| Summary of Significant Accounting Policies | Note 2 Summary of Significant
Accounting Policies Basis of Presentation The unaudited condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial
statements and within the rules of the Securities and Exchange Commission (SEC) applicable to interim financial statements
and therefore do not include all disclosures that might normally be required for financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP). The accompanying unaudited condensed
consolidated financial statements have been prepared by management without audit and should be read in conjunction with our consolidated
financial statements, including the notes thereto, appearing in our Annual Report on Form 10-K for the year ended December 31,
2014. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position, consolidated
results of operations and consolidated cash flows, for the periods indicated, have been made. The results of operations for the
three and six months ended June 30, 2015 are not necessarily indicative of operating results that may be achieved over the course
of the full year. Seasonality of the Business Our net sales are
derived principally from our OTC heath care and cold remedy products. Currently, our sales are influenced by and subject to fluctuations
in the timing of purchase and the ultimate level of demand for our products which are a function of the timing, length and severity
of each cold season. Generally, a cold season is defined as the period of September to March when the incidence of the common cold
rises as a consequence of the change in weather and other factors. We generally experience in the first, third and fourth quarter
higher levels of net sales along with a corresponding increase in marketing and advertising expenditures designed to promote our
products during the cold season. Revenues and related marketing costs are generally at their lowest levels in the second quarter
when consumer demand generally declines. We track health and wellness trends and develop retail promotional strategies to align
our production scheduling, inventory management and marketing programs to optimize consumer purchases. Use of Estimates The preparation
of financial statements and the accompanying notes thereto, in conformity with GAAP, requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses during the respective reporting periods. Examples include
the provision for bad debt, sales returns and allowances, inventory obsolescence, useful lives of property and equipment and intangible
assets, impairment of property and equipment and intangible assets, income tax valuations and assumptions related to accrued advertising.
When providing for the appropriate sales returns, allowances, cash discounts and cooperative incentive promotion costs (Sales
Allowances), we apply a uniform and consistent method for making certain assumptions for estimating these provisions. These
estimates and assumptions are based on historical experience, current trends and other factors that management believes to be relevant
at the time the financial statements are prepared. Management reviews the accounting policies, assumptions, estimates and judgments
on a quarterly basis. Actual results could differ from those estimates. Our primary product,
Cold-EEZE ® ® ® ® ® ® ® ® ® Cash Equivalents We consider all
highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents
include cash on hand and monies invested in money market funds. The carrying amount approximates the fair market value due to the
short-term maturity of these investments. Inventory Valuation Inventory is valued
at the lower of cost, determined on a first-in, first-out basis (FIFO), or market. Inventory items are analyzed to determine cost
and the market value and appropriate valuation adjustments are established. At June 30, 2015 and December 31, 2014, the financial
statements include adjustments to reduce inventory for excess or obsolete inventory of $389,000 and $797,000, respectively. The
components of inventory are as follows (in thousands):
June 30, 2015 December 31, 2014
Raw materials $ 931 $ 798
Work in process 234 418
Finished goods 2,540 2,076
$ 3,705 $ 3,292 Property, Plant and Equipment Property, plant
and equipment are recorded at cost. We use the straight-line method in computing depreciation for financial reporting purposes.
Depreciation expense is computed in accordance with the following ranges of estimated asset lives: building and improvements -
ten to thirty-nine years; machinery and equipment - three to seven years; computer software - three years; and furniture and fixtures
five years. Concentration of Risks Future revenues,
costs, margins, and profits will continue to be influenced by our ability to maintain our manufacturing availability and capacity
together with our marketing and distribution capabilities and the regulatory requirements associated with the development of OTC
and other personal care products in order to compete on a national level and/or international level. Our business is
subject to federal and state laws and regulations adopted for the health and safety of users of our products. Our OTC heath care
and cold remedy Financial instruments
that potentially subject us to significant concentrations of credit risk consist principally of cash investments and trade accounts
receivable. We maintain cash
and cash equivalents with certain major financial institutions. As of June 30, 2015, our cash balance was $3.8 million and our
bank balance was $4.1 million. Of the total bank balance, $583,000 was covered by federal depository insurance and $3.5 million
was uninsured at June 30, 2015. Trade accounts receivable
potentially subject us to credit concentrations from time-to-time as a consequence of the timing, payment pattern and ultimate
purchase volumes or shipping schedules with our customers. We extend credit to our customers based upon an evaluation of the customers
financial condition and credit history and generally we do not require collateral. Our broad range of customers includes many large
national chain, regional, specialty and local retail stores. These credit concentrations may impact our overall exposure to credit
risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, regulatory or other
conditions that may impact the timing and collectability of amounts due to us. As a consequence of an evaluation of our customers
financial condition, payment patterns, balance due to us and other factors, we did not offset our account receivable with an allowance
for bad debt at June 30, 2015 and December 31, 2014. Our revenues are
principally generated from the sale of OTC heath care and cold remedy products which represented approximately 89% and 91% of total
revenues for the six months ended June 30, 2015 and 2014, respectively. A significant portion of our business is highly seasonal,
which causes major variations in operating results from quarter to quarter. The first, third and fourth quarters generally represent
the largest sales volume for the OTC health care and cold remedy products. For the three and six months ended June 30, 2015 and
2014, our net sales were principally related to domestic markets. Long-lived Assets We review our carrying
value of our long-lived assets with definite lives whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. When indicators of impairment exist, we determine whether the estimated undiscounted sum
of the future cash flows of such assets is less than their carrying amounts. If less, an impairment loss is recognized in the amount,
if any, by which the carrying amount of such assets exceeds their respective fair values. The determination of fair value is based
on quoted market prices in active markets, if available, or independent appraisals; sales price negotiations; or projected future
cash flows discounted at a rate determined by management to be commensurate with our business risk. The estimation of fair value
utilizing discounted forecasted cash flows includes significant judgments regarding assumptions of revenue, operating and marketing
costs; selling and administrative expenses; interest rates; property and equipment additions and retirements; industry competition;
and general economic and business conditions, among other factors. Fair value is based
on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In order to increase consistency and comparability in fair value measurements, a three-tier
fair value hierarchy prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs
such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore
requiring an entity to develop its own assumptions. Fair Value of Financial Instruments Cash and cash equivalents,
accounts receivable and accounts payable are reflected in the Condensed Consolidated Financial Statements at carrying value which
approximates fair value because of the short-term maturity of these instruments. Revenue Recognition Sales are recognized
at the time ownership is transferred to the customer. Revenue is reduced for trade promotions, estimated sales returns, cash discounts
and other allowances in the same period as the related sales are recorded. We make estimates of potential future product returns
and other allowances related to current period revenue. We analyze historical returns, current trends, and changes in customer
and consumer demand when evaluating the adequacy of the sales returns and other allowances. Our return policy
accommodates returns for (i) discontinued products, (ii) store closings and (iii) products that have reached or exceeded their
designated expiration date. We do not impose a period of time within which product may be returned. All requests for product returns
must be submitted to us for pre-approval. The main components of our returns policy are: (i) we will accept returns that are due
to damaged product that is un-saleable and such return request activity falls within an acceptable range, (ii) we will accept returns
for products that have reached or exceeded designated expiration dates and (iii) we will accept returns in the event that we discontinue
a product provided that the customer will have the right to return only such items that it purchased directly from us. We will
not accept return requests pertaining to customer inventory Overstocking or Resets. We will only accept
return requests for product in its intended package configuration. We reserve the right to terminate shipment of product to customers
who have made unauthorized deductions contrary to our return policy or pursue other methods of reimbursement. We compensate the
customer for authorized returns by means of a credit applied to amounts owed or to be owed and in the case of discontinued product
only, also by way of an exchange. We do not have any significant product exchange history. As of June 30, 2015
and December 31, 2014, we included a provision for sales allowances of $32,000 and $129,000, respectively, which are reported as
a reduction to sales and account receivables. Additionally, accrued advertising and other allowances as of June 30, 2015 included
(i) $1.5 million for estimated future sales returns and (ii) $730,000 for cooperative incentive promotion costs. As of December
31, 2014, accrued advertising and other allowances included (i) $1.5 million for estimated future sales returns and (ii) $2.1 million
for cooperative incentive promotion costs. Advertising and Incentive Promotions Advertising and
incentive promotion costs are expensed within the period in which they are utilized. Advertising and incentive promotion expense
is comprised of (i) media advertising, presented as part of sales and marketing expense, (ii) cooperative incentive promotions
and coupon program expenses, which are accounted for as part of net sales, and (iii) free product, which is accounted for as part
of cost of sales. Advertising and incentive promotion expenses incurred for the three months ended June 30, 2015 and 2014 were
$442,000 and $1.1 million, respectively. Advertising and incentive promotion expenses incurred for the six months ended June 30,
2015 and 2014 were $3.6 million and $4.5 million, respectively. Included in prepaid expenses and other current assets was $263,000
and $885,000 at June 30, 2015 and December 31, 2014, respectively, relating to prepaid advertising and promotion expenses. Shipping and Handling Product sales carry
shipping and handling charges to the purchaser, included as part of the invoiced price, which is classified as revenue. In all
cases, costs related to this revenue are recorded in cost of sales. Stock Based Compensation We recognize all
share-based payments to employees and directors, including grants of stock options, as compensation expense in the financial statements
based on their fair values. Fair values of stock options are determined through the use of the Black-Scholes option pricing model.
The compensation cost is recognized as an expense over the requisite service period of the award, which usually coincides with
the vesting period. Stock and stock
options for the purchase of our common stock, $0.0005 par value, (Common Stock) have been granted to both employees
and non-employees pursuant to the terms of certain agreements and stock option plans (see Note 3). Stock options are exercisable
during a period determined by us, but in no event later than ten years from the date granted. For the three months ended June 30,
2015 and 2014, we charged to operations $34,000 and $64,000, respectively, for share-based compensation expense for the aggregate
fair value of stock grants issued and vested stock options earned. For the six months ended June 30, 2015 and 2014, we charged
to operations $68,000 and $128,000, respectively, for share-based compensation expense for the aggregate fair value of stock grants
issued and vested stock options earned. Variable Interest Entity On March 22, 2010,
we, Phosphagenics Limited (PSI Parent), an Australian corporation, Phosphagenics Inc. (PSI), a Delaware
corporation and subsidiary of PSI Parent, and Phusion Laboratories, LLC (the Joint Venture), a Delaware limited liability
company, entered into a Limited Liability Company Agreement (the LLC Agreement) of the Joint Venture and additional
related agreements for the purpose of developing and commercializing, for worldwide distribution and sale, a wide range of non-prescription
remedies using PSI Parents proprietary patented TPM technology (TPM). The Joint Venture, of which we
own a 50% membership interest, qualifies as a variable interest entity (VIE), we are the current primary beneficiary
and we have consolidated the Joint Venture beginning with the quarter ended March 31, 2010 (see Note 6). Research and Development Research and development
costs are charged to operations in the period incurred. Research and development costs for the three months ended June 30, 2015
and 2014 were $272,000 and $273,000, respectively. Research and development costs for the six months ended June 30, 2015 and 2014
were $480,000 and $551,000, respectively. Research and development costs are principally related to new product development initiatives
and costs associated with our OTC health care and cold remedy products. Income Taxes We utilize the asset
and liability approach which requires the recognition of deferred tax assets and liabilities for the future tax consequences of
events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, we generally
consider all expected future events other than enactments of changes in the tax law or rates. Until we have sufficient taxable
income to offset the temporary timing differences attributable to operations and the tax deductions attributable to option, warrant
and stock activities are assured, a valuation allowance equaling the total deferred tax asset is being provided (see Note 4). We utilize a two-step
approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as
the largest amount which is more than fifty percent likely of being realized upon ultimate settlement. Any interest or penalties
related to income taxes will be recorded as interest or administrative expense, respectively. As a result of our
continuing tax losses, we have recorded a full valuation allowance against a net deferred tax asset. Additionally, we have not
recorded a liability for unrecognized tax benefits. Recently Issued Accounting Standards In May 2014, the
FASB issued new accounting guidance ASU No. 2014-09, Revenue from Contracts with Customers, on revenue recognition.
The new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires
additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue
and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect
adjustment approach to implement the standard. There is no option for early adoption. This ASU is effective for fiscal years and
interim periods within those years beginning after December 15, 2016. On July 9, 2015 the FASB agreed to delay the effective date
of ASU 2014-09 by one year. The new effective date for ASU 2014-09 is for the annual reporting period beginning after December
15, 2017 and for annual periods and interim periods thereafter. We are currently assessing the impact of this update, and believe
that its adoption will not have a material impact on our consolidated financial statements. In June 2014, the
FASB issued new accounting guidance ASU 2014-12, In August 2014,
the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern.
In February 2015,
the FASB issued guidance that changes the evaluation criteria for consolidation and related disclosure requirements. This guidance
introduces evaluation criteria specific to limited partnerships and other similar entities, as well as amends the criteria for
evaluating variable interest entities with which the reporting entity is involved and certain investment funds. The guidance will
become effective for us at the beginning of our first quarter of Fiscal 2017. We do not expect the adoption of this guidance will
have a material impact on our consolidated financial statements. In July 2015, the
FASB issued an accounting standards update that requires an entity to measure inventory balances at the lower of cost and net
realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the
retail inventory method. The amendments in this update are effective for the annual period ending after December 15, 2016, and
for annual periods and interim periods thereafter. We are currently assessing the impact of this update, and believe that its
adoption on January 1, 2017 will not have a material impact on our consolidated financial statements. |
