ChromaDex Corp

Previous wording

Growth and percentage comparisons made herein generally refer to the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” “ChromaDex” and similar expressions refer to ChromaDex Corporation, and depending on the context, its subsidiaries.

Current wording

Growth and percentage comparisons made herein generally refer to the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to “we,” “us,” “our,” the “Company,” “ChromaDex” and similar expressions refer to ChromaDex Corporation, and depending on the context, its subsidiaries.

Previous wording

Certain statements in this MD&A, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “potential,” “possible,” “probable,” “believes,” “seeks,” “may,” “will,” “should,” “could,” “predicts,” “projects,” “continue,” “would” or the negative of such terms or other similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes including in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 6, 2024 (Annual Report).

Current wording

Certain statements in this MD&A, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “potential,” “possible,” “probable,” “believes,” “seeks,” “may,” “will,” “should,” “could,” “predicts,” “projects,” “continue,” “would” or the negative of such terms or other similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors set forth below in Part II, Item 1A, “Risk Factors” and our financial statements and related notes included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 6, 2024 (Annual Report).

Previous wording

We are a global bioscience company dedicated to healthy aging. Our team, which includes world-renowned scientists, is pioneering research on nicotinamide adenine dinucleotide (NAD+), an essential coenzyme that is a key regulator of cellular metabolism and is found in every cell of the human body. NAD+ levels in humans have been shown to decline by up to 65% between ages 30 and 70. In addition to age, other factors linked to NAD+ depletion include poor diet, excess alcohol consumption and a number of disease states. NAD+ levels may be increased with NAD+ precursors, calorie restriction and moderate exercise. We are at the forefront of exploring effective methods to increase NAD+ levels and support healthy aging.

Current wording

We are a global bioscience company dedicated to healthy aging. Our team, which includes world-renowned scientists, is pioneering research on nicotinamide adenine dinucleotide (NAD+), an essential coenzyme that is a key regulator of cellular metabolism and is found in every cell of the human body. NAD+ levels in humans have been shown to decline by up to 65% between ages 30 and 70. In addition to age, other factors linked to NAD+ depletion include poor diet, excess alcohol consumption and a number of disease states. NAD+ levels may be increased with administration of NAD+ precursors, calorie restriction and moderate exercise. We are at the forefront of exploring effective methods to increase NAD+ levels and support healthy aging.

Previous wording

In 2013, we commercialized food-grade Niagen®, a proprietary form of NRC, a novel form of vitamin B3, as both a dietary and food ingredient. In 2024, we announced Niagen+, a product line for healthcare practitioners and clinics, featuring pharmaceutical-grade Niagen®. We anticipate that U.S. FDA-registered 503B outsourcing facilities will compound and distribute pharmaceutical-grade Niagen® intravenous (Niagen IV) and injectable pharmaceutical-grade Niagen® which will be available exclusively at clinics pursuant to a prescription. Food-grade Niagen® is authorized for human consumption as a dietary supplement and generally recognized as safe as a food ingredient. Pharmaceutical-grade Niagen® is authorized by the FDA for compounding by 503B outsourcing facilities. Niagen+ has not yet had a material impact on our results of operations presented below.

Current wording

In 2013, we commercialized food-grade Niagen®, a proprietary form of NRC, a novel form of vitamin B3, as both a dietary and food ingredient. In 2024, we launched Niagen+, a product line for healthcare practitioners and clinics, featuring pharmaceutical-grade Niagen®. We supply pharmaceutical-grade Niagen® to U.S. FDA-registered 503B outsourcing facilities to compound and distribute Niagen® intravenous (Niagen IV) and injectable Niagen®. These pharmaceutical-grade Niagen® products are available exclusively at clinics with a prescription. Food-grade Niagen® is authorized for human consumption as a dietary supplement and generally recognized as safe as a food ingredient. Pharmaceutical-grade Niagen® is authorized by the FDA for compounding by 503B outsourcing facilities.

Previous wording

NRC remains one of the most well-studied and efficient NAD+ precursors on the market. Data from numerous preclinical studies and human clinical trials show that food-grade NRC is a highly efficient NAD+ precursor that significantly raises NAD+ levels in blood and tissue. Food-grade Niagen® has twice been successfully reviewed under the U.S. Food and Drug Administration’s (FDA) new dietary ingredient (NDI) notification program, it has been successfully notified to the FDA as generally recognized as safe (GRAS), and has been approved by Health Canada, the European Commission, the Turkish Ministry of Agriculture and the Therapeutic Goods Administration (TGA) of Australia. Food-grade Niagen® has also been approved for inclusion in medical foods by both the Brazilian Health Regulatory Agency (ANVISA) and the Food Standards Australia New Zealand (FSANZ). Clinical studies of oral, food-grade Niagen® have demonstrated a variety of outcomes including increased NAD+ levels, altered body composition, increased cellular metabolism and increased energy production. Food-grade Niagen®, pharmaceutical-grade Niagen® and other NAD+ precursors are protected by patents to which we are the owner or have exclusive rights.

Current wording

NRC remains one of the most well-studied and efficient NAD+ precursors on the market. Data from numerous preclinical studies and human clinical trials show that orally administered food-grade NRC is a highly efficient NAD+ precursor that significantly raises NAD+ levels in blood and tissue. Food-grade Niagen® has twice been successfully reviewed under the U.S. Food and Drug Administration’s (FDA) new dietary ingredient (NDI) notification program, it has been successfully notified to the FDA as generally recognized as safe (GRAS), and has been approved by Health Canada, the European Commission, the Turkish Ministry of Agriculture and the Therapeutic Goods Administration (TGA) of Australia. Food-grade Niagen® has also been approved for inclusion in medical foods by both the Brazilian Health Regulatory Agency (ANVISA) and the Food Standards Australia New Zealand (FSANZ). Clinical studies of oral, food-grade Niagen® have demonstrated a variety of outcomes including increased NAD+ levels, altered body composition, increased cellular metabolism and increased energy production. Food-grade Niagen®, pharmaceutical-grade Niagen® and other NAD+ precursors are protected by patents to which we are the owner or have exclusive rights.

Previous wording

As of June 30, 2024, our cash and cash equivalents totaled approximately $27.9 million, of which $27.7 million was unrestricted. We anticipate that our current unrestricted cash and cash equivalents and cash to be generated from net sales will be sufficient to meet our financial obligations as they become due over at least the next twelve months. We may, however, seek additional capital in the next twelve months, both to meet our projected operating plans after the next twelve months and/or to fund our longer-term strategic objectives.

Current wording

As of September 30, 2024, our cash and cash equivalents totaled approximately $32.4 million, of which $32.2 million was unrestricted. We anticipate that our current unrestricted cash and cash equivalents and cash to be generated from net sales will be sufficient to meet our financial obligations as they become due over at least the next twelve months. We may, however, seek additional capital in the next twelve months, both to meet our projected operating plans after the next twelve months and/or to fund our longer-term strategic objectives.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

•Our analytical reference standards and services segment constituted the smallest proportion of total sales, growing $0.1 million for each of the three and nine months ended September 30, 2024 compared to the corresponding periods in 2023.

Previous wording

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

Current wording

Total cost of sales, as a percentage of net sales, improved a modest 200 basis points and 100 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023. Changes in cost of sales were primarily driven by the following:

Previous wording

•Cost of sales, as a percentage of net sales, for our consumer products segment can fluctuate due to business mix, product mix, inflationary costs, and optimization efforts in our supply chain, among other factors. For the three and six months ended June 30, 2024, our consumer products segment maintained relatively stable cost of sales, as a percentage of net sales, compared to the same periods in 2023, with modest impacts from changes in business mix.

Current wording

•Cost of sales, as a percentage of net sales, for our consumer products segment can fluctuate due to business mix, product mix, inflationary costs, and optimization efforts in our supply chain, among other factors. For the three and nine months ended September 30, 2024, our consumer products segment maintained relatively stable cost of sales, as a percentage of net sales, increasing a slight 100 basis points compared to the same periods in 2023.

Previous wording

•Cost of sales, as a percentage of net sales, in our ingredients segment and our analytical reference standards and services segment are influenced by many factors including inventory purchase costs, fixed supply chain overhead costs and transportation and storage costs. For the ingredients segment, cost of sales, as a percentage of net sales, during each of the three and six months ended June 30, 2024 remained relatively stable compared to the same periods in 2023. For the analytical reference standards and services segment, which experienced approximately flat sales and slightly lower costs of sales for the three and six months ended June 30, 2024, compared to the same period in 2023, there was an improvement of 1,600 basis points in cost of sales as a percentage of net sales. We have restructured supply chain overhead costs related to reference standards which resulted in modest improvements.

Current wording

•Cost of sales, as a percentage of net sales, in our analytical reference standards and services segment are influenced by many factors including inventory purchase costs, fixed supply chain overhead costs and transportation and storage costs. For the analytical reference standards and services segment, which experienced relatively stable sales and slightly lower costs of sales for the three and nine months ended September 30, 2024, compared to the same period in 2023, there was an improvement of 3,100 basis points and 1,300 basis points, respectively, in cost of sales as a percentage of net sales. During 2024, we restructured supply chain overhead costs related to reference standards which resulted in modest cost improvements.

Previous wording

•For our consumer products segment, sales and marketing expense, as a percentage of net sales, remained relatively stable for the three months ended June 30, 2024 and improved 300 basis points for the six months ended June 30, 2024 compared to the same periods in 2023. The improvement during the six months ended June 30, 2024 can be attributed to a shift in sales and marketing strategy compared to the same period in 2023. During the six months ended June 30, 2023, we invested in a brand-building event. However, during the six months ended June 30, 2024, we did not undertake a similar brand-building event and instead optimized our marketing strategies with a focus on direct return distribution channels and marketing campaigns. On a full year basis for 2024, we expect our sales and marketing spend to increase with similar efficiencies compared to 2023.

Current wording

•For our consumer products segment, sales and marketing expense, as a percentage of net sales, increased 400 basis points during the three months ended September 30, 2024 and decreased a modest 100 basis points for the nine months ended September 30, 2024 compared to the same periods in 2023. The increase in the three months ended September 30, 2024 is primarily due to our increased efforts in testing new marketing strategies with less direct return than in prior periods, as well as lower sales with A.S. Watson, a former related party whose sales do not affect our sales and marketing expenses. The modest improvement during the nine months ended September 30, 2024 is attributable to shifts in marketing strategies in each period, including a larger brand-building event in the prior year, which was not repeated in the current year. On a full year basis for 2024, we expect our sales and marketing spend to increase with similar efficiencies compared to 2023.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We allocate R&D expenses related to our Niagen® branded ingredient to the consumer products and ingredients segment, based on recorded revenues. For the three months ended June 30, 2024, R&D expenses were relatively flat compared to the same period in 2023. During the six months ended June 30, 2024, we invested in strategic R&D initiatives to support future launches, including Niagen+, leading to a $0.9 million increase in R&D expenses. Our R&D expenses fluctuate based on the timing of projects, clinical trials and headcount. We anticipate increasing our investment in R&D projects, including clinical trials, throughout 2024 compared to 2023.

Current wording

We allocate R&D expenses related to our Niagen® branded ingredient to the consumer products and ingredients segment, based on recorded revenues. For the three months ended September 30, 2024, R&D expenses were relatively flat compared to the same period in 2023. During the nine months ended September 30, 2024, we invested in strategic R&D initiatives to support future launches, including Niagen+, leading to a $0.9 million increase in R&D expenses. Our R&D expenses fluctuate based on the timing of projects, clinical trials and headcount. We anticipate increasing our investment in R&D projects, including clinical trials, throughout 2024 compared to 2023.

Previous wording

Total general and administrative expense decreased by $1.6 million and $2.7 million during the three and six months ended June 30, 2024, respectively, compared to the corresponding periods in 2023. The reduction in expense for the three months ended June 30, 2024 was primarily attributable to lower executive and other administrative headcount expenses of $0.4 million, a reduction in provisions for credit losses of $0.4 million, lower severance and restructuring expense of $0.5 million and lower royalties and commissions expense of $0.3 million. The reduction in expense for the six months ended June 30, 2024 was primarily attributable to lower executive and other administrative headcount expenses of $0.5 million, a reduction in provisions for credit losses of $0.7 million, lower severance and restructuring expense of $0.6 million, lower royalties and commissions expense of $0.5 million and lower share-based compensation expense of $0.4 million.

Current wording

Total general and administrative expense increased by $0.5 million during the three months ended September 30, 2024 and decreased by $2.2 million during the nine months ended September 30, 2024, compared to the corresponding periods in 2023. The increase in expense for the three months ended September 30, 2024 was primarily attributable to higher legal expenses of $0.5 million to help support our Niagen+ launch and litigation matters to protect our patents. The reduction in expense for the three months ended September 30, 2024 was primarily attributable to lower severance and restructuring expense and related bonuses of $0.7 million, lower royalties and commissions expense of $0.7 million and a reduction in provisions for credit losses of $0.8 million.

Previous wording

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At June 30, 2024 and June 30, 2023, we maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of approximately 0% for the three and six months ended June 30, 2024 and 2023. As defined in ASC 740, Income Taxes, future realization of the tax benefit will depend on the existence of sufficient taxable income, including the expectation of continued future taxable income.

Current wording

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At September 30, 2024 and September 30, 2023, we maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of approximately 0% for the three and nine months ended September 30, 2024 and 2023. As defined in ASC 740, Income Taxes, future realization of the tax benefit will depend on the existence of sufficient taxable income, including the expectation of continued future taxable income.

Previous wording

During the first quarter of 2024, the Company was notified that it was selected for examination by the Internal Revenue Service (IRS) for its federal income tax return for the fiscal year 2021 period. The Company is not currently under examination by any other major income tax jurisdiction.

Current wording

During the first quarter of 2024, the Company was notified that it was selected for examination by the IRS for its federal income tax return for the fiscal year 2021 period. The examination was completed in the third quarter of 2024, with no changes recommended. As of the date of this report, the Company is not under examination by any major income tax jurisdiction.

Previous wording

Depreciation expense was approximately $348,000 and $460,000 for the six months ended June 30, 2024 and 2023, respectively. We depreciate our assets on a straight-line basis, based on the estimated useful lives of the respective assets.

Current wording

Depreciation expense was approximately $512,000 and $693,000 for the nine months ended September 30, 2024 and 2023, respectively. We depreciate our assets on a straight-line basis, based on the estimated useful lives of the respective assets.

Previous wording

Amortization expense of intangible assets was approximately $75,000 and $80,000 for the six months ended June 30, 2024 and 2023, respectively. We amortize intangible assets using a straight-line method, generally over 10 years. For licensed patent rights, the useful lives are 10 years or the remaining term of the patents underlying licensing rights, whichever is shorter. The useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized.

Current wording

Amortization expense of intangible assets was approximately $113,000 and $119,000 for the nine months ended September 30, 2024 and 2023, respectively. We amortize intangible assets using a straight-line method, generally over 10 years. For licensed patent rights, the useful lives are 10 years or the remaining term of the patents underlying licensing rights, whichever is shorter. The useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized.

Previous wording

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

Current wording

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

Previous wording

From inception through June 30, 2024, we have incurred aggregate losses of approximately $191.0 million. These losses are primarily due to expenses associated with the development and expansion of our operations and investments to protect our intellectual property, including litigation-related expenses. Historically, these operations have been financed through capital contributions, primarily through the issuance of common stock in private placements, and cash generated from sales.

Current wording

From inception through September 30, 2024, we have incurred aggregate losses of approximately $189.1 million. These losses are primarily due to expenses associated with the development and expansion of our operations and investments to protect our intellectual property, including litigation-related expenses. Historically, these operations have been financed through capital contributions, primarily through the issuance of common stock in private placements, and cash generated from sales.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $27.9 million, including $152,000 of restricted cash, no material off-balance sheet arrangements and no outstanding borrowings under our line of credit with Western Alliance Bank. Our cash and cash equivalents as of June 30, 2024 consisted ofbank deposits and short-term investments of highly liquid investment-grade debt instruments with an original maturity of three months or less. Additionally, as of June 30, 2024, we had purchase obligations of $9.0 million related to inventory purchase commitments and future minimum lease obligations of $3.4 million to be paid over approximately six months and five years, respectively.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $32.4 million, including $152,000 of restricted cash, no material off-balance sheet arrangements and no outstanding borrowings under our line of credit with Western Alliance Bank. Our cash and cash equivalents as of September 30, 2024 consisted ofbank deposits and short-term investments of highly liquid investment-grade debt instruments with an original maturity of three months or less. Additionally, as of September 30, 2024, we had purchase obligations of $5.2 million and $4.8 million related to inventory purchase commitments to be paid during the three months ended December 31, 2024 and March 31, 2025, respectively, as well as future minimum lease obligations of $3.1 million to be paid over approximately four years.

Previous wording

Net cash provided by operating activities: Cash provided by operating activities is net loss adjusted for certain non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was approximately $31,000 for the six months ended June 30, 2024 compared to $6.1 million for the six months ended June 30, 2023. The approximately $6.0 million reduction in cash provided by operating activities was largely driven by a relatively greater increase in trade receivables of $4.2 million and a greater reduction in accounts payable of $2.5 million.

Current wording

Net cash provided by operating activities: Cash provided by operating activities is net loss adjusted for certain non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was approximately $3.5 million for the nine months ended September 30, 2024 compared to $6.5 million for the nine months ended September 30, 2023. The approximately $2.9 million reduction in cash provided by operating activities was largely driven by a relatively greater increase in trade receivables of $3.8 million, a greater reduction in accounts payable and accrued expenses of $2.8 million and $1.8 million, respectively, and lower provisions for credit losses of $0.9 million, offset by a $6.4 million improvement in net income (loss).

Previous wording

Cash used in investing activities: Investing cash flows consist primarily of capital expenditures and investment activities. Cash used in investing activities was $53,000 and $96,000 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Cash used in investing activities: Investing cash flows consist primarily of capital expenditures and investment activities. Cash used in investing activities was $74,000 and $122,000 for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net cash provided by (used in) financing activities: Financing cash flows primarily consists of the repayment of short-term and long-term debt and proceeds from the exercise of stock options. For the six months ended June 30, 2024, cash provided by financing activities was $0.6 million, compared to a use of cash of $11,000 for the same period in 2023. This increase of $0.6 million was driven by proceeds from the exercise of stock options in the first half of 2024, whereas no such exercises occurred in the same period of 2023.

Current wording

Net cash provided by (used in) financing activities: Financing cash flows primarily consists of the repayment of short-term and long-term debt and proceeds from the exercise of stock options. For the nine months ended September 30, 2024, cash provided by financing activities was $1.6 million, compared to a use of cash of $14,000 for the same period in 2023. This increase of $1.6 million was driven by proceeds from the exercise of stock options whereas no such exercises occurred in the same period of 2023.