Item 1. Financial Statements
Item 1. FINANCIAL STATEMENTS (unaudited)
ChromaDex Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(In thousands except par values, unless otherwise indicated)
Mar 31, 2022 Dec 31, 2021
Assets
Current assets
Cash, including restricted cash of $ 0.2 million as of both dates
$ 20,993 $ 28,219
Trade receivables, net of allowances of $ 54 and $ 65 , respectively; Including receivables from Related Party of: $ 2.3 million and $ 2.1 million, respectively.
6,310 5,226
Inventories 15,307 13,601
Prepaid expenses and other assets 1,913 1,859
Total current assets 44,523 48,905
Leasehold improvements and equipment, net 2,940 3,003
Intangible assets, net 808 857
Right-of-use assets 4,053 4,352
Other long-term assets 606 723
Total assets $ 52,930 $ 57,840
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 9,780 $ 10,423
Accrued expenses 8,126 6,481
Current maturities of operating lease obligations 630 528
Current maturities of finance lease obligations 17 20
Customer deposits 141 161
Total current liabilities 18,694 17,613
Deferred revenue 4,346 4,346
Operating lease obligations, less current maturities 4,013 4,154
Total liabilities 27,053 26,113
Commitments and Contingencies (Note 10)
Stockholders' Equity
Common stock, $ 0.001 par value; authorized 150,000 shares; 68,149 shares and 68,126 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
68 68
Additional paid-in capital 202,502 200,614
Accumulated deficit ( 176,693 ) ( 168,953 )
Cumulative translation adjustments — ( 2 )
Total stockholders' equity 25,877 31,727
Total liabilities and stockholders' equity $ 52,930 $ 57,840
See accompanying notes to condensed consolidated financial statements.
ChromaDex Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended March 31,
2022 2021
Sales, net $ 17,259 $ 14,683
Cost of sales 6,727 5,449
Gross profit 10,532 9,234
Operating expenses:
Sales and marketing 8,237 6,258
Research and development 1,078 787
General and administrative 8,949 9,551
Total operating expenses 18,264 16,596
Operating loss ( 7,732 ) ( 7,362 )
Interest expense, net ( 8 ) ( 19 )
Net loss $ ( 7,740 ) $ ( 7,381 )
Basic and diluted loss per common share $ ( 0.11 ) $ ( 0.12 )
Basic and diluted weighted average common shares outstanding 68,314 64,164
See accompanying notes to condensed consolidated financial statements.
ChromaDex Corporation and Subsidiaries
Unaudited Condensed Consolidated Statement of Stockholders' Equity
(In thousands, unless otherwise indicated)
Three Months Ended March 31, 2022
Common Stock Additional Paid-in Capital Accumulated Deficit Cumulative Translation Adjustments Total Stockholders' Equity
Shares Amount
Balance, January 1, 2022 68,126 $ 68 $ 200,614 $ ( 168,953 ) $ ( 2 ) $ 31,727
Issuance of restricted stock 23 — — —
Share-based compensation — — 1,888 — — 1,888
Translation adjustment — — — — 2 2
Net loss — — — ( 7,740 ) — ( 7,740 )
Balance, March 31, 2022 68,149 $ 68 $ 202,502 $ ( 176,693 ) $ — $ 25,877
Three Months Ended March 31, 2021
Common Stock Additional Paid-in Capital Accumulated Deficit Cumulative Translation Adjustments Total Stockholders' Equity
Shares Amount
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
Issuance of common stock resulting from the exercise of stock options 1,975 2 8,631 — — 8,633
Share-based compensation — — 1,284 — — 1,284
Translation adjustment — — — — 1 1
Net loss — — — ( 7,381 ) — ( 7,381 )
Balance, March 31, 2021 67,702 $ 68 $ 192,972 $ ( 149,206 ) $ ( 2 ) $ 43,832
See accompanying notes to condensed consolidated financial statements.
ChromaDex Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands, unless otherwise indicated)
Three Months Ended March 31,
2022 2021
Cash Flows From Operating Activities
Net loss $ ( 7,740 ) $ ( 7,381 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of leasehold improvements and equipment 201 221
Amortization of intangibles 49 60
Amortization of right of use assets 299 126
Share-based compensation expense 1,888 1,284
Provision for doubtful trade receivables 10 14
Non-cash financing costs 18 28
Changes in operating assets and liabilities:
Trade receivables ( 1,094 ) ( 1,967 )
Inventories ( 1,706 ) ( 1,079 )
Implementation costs for cloud computing arrangement ( 114 ) ( 28 )
Prepaid expenses and other assets 46 74
Accounts payable ( 643 ) 2,248
Accrued expenses 1,645 1,196
Customer deposits and other ( 18 ) ( 47 )
Operating lease liabilities ( 39 ) ( 154 )
Net cash used in operating activities ( 7,198 ) ( 5,405 )
Cash Flows From Investing Activities
Purchases of leasehold improvements and equipment ( 25 ) ( 46 )
Net cash used in investing activities ( 25 ) ( 46 )
Cash Flows From Financing Activities
Proceeds from issuance of common stock, net — 24,871
Proceeds from exercise of stock options — 8,633
Payment of debt issuance costs — ( 44 )
Principal payments on finance leases ( 3 ) ( 15 )
Net cash (used in) provided by financing activities ( 3 ) 33,445
Net (decrease) increase in cash ( 7,226 ) 27,994
Cash, including restricted cash of $ 0.2 million for both periods - beginning of period
28,219 16,697
Cash, including restricted cash of $ 0.2 million for both periods - end of period
$ 20,993 $ 44,691
Supplemental Disclosures of Cash Flow Information
Cash payments for interest on finance leases $ — $ 1
Cash payments for principal on operating lease liabilities $ 58 $ 154
See accompanying notes to condensed consolidated financial statements.
Note 1. Nature of Business
ChromaDex Corporation and its wholly owned subsidiaries, ChromaDex, Inc., ChromaDex Analytics, Inc., ChromaDex Asia Limited, ChromaDex Europa B.V. and ChromaDex Sağlik Ürünleri Anonim Şirketi (collectively, “ChromaDex”, the “Company”) are a global bioscience company dedicated to healthy aging. The ChromaDex 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 with age, among other factors, and may be increased through supplementation with NAD+ precursors.
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 and/or licensed rights portfolio. The Company delivers Niagen® as the sole active ingredient in its consumer product Tru Niagen®. The Company further develops and commercializes proprietary-based ingredient technologies and supplies these ingredients as raw materials to the manufacturers of consumer products. The Company also offers natural product fine chemicals, known as phytochemicals, and related research and development services.
Note 2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the interim condensed consolidated financial statements include all adjustments (including normal recurring adjustments) necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. Results of operations for any interim period are not necessarily indicative of results for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K filed with the SEC.
Basis of Consolidation : The accompanying unaudited condensed financial statements and notes thereto 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.
Reclassifications: Certain prior period results have been reclassified to be consistent with the current period presentation.
Significant Accounting policies : There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2022, that have had a material impact on the Company’s condensed financial statements and related notes.
Recent Accounting Pronouncements: In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (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. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.
Note 3. Liquidity
Evaluation of Ability to Maintain Current Level of Operations
In connection with the preparation of these condensed consolidated financial statements for the three months ended March 31, 2022, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to meet its obligations as they became due over the next twelve months from the date of issuance of the Company’s first quarter of 2022 interim condensed consolidated financial statements. Management assessed that there were such conditions and events, including a history of recurring operating losses, negative cash flows from operating activities and the continued impact of the COVID-19 pandemic. The Company incurred a net loss of $ 7.7 million and used net cash in operating activities of $ 7.2 million for the three months ended March 31, 2022.
Management evaluated these conditions and anticipates that its current cash and cash equivalents of $ 21.0 million, including restricted cash of approximately $ 0.2 million, and cash to be generated from net sales 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 fund its projected operating plans after the next twelve months and/or to fund the Company’s longer-term strategic objectives.
The Company has an available line of credit up to $ 10.0 million, subject to certain terms and conditions, from Western Alliance Bank which had no outstanding borrowings as of March 31, 2022. In June 2020, the Company filed a $ 125 million registration statement on Form S-3 with the SEC, utilizing a “shelf” registration process. Under this shelf registration process, the Company may sell securities from time to time, including up to $ 50 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. (ATM Facility). As of March 31, 2022, approximately $ 47.8 million remains available under the ATM Facility.
Note 4. 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, 2022 and 2021:
Three Months Ended March 31,
(In thousands, except per share data) 2022 2021
Net loss $ ( 7,740 ) $ ( 7,381 )
Basic and diluted loss per common share $ ( 0.11 ) $ ( 0.12 )
Basic and diluted weighted average common shares outstanding (1): 68,314 64,164
Potentially dilutive securities (2):
Stock options 11,954 11,466
Restricted stock units 356 —
(1) Includes approximately 0.2 million nonvested shares of restricted stock for the three months ended March 31, 2022 and 2021 which are participating securities that feature voting and dividend rights.
(2) Excluded from the computation of loss per share as their impact is antidilutive.
Note 5. Business Segments
The Company has the following three reportable segments:
• 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; and,
• Analytical Reference Standards and Services segment: offers the supply of phytochemical reference standards and other research and development services.
The Company’s reportable segments are significant operating segments that offer differentiated services. This structure reflects the Company’s current operational and financial management and provides the best structure to maximize the Company's objectives and investment strategy, while maintaining financial discipline. The Company's Chief Executive Officer, who is its chief operating decision maker (CODM), reviews financial information for each operating segment to evaluate performance and allocate resources. The Company evaluates performance and allocates resources based on reviewing gross margin by reportable segment. The Company's CODM does not review assets by segment in his evaluation and therefore assets by segment are not disclosed below. There are no intersegment sales that require elimination. The “Corporate and other” classification includes corporate items not allocated by the Company to each reportable segment.
The following tables set forth financial information by segment:
Three months ended March 31, 2022 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total
(In thousands)
Net sales $ 14,937 $ 1,427 $ 895 $ — $ 17,259
Cost of sales 5,252 722 753 — 6,727
Gross profit 9,685 705 142 — 10,532
Operating expenses:
Sales and marketing 8,074 24 139 — 8,237
Research and development 1,002 76 — — 1,078
General and administrative — — — 8,949 8,949
Operating expenses 9,076 100 139 8,949 18,264
Operating income (loss) $ 609 $ 605 $ 3 $ ( 8,949 ) $ ( 7,732 )
Three months ended March 31, 2021 Consumer Products segment Ingredients segment Analytical Reference Standards and Services segment Corporate and other Total
(In thousands)
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 718 69 — — 787
General and administrative — — — 9,551 9,551
Operating expenses 6,829 79 137 9,551 16,596
Operating income (loss) $ 1,405 $ 673 $ 111 $ ( 9,551 ) $ ( 7,362 )
Disaggregation of Revenue
The Company disaggregates its revenue from contracts with customers by type of goods or services for each of its segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. Disaggregated revenues are as follows:
Three Months Ended March 31, 2022 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total
(In thousands)
Tru Niagen®, Consumer Product $ 14,937 $ — $ — $ 14,937
Niagen® Ingredient
— 1,131 — 1,131
Subtotal Niagen® Related $ 14,937 $ 1,131 $ — $ 16,068
Other Ingredients — 296 — 296
Reference Standards — — 883 883
Consulting and Other — — 12 12
Subtotal Other Goods and Services $ — $ 296 $ 895 $ 1,191
Total Net Sales $ 14,937 $ 1,427 $ 895 $ 17,259
Three Months Ended March 31, 2021 Consumer Products Segment Ingredients Segment Analytical Reference Standards and Services Segment Total
(In thousands)
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
Disclosure of Major Customers
Major customers are defined as customers whose sales or trade receivables individually consist of more than ten percent of total sales or total trade receivables, respectively. Percentage of net sales from major customers of the Company’s consumer products segment for the periods indicated were as follows:
Three Months Ended March 31,
Major Customers 2022 2021
A.S. Watson Group - Related Party 14.8 % 10.6 %
The percentage of the amounts due from major customers to total trade receivables, net for the periods indicated were as follows:
Major Customers At Mar 31, 2022 At Dec 31, 2021
A.S. Watson Group - Related Party 36.5 % 39.6 %
Persona
10.1 % 10.3 %
Life Extension * 22.1 %
Amazon Marketplaces 15.0 % *
* Represents less than 10%
Note 6. Related Party Transactions
The Company has two related parties, A.S. Watson Group and Horizon Ventures, through common ownership of an enterprise that beneficially owns more than 10% of the common stock of the Company. The sale of consumer products and corresponding trade receivables to related parties during the periods indicated are as follows:
Net Sales Trade Receivable as of
Three Months Ended March 31, March 31, December 31,
2022 2021 2022 2021
A.S. Watson Group - Related Party $ 2.6 million $ 1.6 million $ 2.3 million $ 2.1 million
Total $ 2.6 million $ 1.6 million $ 2.3 million $ 2.1 million
Note 7. Inventories
The Company's major classes of inventory and corresponding balances as of March 31, 2022 and December 31, 2021 are as follows:
(In thousands) Mar 31, 2022 Dec 31, 2021
Consumer Products - Finished Goods $ 7,383 $ 6,823
Consumer Products - Work in Process 4,323 4,131
Bulk ingredients 3,071 2,131
Reference standards 530 516
Total Inventory $ 15,307 $ 13,601
Note 8. Leases
The Company accounts for its leases in accordance with ASU No. 2016-02 (Topic 842) which requires that a lessee recognize the assets and liabilities that arise from operating leases. The ASU requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use (ROU) asset on the balance sheet. The Company leases office space facilities and a research and development laboratory under non-cancelable operating leases with varying expirations extending through fiscal year 2028. The lease agreements provide for renewal options and rent escalation over the lease term as well as require the Company to pay maintenance, insurance and property taxes. Lease expense is recognized on a straight-line basis over the term of the lease.
Operating Leases
As of March 31, 2022, the Company had right-of-use assets and corresponding operating lease liabilities of approximately $ 4.1 million and $ 4.6 million, respectively. For the three months ended March 31, 2022 and 2021, the components of operating lease expense are as follows:
Three Months Ended March 31,
(In thousands) 2022 2021
Operating leases
Operating lease expense $ 256 $ 154
Variable lease expense 40 40
Operating lease expense 296 194
Short-term lease rent expense 64 62
Total expense $ 360 $ 256
At March 31, 2022
Weighted-average remaining lease term (years), operating leases 5.0
Weighted-average discount rate, operating leases 5.8 %
Future minimum lease payments under operating leases as of March 31, 2022 are as follows:
Year (In thousands)
2022 (Remainder)
$ 620
2023 949
2024 1,159
2025 1,141
2026 906
2027 498
Thereafter 179
Total 5,452
Less present value discount ( 809 )
Present value of total operating lease liabilities 4,643
Less current portion ( 630 )
Long-term obligations under operating leases $ 4,013
Note 9. Share-Based Compensation
Equity Plans
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. The 2017 Plan provided for the issuance of shares 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 number of shares available to be issued under the 2017 Plan will be reduced by (i) one share for each share that relates to an option or stock appreciation right award and (ii) 1.5 shares for each share which relates to an award other than a stock option or stock appreciation right award (a full-value award). As of March 31, 2022, there were approximately 3.1 million remaining shares available for issuance under this plan. Options expire 10 years from the date of grant.
General Vesting Conditions
The Company’s stock options 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. Additionally, certain stock option awards are market or performance based and vest based on certain triggering events established by the Compensation Committee.
Stock Options
The fair value of the Company’s stock options that are not market based are estimated at the grant date using the Black-Scholes option pricing model. The Company used the following weighted average assumptions for options granted during the three months ended March 31, 2022:
Weighted Average: Three Months Ended March 31, 2022
Expected term 5.7 years
Expected volatility 76.5 %
Risk-free rate 1.9 %
Expected dividends — %
Service Period Based Stock Options
The following table summarizes activity of service period-based stock options during the three months ended March 31, 2022 :
Weighted Average
(In thousands except per-share data and remaining contractual term) Number of
Options Exercise
Price Remaining
Contractual
Term (Years) Aggregate
Intrinsic
Value
Outstanding at December 31, 2021 9,495 $ 4.65 6.5 $ 2,452
Options Granted 1,745 2.69
Options Exercised — — —
Options Forfeited ( 326 ) 4.83
Outstanding at March 31, 2022 10,914 $ 4.33 6.5 $ 95 *
Exercisable at March 31, 2022 7,261 $ 3.93 5.0 $ 95 *
*The aggregate intrinsic values in the table above are based on the Company’s stock price of $ 2.46 , which is the closing price of the Company’s stock on the last day of business for the period ended March 31, 2022.
Restricted Stock Units
The following table summarizes activity of restricted stock units during the three months ended March 31, 2022 :
(In thousands except per share fair value) Number of RSUs Weighted Average
Fair Value
Unvested shares at December 31, 2021 115 $ 10.21
Granted 272 2.66
Vested ( 23 ) 11.83
Forfeited ( 8 ) 11.83
Unvested shares at March 31, 2022 356 $ 4.28
Expected to vest at March 31, 2022 356 $ 4.28
Total Share-Based Compensation
Total share-based compensation expense was as follows:
Three Months Ended March 31,
(In thousands) 2022 2021
Share-based compensation expense
Cost of sales $ 57 $ 40
Sales and marketing 321 388
Research and development 225 138
General and administrative 1,285 718
Total $ 1,888 $ 1,284
In future periods, the Company expects to recognize approximately $ 10.1 million and $ 1.4 million in share-based compensation expense for unvested options and unvested restricted stock units, respectively, that were outstanding as of March 31, 2022. Future share-based compensation expense will be recognized over 2.1 and 2.5 weighted average years for unvested options and restricted stock units, respectively.
Note 10. Commitments and Contingencies
Legal proceedings
1. Elysium Health, LLC
(A) California Action
On December 29, 2016, ChromaDex 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 (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 filed a fifth amended complaint that added an individual, Mark Morris, as a defendant. Elysium and Morris (Defendants) moved to dismiss on December 21, 2018. The court denied Defendants’ motion on February 4, 2019. Defendants filed their answer to ChromaDex’s fifth amended complaint on February 19, 2019. ChromaDex 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 and Elysium (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 and Elysium, as amended (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, ChromaDex’s claims asserted in the California Action, among other allegations, were that (i) Elysium breached the Supply Agreement, dated June 26, 2014, by and between ChromaDex and Elysium (pTeroPure® Supply Agreement), by failing to make payments to ChromaDex for purchases of pTeroPure® and by improper disclosure of confidential ChromaDex information pursuant to the pTeroPure® Supply Agreement, (ii) Elysium breached the Niagen® Supply Agreement, by failing to make payments to ChromaDex for purchases of Niagen®, (iii) Defendants willfully and maliciously misappropriated ChromaDex 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 documents and information, (v) Morris breached his fiduciary duty to ChromaDex by lying to and competing with ChromaDex while still employed there, and (vi) Elysium aided and abetted Morris’s breach of fiduciary duty. ChromaDex sought 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’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.
Elysium’s claims alleged in the California Action were that (i) ChromaDex breached the Niagen® Supply Agreement by not issuing certain refunds or credits to Elysium, (ii) ChromaDex fraudulently induced Elysium into entering into the License Agreement, (iv) ChromaDex’s conduct constitutes misuse of its patent rights, and (v) ChromaDex was unjustly enriched by the royalties Elysium paid pursuant to the License Agreement. Elysium sought damages for ChromaDex’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 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 2019 coronavirus disease ("COVID-19" or "COVID") 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 filed a motion for sanctions or, in the alternative, reconsideration of the court’s January 16, 2020 order regarding summary judgment, in which ChromaDex moved to dismiss Elysium’s third, fourth, and fifth counterclaims. Elysium’s opposition brief was filed on March 22, 2021. ChromaDex 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.
The jury trial portion of the case commenced on September 21, 2021. The jury returned a verdict on September 27, 2021. The verdict found (i) Elysium liable for breaches of the Niagen® and pTeroPure® Supply Agreements for failing to pay for purchases of the ingredients totaling approximately $ 3.0 million, (ii) Mark Morris liable for breach of a confidentiality agreement, requiring him to disgorge approximately $ 17,307 , (iii) ChromaDex liable for breaching the Niagen® Supply Agreement for not issuing certain refunds or credits to Elysium in the amount of $ 625,000 , and (iv) ChromaDex liable for fraudulent inducement of the Licensing Agreement in the amount of $ 250,000 , along with $ 1,025,000 in punitive damages arising from the same counterclaim. On October 25, 2021, ChromaDex informed the court that it would request prejudgment interest on the approximately $ 3.0 million in damages awarded by the jury for Elysium’s breaches of the Niagen® and pTeroPure® Supply Agreements. Elysium’s opposition brief was filed on January 24, 2022, and ChromaDex, Inc.’s reply brief was filed on January 31, 2022. On February 10, 2022, the court denied ChromaDex Inc.’s motion for prejudgment interest.
On February 18, 2022, ChromaDex, Inc. and Elysium jointly filed a notice informing the court that ChromaDex, Inc. had filed in the U.S. District Court for the Southern District of New York (SDNY Court) a motion to enforce a settlement agreement between ChromaDex, Inc. and Elysium that ChromaDex, Inc. asserts would materially affect the California Action. On April 22, 2022, ChromaDex, Inc. and Elysium jointly filed a notice informing the court that the SDNY Court had granted ChromaDex, Inc.’s motion to enforce the settlement agreement. On April 29, 2022, ChromaDex, Inc. filed a notice informing the court that the SDNY Court had dismissed the SDNY action with prejudice pursuant to the settlement agreement.
(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 (Elysium SDNY Complaint). Elysium Health alleged in the Elysium SDNY Complaint that ChromaDex 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’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 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 filed its reply on November 9, 2017.
On October 26, 2017, ChromaDex filed a complaint in the United States District Court for the Southern District of New York against Elysium Health (ChromaDex SDNY Complaint). ChromaDex 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 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’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’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 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 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 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 filed an answer and objection to Elysium Health’s third amended counterclaims.
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. The Court vacated a previously scheduled joint pretrial order and trial date because of COVID-19, and the Court has informed the Parties that trial date will be rescheduled in November or December 2021.
Both parties filed dispositive and Daubert motions on June 4, 2021. Opposition papers were filed by both parties on June 25, 2021, and reply papers were filed on July 9, 2021. On January 10, 2022, both parties appeared for oral argument on the dispositive and Daubert motions.
On February 3, 2022, ChromaDex reached a settlement in order to resolve the SDNY action in its entirety as well as the claims tried to the jury in the Central District of California (the “Settlement Agreement”). Shortly thereafter, before the parties could notify the Court, the Court issued a ruling on the pending dispositive and Daubert motions, dismissing ChromaDex’s SDNY complaint in its entirety on the grounds that ChromaDex’s damages were uncertain, and dismissing some of Elysium’s claims. Elysium then asserted that a settlement had not been reached. ChromaDex thereafter filed a motion to enforce the Settlement Agreement in its entirety on February 16, 2022. Elysium’s opposition to that motion was filed on March 2, 2022, and ChromaDex’s reply was filed on March 9, 2022. On April 19, 2022, the Court concluded that a settlement had been reached and granted ChromaDex’s motion to enforce the Settlement Agreement. On April 28, 2022, pursuant to the Settlement Agreement, the Court dismissed the entire action with prejudice.
The Company is unable to predict the outcome of the Elysium SDNY Complaint or any possible appeals and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the legal proceeding discussed herein. As of March 31, 2022, ChromaDex did not accrue a potential loss for the Elysium SDNY Complaint because ChromaDex 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 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 infringes U.S. Patent Nos. 8,197,807 (‘807 Patent) and 8,383,086 (‘086 Patent) that comprise compositions containing isolated nicotinamide riboside held by Dartmouth and licensed exclusively to ChromaDex 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 filed an opposition brief on November 21, 2018 detailing the issues with Elysium’s motion to stay. In particular, ChromaDex 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 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’s prediction, ChromaDex 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 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’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 served infringement contentions. Elysium filed a Second Amended Answer on July 10, 2020.
On April 24, 2020, ChromaDex 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’s motion for leave to amend and moved to dismiss ChromaDex for alleged lack of standing. ChromaDex 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 for alleged lack of standing; and (ii) denying ChromaDex’s motion for leave to amend. ChromaDex filed a motion for reargument on December 29, 2020. Elysium filed a response to the motion for reargument on January 28, 2021. ChromaDex 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 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.
On September 21, 2021, the Court granted Elysium’s motion for summary judgment that the claims of the ‘807 and ‘086 patents are invalid based on patent-ineligible subject matter. ChromaDex filed a notice of appeal on November 2, 2021. ChromaDex’s opening brief was filed on February 2, 2022. Elysium’s response brief was filed on April 11, 2022. ChromaDex’s reply brief was filed on May 9, 2022. Oral argument has not yet been scheduled. If the appeal is unsuccessful or if on remand the Court dismisses ChromaDex’s claims for some other reason, that could reduce or eliminate any competitive advantage the Company may otherwise have had.
2. Thorne Research, Inc .
(A) Inter Partes Review Proceedings
On or around September 28, 2020, Thorne Research, Inc. (Thorne) provided notice to ChromaDex that it intended to terminate its March 25, 2019 Supply Agreement and subsequent amendments with ChromaDex, effective as of December 31, 2020. A discussion between ChromaDex 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.
On December 1, 2020, Thorne filed a petition for IPR of the ‘086 Patent. Dartmouth’s preliminary response to the petition was filed on March 15, 2021. On June 10, 2021, the Patent Trial and Appeal Board (PTAB) issued a decision instituting an IPR on the ‘086 Patent. On September 21, 2021, Dartmouth filed its Patent Owner Response. On December 21, 2021, Thorne filed its reply. Oral argument was held on March 15, 2022. A final written decision has not yet been rendered.
On February 1, 2021, Thorne filed a petition for IPR of the ‘807 Patent. Dartmouth’s preliminary response to the petition was filed on May 18, 2021. On August 12, 2021, the Patent Trial and Appeal Board (PTAB) issued a decision instituting an IPR on the ‘807 Patent. On November 9, 2021, Dartmouth filed its Patent Owner Response. On February 15, 2022, Thorne filed its reply. Oral argument will be held on May 17, 2022.
(B) Southern District of New York – Patent Infringement Action
On May 12, 2021, ChromaDex and Trustees of Dartmouth College filed a patent infringement complaint in the United States District Court for the Southern District of New York. The complaint alleges that certain of Thorne’s dietary supplements containing isolated NR infringe the ‘807 and ‘086 Patents, which claim compositions containing isolated nicotinamide riboside and are held by Dartmouth and licensed exclusively to ChromaDex On July 6, 2021, Thorne filed an answer and counterclaims to the complaint. The answer asserts various affirmative defenses and denies that Plaintiffs are entitled to any relief. The counterclaims seek declaratory judgment of patent invalidity for the ‘807 and ‘086 Patents. On July 8, 2021, the parties filed a proposed stipulation and order staying the matter pending issuance of the institution decision in the ‘807 Patent IPR. On July 9, 2021, the Court granted the stipulation and order to stay. On August 19, 2021, the parties filed a proposed stipulation and order staying the matter pending issuance of final written decisions in the IPRs. On August 20, 2021, the Court granted the stipulation and order to stay.
3. Erica Martinez
(A) California Action
On October 1, 2021, Erica Martinez, a former employee of ChromaDex, filed a complaint in the Orange County Superior Court alleging claims against ChromaDex for: (1) disability discrimination, (2) failure to accommodate a disability, (3) failure to engage in the interactive process, (4) retaliation for taking California Family Rights Act leave, and (5) failure to prevent discrimination and harassment. Martinez’s allegations are based primarily upon Martinez’s claim that her son was allegedly diagnosed with Autism Spectrum Disorder in or around July 17, 2019, and ChromaDex allegedly retaliated against, and ultimately terminated, her for taking time off to care for her son and attend his doctors’ appointments. ChromaDex has not been served with the Summons and Complaint. The parties have settled this matter and the request for dismissal, with prejudice, of Martinez’s claims was entered on January 25, 2022.
4. Lynda Power
(A) Florida Action
On April 18, 2022, Lynda Power, a citizen of the state of Florida, filed a complaint in the United States District Court for the Middle District of Florida, Orlando Division alleging claims against ChromaDex for (1) product liability (2) personal injury (3) strict liability and (4) negligence. Power's allegations are based primarily upon Power's claim that she suffered an adverse event after consuming the Company’s products. As of May 12, 2022, the Company has not been served with the Summons and Complaint. The Company believes these claims are without merit, will aggressively defend itself, and does not anticipate that the ultimate resolution of this matter will be material to the Company’s operations, financial condition or cash flows.
5. Other
(A) 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. As of March 31, 2022, the Company has recorded a return liability of approximately $ 0.5 million, which the Company offered to settle in good faith. On May 13, 2021, Rejuvenation filed a complaint in the Superior Court of the State of California, County of Orange, asserting causes of action for Concealment and Negligent Misrepresentation. On July 20, 2021, Rejuvenation filed an amended complaint adding a claim for Declaratory Relief. The Company filed a demurrer on September 3, 2021. On February 1, 2022, the Court sustained ChromaDex’s demurrer in its entirety with leave to amend as to the claims for Concealment and Negligent Misrepresentation, and without leave to amend as to the claim for Declaratory Relief. On February 16, 2022, Rejuvenation filed a Second Amended Complaint, asserting causes of action for Fraud and Negligent Misrepresentation. The Company believes these claims are without merit and will aggressively defend itself if a reasonable settlement cannot be reached. 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.
6. 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 for sublicense fees as a result of the Company entering into a 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 Federal Food, Drug, and Cosmetic 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 research and development 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.
Note 11. Subsequent Events
The Company has evaluated subsequent events through the filing date of this Form 10-Q with the SEC, to ensure that this filing includes all appropriate footnote disclosure of events both recognized in the financial statements as of March 31, 2022 , and events which occurred subsequently but were not recognized in the financial statements. There were no subsequent events which required recognition, adjustment to or disclosure in the financial statements.