net loss $ ( 7,381 ) $ ( 5,902 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of leasehold improvements and equipment 221 214 Amortization of intangibles 60 62 Amortization of right of use assets 126 92 Share-based compensation expense 1,284 1,873 Allowance for doubtful trade receivables 14 ( 2,708 ) Non-cash financing costs 28 23 Changes in operating assets and liabilities: Trade receivables ( 1,967 ) 1,326 Inventories ( 1,079 ) 255 Implementation costs for cloud computing arrangement ( 28 ) - Prepaid expenses and other assets 74 252 Accounts payable 2,248 ( 1,467 ) Accrued expenses 1,196 833 Customer deposits and other ( 47 ) 69 Principal payments on operating leases ( 154 ) ( 143 ) Net cash used in operating activities ( 5,405 ) ( 5,221 ) Cash Flows From Investing Activities Purchases of leasehold improvements and equipment ( 46 ) ( 15 ) Investment in other long-term assets - ( 5 ) Net cash used in investing activities ( 46 ) ( 20 ) Cash Flows From Financing Activities Proceeds from issuance of common stock, net 24,871 - Proceeds from exercise of stock options 8,633 132 Payment of debt issuance costs ( 44 ) ( 15 ) Principal payments on finance leases ( 15 ) ( 80 ) Net cash provided by financing activities 33,445 37 Net increase (decrease) in cash 27,994 ( 5,204 ) Cash Beginning of Period, including restricted cash of $0.2 million for both 2021 and 2020 16,697 18,812 Cash Ending of Period, including restricted cash $0.2 million for both 2021 and 2020 $ 44,691 $ 13,608 Supplemental Disclosures of Cash Flow Information Cash payments for interest on finance leases $ 1 $ 6 Supplemental Schedule of Noncash Investing Activity Financing lease obligation incurred for purchase of computer equipment and software $ - $ 47 See Notes to Consolidated Financial Statements. 8 Table of Contents Note 1. Interim Financial Statements The accompanying financial statements of ChromaDex Corporation and its wholly owned subsidiaries, ChromaDex, Inc., ChromaDex Analytics, Inc., ChromaDex Asia Limited and ChromaDex Europa B.V. (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 March 31, 2021 and results of operations and cash flows for the three months ended March 31, 2021 and March 31, 2020. 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, 2020 appearing in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on March 12, 2021. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results to be achieved for the full year ending on December 31, 2021. 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, 2020 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 global bioscience company dedicated to healthy aging. The ChromaDex team, which includes world-renowned scientists, is pioneering research on nicotinamide adenine dinucleotide (“NAD+”), levels of which decline with age. ChromaDex is the innovator behind NAD+ precursor nicotinamide riboside (“NR”), commercialized as the flagship ingredient NIAGEN®. Nicotinamide riboside and other NAD+ precursors are protected by ChromaDex’s patent portfolio. ChromaDex delivers NIAGEN® as the sole active ingredient in its consumer product TRU NIAGEN®. 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 $ 5.4 million for the three-month period ended March 31, 2021. As of March 31, 2021, cash and cash equivalents totaled approximately $ 44.7 million, which includes restricted cash of approximately $ 0.2 million. The Company anticipates that its current cash, cash equivalents, 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 these financial statements. 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. In June 2020, we filed a $ 125.0 million registration statement on Form S-3 with the Commission, utilizing a “shelf” registration process. Under this shelf registration process, we may sell securities from time to time, including up to $ 50.0 million pursuant to the At Market Issuance Sales Agreement, dated as of June 12, 2020, with B. Riley FBR, Inc. and Raymond James & Associates, Inc. (the “ATM Facility”). As of March 31, 2021, we have not sold any securities pursuant to the ATM Facility. 9 Table of Contents 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. 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. Public entities that qualify as a smaller reporting 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 months ended March 31, 2021 and March 31, 2020: Three Months Ended (In thousands, except per share data) Mar. 31, 2021 Mar. 31, 2020 Net loss $ ( 7,381 ) $ ( 5,902 ) Basic and diluted loss per common share $ ( 0.12 ) $ ( 0.10 ) Basic and diluted weighted average common shares outstanding (1): 64,164 59,782 Potentially dilutive securities (2): Stock options 10,157 12,194 Restricted stock units 92 - ______________ (1) Includes approximately 0.2 million and 0.2 million nonvested shares of restricted stock for the periods ending Mar. 31, 2021 and Mar. 31, 2020, 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. 10 Table of Contents Note 6. Related Party Transactions Sale of consumer products Net sales Three months ended Mar. 31, 2021 Net sales Three months ended Mar. 31, 2020 Trade receivable at Mar. 31, 2021 Trade receivable at Dec. 31, 2020 A.S. Watson Group $ 1.6 million $ 1.8 million $ 1.3 million $ 0.9 million *A.S. Watson Group is a related party through common ownership of an enterprise that beneficially owns more than 10% of the common stock of the Company. Note 7. Inventories The amounts of major classes of inventory as of March 31, 2021 and December 31, 2020 are as follows: (In thousands) Mar. 31, 2021 Dec. 31, 2020 Consumer Products - Finished Goods $ 3,839 $ 2,358 Consumer Products - Work in Process 4,620 5,718 Bulk ingredients 3,758 3,065 Reference standards 545 542 $ 12,762 $ 11,683 Note 8. Stock Issuance On February 20, 2021, the Company entered into a Securities Purchase Agreement with EverFund (the "Financing”) pursuant to which the Company agreed to sell and issue approximately 3.8 million of common stock at a price of $ 6.50 per share. On February 23, 2021, the Company closed the Financing and received proceeds of $ 24.9 million, net of offering costs. Note 9. Leases Operating Leases As of March 31, 2021, the Company had right of use assets stemming from operating leases of approximately $ 1.1 million, and corresponding operating lease liabilities of approximately $ 1.4 million. For the three months ended March 31, 2021 and March 31, 2020, the following were expenses incurred in connection with our operating leases: 11 Table of Contents (In thousands) For the Three Months Ended Mar. 31, 2021 For the Three Months Ended Mar. 31, 2020 Operating leases Operating lease expense $ 154 $ 120 Variable lease expense 40 69 Operating lease expense 194 189 Short-term lease rent expense 62 64 Total expense $ 256 $ 253 At Mar. 31, 2021 Weighted-average remaining lease term (years) operating leases 2.5 Weighted-average discount rate operating leases 7.0 % Minimum future lease payments under operating leases as of March 31, 2021 are as follows: (In thousands) Nine Months Ending December 31, 2021 $ 474 Year Ending December 31, 2022 299 Year Ending December 31, 2023 308 Year Ending December 31, 2024 310 Year Ending December 31, 2025 263 Total 1,654 Less present value discount 222 Operating lease liabilities 1,432 Less current portion 485 Long-term obligations under operating leases $ 947 Note 10. Share-Based Compensation Equity Plans At the discretion of the compensation committee of the Board of Directors (the “Compensation Committee”), the Company may grant options to purchase the Company’s common stock, restricted stock units and other equity awards to certain individuals from time to time. Management and the Compensation Committee determine the terms of awards which include the exercise price, vesting conditions and expiration dates at the time of grant. Expiration dates for stock options are not to exceed 10 years from their date of issuance. The Company grants awards to recipients through the 2017 Equity Incentive Plan, as amended (the “2017 Plan”), which was approved by stockholders and the Board of Directors. As of March 31, 2021, 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 Second Amended and Restated 2007 Equity Incentive Plan, (iii) any returning shares 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 5.6 million shares at March 31, 2021. 12 Table of Contents General Vesting Conditions The stock option and restricted stock unit awards are generally subject to a one-year cliff vesting period after which 1/3 of the shares vest with the remaining shares vesting ratably over a two-year period subject to the 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. 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 three months ended March 31, 2021. Three months Ended March 31, 2021 Expected term 6 years Expected volatility 73 % Risk-free rate 1 % Expected dividends 0 % Service Period Based Stock Options The following table summarizes activity of service period-based stock options at March 31, 2021 and changes during the three 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, 2020 10,833 $ 3.96 6.8 Options Granted 593 10.29 10 .0 $ 6.56 Options Exercised ( 1,935 ) 4.37 $ 12,393 Options Forfeited ( 375 ) 4.34 Outstanding at Mar. 31, 2021 9,116 $ 4.27 7 .0 $ 47,278 * Exercisable at Mar. 31, 2021 5,666 $ 3.63 5.6 $ 32,326 * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 9.34 , which is the closing price of the Company’s stock on the last day of business for the period ended March 31, 2021. 13 Table of Contents 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. If these performance criteria are not met, the compensation expenses are not recognized and the expenses that have been recognized will be reversed. The following table summarizes performance based stock options activity at March 31, 2021 and changes during the three 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, 2020 81 $ 4.34 3.1 Options Granted - - Options Exercised ( 40 ) 4.34 $ 401 Options Forfeited - - Outstanding at Mar. 31, 2021 41 $ 4.34 2.8 $ 205 * Exercisable at Mar. 31, 2021 41 $ 4.34 2.8 $ 205 * *The aggregate intrinsic values in the table above are based on the Company’s stock price of $9.34, which is the closing price of the Company’s stock on the last day of business for the period ended March 31, 2021. Total Remaining Unamortized Compensation for Stock Options As of March 31, 2021, there was approximately $ 10.0 million of total unrecognized compensation expense related to non-vested stock options granted under the plans. That cost is expected to be recognized over a weighted average period of 2 years. Restricted Stock Units Restricted stock unit awards are generally subject to a one-year cliff vesting period after which 1/3 of the shares vest with the remaining shares vesting ratably over a two-year period subject to the passage of time. The following table summarizes activity of restricted stock unit awards granted at March 31, 2021 and changes during the three months then ended (in thousands except per share fair value): Weighted Average Shares Fair Value Unvested shares at Dec. 31, 2020 - $ - Granted 92 11.83 Vested - - Forfeited - - Unvested shares at Mar. 31, 2021 92 $ 11.83 Expected to Vest as of Mar. 31, 2021 92 $ 11.83 14 Table of Contents Total Share-Based Compensation Total share-based compensation expenses were as follows: Three months ending (In thousands) Mar. 31, 2021 Mar. 31, 2020 Share-based compensation expense Cost of sales $ 40 $ 33 Sales and marketing 388 232 Research and development 138 138 General and administrative 718 1,470 Total $ 1,284 $ 1,873 Note 11. Business Segments The Company has the following three reportable segments for the three-month period ended March 31, 2021: · 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 March 31, 2021 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 12,437 $ 1,315 $ 931 $ - $ 14,683 Cost of sales 4,203 563 683 - 5,449 Gross profit 8,234 752 248 - 9,234 Operating expenses: Sales and marketing 6,111 10 137 - 6,258 Research and development 751 73 - - 824 General and administrative - - - 9,514 9,514 Operating expenses 6,862 83 137 9,514 16,596 Operating income (loss) $ 1,372 $ 669 $ 111 $ ( 9,514 ) $ ( 7,362 ) 15 Table of Contents Three months ended Consumer Analytical Reference March 31, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Net sales $ 11,144 $ 2,475 $ 726 $ - $ 14,345 Cost of sales 4,302 1,056 676 - 6,034 Gross profit 6,842 1,419 50 - 8,311 Operating expenses: Sales and marketing 4,409 ( 84 ) 122 - 4,447 Research and development 782 137 - - 919 General and administrative - - - 8,835 8,835 Operating expenses 5,191 53 122 8,835 14,201 Operating income (loss) $ 1,651 $ 1,366 $ ( 72 ) $ ( 8,835 ) $ ( 5,890 ) Consumer Analytical Reference At March 31, 2021 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Total assets $ 13,353 $ 4,692 $ 822 $ 50,126 $ 68,993 Consumer Analytical Reference At December 31, 2020 Products Ingredients Standards and Corporate (In thousands) segment segment Services segment and other Total Total assets $ 11,567 $ 3,701 $ 802 $ 22,288 $ 38,358 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. 16 Table of Contents Three Months Ended March 31, 2021 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN , Consumer Product $ 12,437 $ - $ - $ 12,437 NIAGEN Ingredient - 1,203 - 1,203 Subtotal NIAGEN Related $ 12,437 $ 1,203 $ - $ 13,640 Other Ingredients - 112 - 112 Reference Standards - - 800 800 Consulting and Other - - 131 131 Subtotal Other Goods and Services $ - $ 112 $ 931 $ 1,043 Total Net Sales $ 12,437 $ 1,315 $ 931 $ 14,683 Three Months Ended March 31, 2020 (In thousands) Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total TRU NIAGEN , Consumer Product $ 11,144 $ - $ - $ 11,144 NIAGEN Ingredient - 1,961 - 1,961 Subtotal NIAGEN Related $ 11,144 $ 1,961 $ - $ 13,105 Other Ingredients - 514 - 514 Reference Standards - - 673 673 Consulting and Other - - 53 53 Subtotal Other Goods and Services $ - $ 514 $ 726 $ 1,240 Total Net Sales $ 11,144 $ 2,475 $ 726 $ 14,345 Disclosure of Major Customers Major customers who accounted for more than 10% of the Company’s total sales were as follows: Three months ended Major Customers Mar. 31, 2021 Mar. 31, 2020 A.S. Watson Group - Related Party 10.6 % 12.7 % Life Extension * 10.4 % * Represents less than 10%. 17 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 Customers At March 31, 2021 At December 31, 2020 A.S. Watson Group - Related Party 29.0 % 31.9 % Matakana Health 17.3 % 11.1 % Life Extension 16.0 % 17.7 % Amazon Marketplaces 15.7 % 12.0 % * Represents less than 10%. Note 12. Commitments and Contingencies Legal proceedings 1. 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. 18 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 November 4, 2020, the parties submitted a joint status report indicating that they will propose a new trial date as soon as the court announces that it will resume jury trials. On November 18, 2020, the court set trial to begin on September 21, 2021. On December 11, 2020, Elysium filed a “Notice of Correction of Depositions” related to the depositions of its chief executive officer, Eric Marcotulli, and chief operating officer, Daniel Alminana, both taken in March 2019. On March 8, 2021, based in part on information that Elysium submitted under seal with that notice, ChromaDex, Inc. filed a motion for sanctions or, in the alternative, reconsideration of the court’s January 16, 2020 order regarding summary judgment, in which ChromaDex, Inc. moved to dismiss Elysium’s third, fourth, and fifth counterclaims. Elysium’s opposition brief was filed on March 22, 2021. ChromaDex, Inc. filed its reply brief on March 29, 2021. On April 27, 2021, the court denied ChromaDex, Inc’s motion for terminating sanctions, but concluded that the evidence at issue in the motion will be admissible at trial. 19 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 alleged 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 averred that the citizen petition made Elysium Health’s product appear dangerous, while casting ChromaDex, Inc.’s own product as safe. The Elysium SDNY Complaint asserted 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. 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. 20 Table of Contents On December 14, 2020, Elysium Health filed a motion to supplement and amend its counterclaims to add claims regarding alleged advertising related to COVID, to add an allegation about a change to the ChromaDex website, and to remove its copyright infringement claim under the Copyright Act. On January 19, 2021, the Court denied Elysium Health’s motion to add claims regarding alleged advertising related to COVID. The Court granted the unopposed requests to add an allegation about a change to ChromaDex’s website and to remove Elysium’s Copyright Act claim. Pursuant to the Court’s order, Elysium filed fourth amended counterclaims on April 21, 2021. All discovery closed on April 23, 2021 and the deadline to submit the Joint Pretrial Report is June 22, 2021. The Court vacated a previously scheduled trial date because of COVID-19, and the Court has informed the Parties that trial will be rescheduled for November or December 2021. 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 March 31, 2021, 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. Elysium filed a Second Amended Answer on July 10, 2020. 21 Table of Contents 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. On December 15, 2020, the Court entered orders (i) granting in part and denying in part Elysium’s motion to dismiss ChromaDex, Inc. for alleged lack of standing; and (ii) denying ChromaDex, Inc.’s motion for leave to amend. ChromaDex, Inc. filed a motion for reargument on December 29, 2020. Elysium filed a response to the motion for reargument on January 28, 2021. ChromaDex, Inc. filed a motion for leave to file a reply on February 8, 2021. Elysium filed a response to the motion for leave to file a reply on February 12, 2021. ChromaDex, Inc. filed a reply to the motion for leave to file a reply on February 19, 2021. The Court granted the motion for leave to file the reply on April 26, 2021, and denied the motion for reargument on April 27, 2021. On July 22, 2020 the parties filed a Joint Claim Construction Chart and respective motions for claim construction. The parties filed a Joint Claim Construction Brief on November 5, 2020. The Court held a Markman hearing on claim-construction issues on December 17, 2020. The Court entered a claim-construction ruling on January 5, 2021. Fact discovery closed on January 26, 2021. Opening expert reports were served on February 9, 2021. Responsive expert reports were served on March 9, 2021. Reply expert reports were served on March 30, 2021. Both parties filed dispositive and Daubert motions on April 27, 2021. Trial is scheduled for September 27-30, 2021. 2. Other (A) Employee Dispute On September 25, 2020, the Company received a demand letter from a former employee, alleging a series of employment-related claims against the Company after the employee was laid off as part of a company restructuring. The employee alleges she was harassed and, ultimately, terminated in retaliation for taking intermittent leave, under the Family and Medical Leave Act. No lawsuit has been filed to date. The Company believes these claims are without merit and is seeking to amicably resolve the matter pre-lawsuit. The Company does not anticipate that the ultimate resolution of this matter will be material to the Company’s operations, financial condition or cash flows. (B) Rejuvenation Therapeutics On September 15, 2020, the Company received a letter from a customer, Rejuvenation Therapeutics Corp. (“Rejuvenation”), and has received subsequent correspondence, requesting a full refund of approximately $ 1.6 million of NIAGEN® it purchased, alleging breaches of the supply agreement between the parties. The Company believes these claims are without merit and is seeking to amicably resolve the matter pre-lawsuit. As of March 31, 2021, the Company has recorded a return liability of approximately $ 0.5 million, which the Company has offered to settle in good faith. The Company does not anticipate that the ultimate resolution of this matter will be material to the Company’s operations, financial condition or cash flows. (C) Thorne Research, Inc. On or around September 28, 2020, Thorne Research, Inc. (“Thorne”) provided notice to ChromaDex, Inc. that it intended to terminate its March 25, 2019 Supply Agreement and subsequent amendments with ChromaDex, Inc., effective as of December 31, 2020. A discussion between ChromaDex, Inc. and Thorne followed, and Thorne asserted that it could challenge the ‘086 Patent in an inter partes review (“IPR”) proceeding on the basis of prior art, but would be willing to enter into a mutual existence agreement that would permit Thorne to source NR from a third party. Thorne did not offer substantive information supporting a prior art claim or about the nature of the threatened IPR. 22 Table of Contents On December 1, 2020, Thorne filed a petition for IPR of the ‘086 Patent. Dartmouth’s preliminary response to the petition was filed on on March 15, 2021. On February 1, 2021, Thorne filed a petition for IPR of the ‘807 Patent. Dartmouth’s preliminary response to the petition is due on May 18, 2021. 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 (A) 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. (B) On November 17, 2020, the Company received a warning letter (“the Letter”) from the United States Food and Drug Administration (“FDA”) and Federal Trade Commission (“FTC”). The Letter references statements issued by the Company relating to preclinical and clinical research results involving nicotinamide riboside and COVID-19. The statements were included in press releases and referenced in social media posts. On November 18, 2020, the Company provided a response to the Letter stating that the Company disagrees with the assertion in the Letter that the Company’s products are intended to mitigate, prevent, treat, diagnose or cure COVID-19 in violation of certain sections of the FD&C Act or that they were unsubstantiated under the FTC Act, but rather accurately reflected the state of the science and the results of scientific research. Nonetheless, the Company also responded that it had deleted social media references to the studies and removed related press releases from its website. On April 30, 2021, the Company received an additional warning letter (the “Second Letter”) from only the FTC. The Second Letter references the original Letter, and cites additional statements issued by the Company and certain officers and advisors of the Company relating to nicotinamide riboside and scientific studies related to COVID-19. The Second Letter asserts that such statements contain coronavirus-related prevention or treatment claims and are deceptive in violation of the Federal Trade Commission Act. On May 4, 2021, the Company provided a response to the Second Letter stating that it had removed the social posts from its accounts identified in the Second Letter and requested that third parties remove the post from their accounts that were identified in the Second Letter. The Company stated that the press release identified in the Second Letter is appropriate and not a deceptive act or practice under applicable law. The Company affirmed its belief in the need to accurately report on the scientific results of its studies to its investors, and welcomed the opportunity to discuss its R&D program with the FTC, and receive guidance on future releases. 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. 23 Table of Contents