Business Segments

9 Months Ended

Sep. 30, 2017

Business Segments

Business Segments

Since the year ended December 31, 2016, the Company has made operational changes to merge its scientific and regulatory consulting segment into core standards and contract services segment. Additionally, with the acquisition of Healthspan in March 2017, the Company began selling consumer products that contain the Company's branded NIAGEN® ingredient. The Company made operational changes and began segregating its financial results for consumer products operations.

As a result, the Company has the following three reportable segments:

●  Ingredients segment develops and commercializes proprietary-based ingredient technologies and supplies these ingredients to consumers in finished products or as raw materials to the manufacturers of consumer products in various industries including the nutritional supplement, food and beverage and animal health industries.

●  Consumer products segment provides directly to consumers as well as to distributors finished dietary supplement products that contain the Company's proprietary ingredients.

●  Core standards and contract services segment includes (i) supply of phytochemical reference standards, (ii) scientific and regulatory consulting and (iii) other R&D services.

On September 5, 2017, the Company completed the sale of the Lab Business which was a part of the core standards and contract services segment. The discontinued operations related to the Lab Business are not included in following statement of operations for business segments.

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.

					Core Standards
Three months ended September 30, 2017	Ingredients		Consumer Products		and Contract Services		Corporate
	segment		segment		segment		and other			Total
Net sales	$	2,459,905	$	2,647,300	$	977,485				$	6,084,690
Cost of sales		1,384,221		1,095,128		689,972		—			3,169,321
Gross profit		1,075,684		1,552,172		287,513		—			2,915,369
Operating expenses:
Sales and marketing		390,568		548,827		163,762		—			1,103,157
Research and development		558,677		481,884		—		—			1,040,561
General and administrative		—		—		—		3,948,435			3,948,435
Operating expenses		949,245		1,030,711		163,762		3,948,435			6,092,153
		—		—
Operating income (loss)	$	126,439	$	521,461	$	123,751	$	(3,948,435	)	$	(3,176,784	)

Three months ended October 1, 2016	Ingredients		Consumer Products		Core Standards and Contract Services		Corporate
	segment		segment		segment		and other			Total
Net sales	$	2,663,095	$	—	$	1,274,191	$	—		$	3,937,286
Cost of sales		1,287,421		—		786,904		—			2,074,325
Gross profit		1,375,674		—		487,287		—			1,862,961
Operating expenses:
Sales and marketing		199,130		—		87,811		—			286,941
Research and development		760,299		—		12,500		—			772,799
General and administrative		—		—		—		1,727,383			1,727,383
Operating expenses		959,429		—		100,311		1,727,383			2,787,123
Operating income (loss)	$	416,245	$	—	$	386,976	$	(1,727,383	)	$	(924,162	)

					Core Standards
Nine months ended September 30, 2017	Ingredients		Consumer Products		and Contract Services		Corporate
	segment		segment		segment		and other			Total
Net sales	$	7,393,389	$	2,802,875	$	3,474,382	$	—		$	13,670,646
Cost of sales		3,615,097		1,135,864		2,277,379		—			7,028,340
Gross profit		3,778,292		1,667,011		1,197,003		—			6,642,306
Operating expenses:
Sales and marketing		959,761		738,647		359,770		—			2,058,178
Research and development		2,022,151		532,562		—		—			2,554,713
General and administrative		—		—		—		8,882,821			8,882,821
Other		745,773		—		—		—			745,773
Operating expenses		3,727,685		1,271,209		359,770		8,882,821			14,241,485
Operating income (loss)	$	50,607	$	395,802	$	837,233	$	(8,882,821	)	$	(7,599,179	)

					Core Standards
Nine months ended October 1, 2016	Ingredients		Consumer Products		and Contract Services		Corporate
	segment		segment		segment		and other			Total
Net sales	$	13,505,470	$	—	$	3,706,395	$	—		$	17,211,865
Cost of sales		6,420,972		—		2,410,428		—			8,831,400
Gross profit		7,084,498		—		1,295,967		—			8,380,465
Operating expenses:
Sales and marketing		930,573		—		259,440		—			1,190,013
Research and development		1,961,097		—		27,500		—			1,988,597
General and administrative		—		—		—		5,935,139			5,935,139
Operating expenses		2,891,670		—		286,940		5,935,139			9,113,749
Operating income (loss)	$	4,192,828	$	—	$	1,009,027	$	(5,935,139	)	$	(733,284	)

					Core Standards
At September 30, 2017	Ingredients		Consumer Products		and Contract Services		Corporate
	segment		segment		segment		and other		Total
Total assets	$	9,761,568	$	4,012,200	$	2,589,857	$	25,437,887	$	41,801,512

					Core Standards
At December 31, 2017	Ingredients		Consumer Products		and Contract Services		Corporate
	segment		segment		segment		and other		Total
Total assets	$	13,257,289	$	-	$	2,547,427	$	3,947,352	$	19,752,068

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, 2017

Oct. 1, 2016

Sep. 30, 2017

Oct. 1, 2016

Customer G - Related Party

37.8

%

*

16.8

%

*

Customer D

12.1

%

12.3

%

*

*

Customer C

*

*

*

24.5

%

* Represents less than 10%.

Major customers who accounted for more than 10% of the Company’s total trade receivables were as follows:

	Percentage of the Company's Total Trade Receivables
Major Customers	At September 30, 2017			At December 31, 2016
Customer C		45.4	%		45.8	%
Customer G - Related Party		30.3	%		*
Customer D		*			10.2	%
* Represents less than 10%.