Commitments and Contingencies | Purchase obligations The Company enters into purchase obligations with various vendors for goods and services that we need for our operations. The purchase obligations for goods and services include inventory, research and development, and laboratory supplies. Minimum future payments under purchase obligations as of December 31, 2019 are as follows: (In thousands) Fiscal year ending: 2020 $ 11,520 $ 11,520 Royalty The Company has nine licensing agreements with leading research universities and other patent holders, pursuant to which the Company acquired patents related to certain products the Company offers to its customers. These agreements afford for royalty payments based on contractual minimums and expire at various dates from December 31, 2019 through an estimated year of 2037. Yearly minimum royalty payments including license maintenance fees range from $10,000 per year to $100,000 per year, however, these minimum payments escalate each year with a maximum of $150,000 per year. In addition, the Company is required to pay a range of 2% to 5% of sales related to the licensed products under these agreements. Total royalty expenses including license maintenance fees for the years ended December 31, 2019 and December 31, 2018 were approximately $2.7 million and $1.7 million, respectively under these agreements. Minimum royalties including license maintenance fees for the next five years are as follows: (In thousands) Fiscal years ending: 2020 $ 342 2021 360 2022 361 2023 363 2024 364 $ 1,790 Operating lease guarantee Effective November 1, 2019, the Company completed a spinoff of a regulatory consulting business unit, Spherix Consulting Group, Inc. (“Spherix”). As part of the spinoff transaction, the Company’s existing lease in Maryland was assigned from the Company to Spherix, whom assumed all rights, title, obligations, and interests in the lease. The Company remained a guarantor on the lease. The term on the lease expires in April 2021. Future minimum lease payments are approximately $46,000 in 2020 and $16,000 in 2021. If Spherix becomes insolvent, the Company may be obligated to pay these amounts. Based on the financial health of Spherix as of the transaction date, the Company does not believe it is probable it will have to make any performance on this guarantee. 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. 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. (B) Patent Office Proceedings On July 17, 2017, Elysium filed petitions with the U.S. Patent and Trademark Office for inter partes inter partes inter partes inter partes inter partes (C) Southern District of New York Action On September 27, 2017, Elysium Health Inc. ("Elysium Health") filed a complaint in the United States District Court for the Southern District of New York, against ChromaDex, Inc. (the “Elysium SDNY Complaint”). Elysium Health alleges in the Elysium SDNY Complaint that ChromaDex, Inc. made false and misleading statements in a citizen petition to the Food and Drug Administration it filed on or about August 18, 2017. Among other allegations, Elysium Health avers that the citizen petition made Elysium Health’s product appear dangerous, while casting ChromaDex, Inc.’s own product as safe. The Elysium SDNY Complaint asserts four claims for relief: (i) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (ii) trade libel; (iii) deceptive business practices under New York General Business Law § 349; and (iv) tortious interference with prospective economic relations. ChromaDex, Inc. denies the claims in the Elysium SDNY Complaint and intends to defend against them vigorously. On October 26, 2017, ChromaDex, Inc. moved to dismiss the Elysium SDNY Complaint on the grounds that, inter alia, its statements in the citizen petition are immune from liability under the Noerr-Pennington Doctrine, the litigation privilege, and New York’s Anti-SLAPP statute, and that the Elysium SDNY Complaint failed to state a claim. Elysium Health opposed the motion on November 2, 2017. ChromaDex, Inc. filed its reply on November 9, 2017. 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 as 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 remain pending and the parties are currently in discovery. 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 December 31, 2019, ChromaDex, Inc. did not accrue a potential loss for the California Action or the Elysium SDNY Complaint because ChromaDex, Inc. believes that the allegations are without merit and thus it is not probable that a liability has been incurred. (D) Delaware – Patent Infringement Action On September 17, 2018, ChromaDex, Inc. and Trustees of Dartmouth College filed a patent infringement complaint in the United States District Court for the District of Delaware against Elysium Health, Inc. The complaint alleges that Elysium’s BASIS® dietary supplement violates U.S. Patents 8,197,807 (the “’807 Patent”) and 8,383,086 (the “’086 Patent”) that comprise compositions containing isolated nicotinamide riboside held by Dartmouth and licensed exclusively to ChromaDex, Inc. On October 23, 2018, Elysium filed an answer to the complaint. The answer asserts various affirmative defenses and denies that Plaintiffs are entitled to any relief. On November 7, 2018, Elysium filed a motion to stay the patent infringement proceedings pending resolution of (1) the inter partes inter partes 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. Legal proceedings – Utah Lanham Act Action On March 6, 2019, Novex Biotech LLC (“Novex”) filed an action in the Third Judicial District Court County of Salt Lake, State of Utah against ChromaDex, Inc. and 10 fictional defendants. The complaint alleges that Novex markets a dietary supplement, Oxydrene Elite, that competes with ChromaDex’s product, TRU NIAGEN. The complaint further alleges that ChromaDex, Inc. has violated the Lanham Act by making false or misleading claims for TRU NIAGEN. Novex is seeking an injunction and damages for the competitive harm it alleges to have suffered. ChromaDex, Inc. timely removed the action to federal court in the District of Utah. ChromaDex answered the complaint and also filed counterclaims against Novex under the Lanham Act and California state law. ChromaDex’s counterclaims allege that Novex has falsely advertised its product called Oxydrene. Novex moved to dismiss the counterclaims and ChromaDex has opposed this motion. Discovery in the case is ongoing and no hearing has been set for Novex’s motion to dismiss. The Company is unable to predict the outcome of this matter and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceedings discussed herein. As of December 31, 2019, ChromaDex, Inc. did not accrue a potential loss for the Utah Lanham Act action because ChromaDex, Inc. believes that the allegations are without merit and thus it is not probable that a liability has been incurred. 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. |