Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2016 | Aug. 11, 2016 | |
Document And Entity Information [Abstract] | ||
Entity Registrant Name | ProPhase Labs, Inc. | |
Entity Central Index Key | 868,278 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 17,080,776 | |
Trading Symbol | PRPH | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,016 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Jun. 30, 2016 | Dec. 31, 2015 |
ASSETS | ||
Cash and cash equivalents (Note 2) | $ 1,149 | $ 1,664 |
Accounts receivable, net (Note 2) | 1,801 | 4,000 |
Inventory (Note 2) | 4,349 | 4,331 |
Prepaid expenses and other current assets (Note 2) | 1,181 | 1,884 |
Total current assets | 8,480 | 11,879 |
Property, plant and equipment, net of accumulated depreciation of $4,921 and $4,708, respectively (Note 2) | 3,064 | 2,950 |
Total assets | 11,544 | 14,829 |
LIABILITIES | ||
Secured promissory notes, net (Note 3) | 1,478 | |
Accounts payable | 1,372 | 990 |
Accrued advertising and other allowances (Note 2) | 1,887 | 2,508 |
Other current liabilities | 440 | 1,036 |
Total current liabilities | 5,177 | 4,534 |
Secured promissory notes, net (Note 3) | 1,466 | |
Total long term liabilities | 1,466 | |
COMMITMENTS AND CONTINGENCIES (Note 7) | ||
STOCKHOLDERS' EQUITY | ||
Preferred stock, authorized 1,000,000, $.0005 par value, no shares issued (Note 4) | ||
Common stock, $.0005 par value; authorized 50,000,000; issued: 26,313,593 shares (Note 4) | 13 | 13 |
Additional paid-in-capital | 56,378 | 56,377 |
Accumulated deficit | (19,282) | (16,819) |
Treasury stock, at cost, 9,232,817 shares | (30,742) | (30,742) |
Total stockholders' equity | 6,367 | 8,829 |
Total liabilities and stockholders' equity | $ 11,544 | $ 14,829 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2016 | Dec. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 4,921 | $ 4,708 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, par value | $ 0.0005 | $ 0.0005 |
Preferred stock, shares issued | ||
Common stock, par value | $ 0.0005 | $ 0.0005 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 26,313,593 | 26,313,593 |
Treasury stock, shares | 9,232,817 | 9,232,817 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Income Statement [Abstract] | ||||
Net sales (Note 2) | $ 2,847 | $ 2,191 | $ 8,217 | $ 8,051 |
Cost of sales (Note 2) | 1,721 | 1,184 | 4,152 | 3,382 |
Gross profit | 1,126 | 1,007 | 4,065 | 4,669 |
Operating expenses: | ||||
Sales and marketing | 769 | 710 | 3,367 | 3,522 |
Administration | 1,262 | 1,591 | 2,801 | 3,612 |
Research and development | 169 | 272 | 255 | 480 |
Total operating expense | 2,200 | 2,573 | 6,423 | 7,614 |
Loss from operations | (1,074) | (1,566) | (2,358) | (2,945) |
Interest expense, net | (53) | (105) | (1) | |
Loss before income tax | (1,127) | (1,566) | (2,463) | (2,946) |
Income tax (Note 4) | ||||
Net loss | $ (1,127) | $ (1,566) | $ (2,463) | $ (2,946) |
Basic and diluted loss per share: | ||||
Net loss | $ (0.06) | $ (0.10) | $ (0.14) | $ (0.18) |
Weighted average common shares outstanding: Basic and diluted | 17,081 | 16,020 | 17,081 | 15,956 |
Condensed Consolidated Stateme5
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 6 months ended Jun. 30, 2016 - USD ($) $ in Thousands | Common Stock Shares Outstanding Net of Shares of Treasury Stock [Member] | Additional Paid-in Capital [Member] | Accumulated Deficit [Member] | Treasury Stock [Member] | Total |
Balance at Dec. 31, 2015 | $ 13 | $ 56,377 | $ (16,819) | $ (30,742) | $ 8,829 |
Balance, shares at Dec. 31, 2015 | 17,080,776 | ||||
Net loss | (2,463) | (2,463) | |||
Share-based compensation expense (Note 4) | 1 | 1 | |||
Balance at Jun. 30, 2016 | $ 13 | $ 56,378 | $ (19,282) | $ (30,742) | $ 6,367 |
Balance, shares at Jun. 30, 2016 | 17,080,776 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2016 | Jun. 30, 2015 | |
Cash flows from operating activities: | ||
Net loss | $ (2,463) | $ (2,946) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 213 | 167 |
Amortization of loan origination and warrant expenses | 12 | |
Share-based compensation expense | 1 | 68 |
Gain on sale of equipment | (9) | |
Changes in operating assets and liabilities: | ||
Accounts receivable | 2,199 | 4,591 |
Inventory | (18) | (413) |
Accounts payable | 382 | (21) |
Accrued advertising and other allowances | (621) | (1,388) |
Other operating assets and liabilities, net | 107 | 681 |
Net cash (used in) provided by operating activities | (188) | 730 |
Cash flows from investing activities: | ||
Capital expenditures | (327) | (428) |
Proceeds from the sale of equipment | 9 | |
Net cash used in investing activities | (327) | (419) |
Cash flows from financing activities: | ||
Proceeds from issuance of common stock | 524 | |
Net cash provided by financing activities | 524 | |
Net (decrease) increase in cash and cash equivalents | (515) | 835 |
Cash and cash equivalents at beginning of period | 1,664 | 2,926 |
Cash and cash equivalents at end of period | 1,149 | 3,761 |
Supplemental disclosure of cash information | ||
Interest paid | $ 95 |
Organization and Business
Organization and Business | 6 Months Ended |
Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Business | Note 1 Organization and Business ProPhase Labs, Inc. (we, us or the Company) was initially organized in Nevada in July 1989. Effective June 18, 2015, we changed our state of incorporation from the State of Nevada to the State of Delaware. We are a manufacturer, marketer and distributor of a diversified range of homeopathic and health care products that are offered to the general public. We are also engaged in the research and development of potential over-the-counter (OTC) drug, natural base health products along with supplement, personal care and cosmeceutical products. Our primary business is the manufacture, distribution, marketing and sale of OTC health care and cold remedy products to consumers through national chain, regional, specialty and local retail stores. Our flagship brand is Cold-EEZE ® ® ® ® ® ® ® ® In Fiscal 2015, we introduced three new Cold-EEZE ® ® ® ® ® ® ® ® ® We also perform contract manufacturing services of lozenge-based products for third parties. For the three and six months ended June 30, 2016 and 2015, our revenues from operations have come principally from our OTC health care and cold remedy products. We use a December 31 year-end for financial reporting purposes. References herein to Fiscal 2016 shall mean the fiscal year ended December 31, 2016 and references to other Fiscal years shall mean the year, which ended on December 31 of the year indicated. The term we, us or the Company as used herein also refer, where appropriate, to the Company, together with its subsidiaries and consolidated variable interest entities unless the context otherwise requires. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
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, 2015. The results of operations for the three and six months ended June 30, 2016 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 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. For the three and six months ended June 30, 2016 and 2015, our net sales were principally related to domestic markets. 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 ® ® ® ® ® ® ® ® ® ® ®® ® Additionally, we monitor current developments by customer, market conditions and any other occurrences that could affect the expected provisions relative to net sales for the period presented. 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, 2016 and December 31, 2015, the financial statements include adjustments to reduce inventory for excess or obsolete inventory of $531,000 and $501,000, respectively. The components of inventory are as follows (in thousands): June 30, 2016 December 31, 2015 Raw materials $ 1,528 $ 1,303 Work in process 246 530 Finished goods 2,575 2,498 $ 4,349 $ 4,331 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 health care and cold remedy products are subject to regulations by various federal, state and local agencies, including the Food and Drug Administration (FDA) and, as applicable, the Homeopathic Pharmacopoeia of the United States. 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, 2016, our cash balance was $1.1 million and our bank balance was $1.1 million. Of the total bank balance, $396,000 was covered by federal depository insurance and $745,000 was uninsured at June 30, 2016. 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 offset our account receivable with an allowance for bad debt of $61,000 and zero, respectively, at June 30, 2016 and December 31, 2015. 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, accounts payable, accrued expenses and notes payable are reflected in the Condensed Consolidated Financial Statements at carrying value which approximates fair value. 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, 2016 and December 31, 2015, we included a provision for (i) sales allowances of $22,000 and $83,000, respectively, and an allowance for bad debt of $61,000 as of June 30, 2016, which each are reported as a reduction to account receivables. Additionally, accrued advertising and other allowances as of June 30, 2016 included (i) $1.4 million for estimated future sales returns and (ii) $393,000 for cooperative incentive promotion costs. As of December 31, 2015, accrued advertising and other allowances included (i) $1.4 million for estimated future sales returns and (ii) $786,000 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, 2016 and 2015 were $694,000 and $442,000, respectively. Advertising and incentive promotion expenses incurred for the six months ended June 30, 2016 and 2015 were $3.8 million and $3.6 million, respectively. Included in prepaid expenses and other current assets was $149,000 and $854,000 at June 30, 2016 and December 31, 2015, 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, 2016 and 2015, we charged to operations zero and $34,000, 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, 2016 and 2015, we charged to operations $1,000 and $68,000, respectively, for share-based compensation expense for the aggregate fair value of stock grants issued and vested stock options earned. 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, 2016 and 2015 were $169,000 and $272,000, respectively. Research and development costs for the six months ended June 30, 2016 and 2015 were $255,000 and $480,000, 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 Financial Accounting Standards Board (FASB) issued 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. As amended by ASU No. 2015-14 issued in August 2015, this ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. 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 August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. In July 2015, the FASB issued ASU No. 2015-11 Simplifying the Measurement of Inventory which 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. In February 2016, the FASB issued ASU No. 2016-02 Leases. The new standard will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting remains substantially similar to current guidance. The new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2018, which for us is the first quarter of fiscal 2019 and mandates a modified retrospective transition method. 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 April 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not already been issued. We are currently assessing the impact that this ASU will have on our consolidated financial position, results of operations and cash flows. |
Secured Promissory Notes and Ot
Secured Promissory Notes and Other Obligations | 6 Months Ended |
Jun. 30, 2016 | |
Debt Disclosure [Abstract] | |
Secured Promissory Notes and Other Obligations | Note 3 Secured Promissory Notes and Other Obligations Secured Promissory Notes On December 11, 2015, we executed two Subscription Agreements (the Subscription Agreements) with the investors named therein (the Investors) providing for the purchase of 12% Secured Promissory Notes Series A (Notes) in the aggregate principal amount of up to $3.0 million and warrants to purchase shares of our Common Stock (the Warrants). Notes in the amount of $1.5 million and 51,000 Warrants, at an exercise price of $1.35 per share, which was equal to the closing price of our Common Stock on the date of investment, were issued by the Company and its wholly-owned subsidiaries Pharmaloz Manufacturing, Inc. and Quigley Pharma, Inc. (collectively, the Obligors) and funded on December 11, 2015. We incurred loan origination costs of $22,000 which was recorded as a reduction of the Notes and the origination costs are charged to interest expense over the term of the loan. The Warrants have an exercise term equal to three years and are exercisable commencing on the date of issuance. The fair value of the Warrants at the date of grant was $14,000 which is recorded as a reduction of the Notes and is charged to interest expense over the term of the loan. At June 30, 2016, the $1.5 million Notes are reported net of $22,000 of the unamortized interest for the loan origination costs and unamortized interest for the Warrants. At June 30, 2016, other current liabilities include $7,000 for accrued interest under the terms of the Notes. The Notes are secured by substantially all of our tangible and intangible assets. The Notes bear interest at the rate of 12% per annum, payable semi-annually and the principal is due and payable on June 15, 2017. The Notes may be pre-paid at any time prior to maturity without penalty. The effective interest, inclusive of the Warrant and loan origination costs, is 14.3% per annum. For the six months ended June 30, 2016, we charged to interest expense $105,000 in connection with the Notes. In connection with the issuance of the Notes, we entered into a security agreement with John E. Ligums, Jr. (an Investor and a shareholder in the Company), as collateral agent for the Investors (the Security Agreement) to secure the timely payment and performance in full of the Obligors obligations pursuant to the Notes. Under the Security Agreement, the Obligors grant to the Collateral Agent, for the benefit of the Investors a lien upon and security interest in the property and assets listed as collateral in the Security Agreement, including without limitation, all of the Obligors personal property, inventory, equipment, general intangibles, cash and cash equivalents, and proceeds. Godfrey Settlement Agreement In November 2004, we commenced an action against John C. Godfrey, Nancy Jane Godfrey, and Godfrey Science and Design, Inc. (together the Godfreys) for injunctive relief regarding the ownership of the Cold-EEZE ® ® On December 20, 2012, we and the Godfreys, including the Estate of Nancy Jane Godfrey, entered into a Settlement Agreement and Mutual General Release (the Godfrey Settlement Agreement), pursuant to which we resolved all disputes, including claims asserted by us and counterclaims asserted against us in the action. At each of June 30, 2016 and December 31, 2015, other current liabilities include $100,000, inclusive of accrued interest at the annual rate of 3.25%, for final installment payment due in December 2016 pursuant to the terms of the Godfrey Settlement Agreement. |
Transactions Affecting Stockhol
Transactions Affecting Stockholders' Equity | 6 Months Ended |
Jun. 30, 2016 | |
Equity [Abstract] | |
Transactions Affecting Stockholders' Equity | Note 4 Transactions Affecting Stockholders Equity Our authorized capital stock consists of 50 million shares of Common Stock and 1 million shares of preferred stock, $.0005 par value (Preferred Stock). Preferred Stock On June 16, 2015, our shareholders approved the change our state of incorporation from the State of Nevada to the State of Delaware pursuant to a plan of conversion (Conversion Plan) and the filing of a certificate of incorporation in the State of Delaware. The Preferred Stock authorized under our certificate of incorporation may be issued from time to time in one or more series. As of June 30, 2016, no shares of Preferred Stock have been issued. Our board of directors has the full authority permitted by law to establish, without further stockholder approval, one or more series and the number of shares constituting each such series and to fix by resolution voting powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any. Subject to the limitation on the total number of shares of Preferred Stock that we have authority to issue under our certificate of incorporation, the board of directors is also authorized to increase or decrease the number of shares of any series, subsequent to the issue of that series, but not below the number of shares of such series then-outstanding. In case the number of shares of any series is so decreased, the shares constituting such decrease will resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. We may amend from time to time our certificate of incorporation and bylaws to increase the number of authorized shares of Preferred Stock or Common Stock or to make other changes or additions. Stockholder Rights Plan On September 8, 1998, our Board of Directors declared a dividend distribution of Common Stock Purchase Rights (each individually, a Right and collectively, the Rights) payable to the stockholders of record on September 25, 1998, thereby creating a Stockholder Rights Plan (the Rights Agreement). The Plan was subsequently amended effective each of (i) May 23, 2008, (ii) August 18, 2009 and (iii) June 18, 2014. The Rights Agreement, as amended and restated, provides that each Right entitles the stockholder of record to purchase from the Company that number of shares of Common Stock having a combined market value equal to two times the Rights exercise price of $45. The Rights are not exercisable until the distribution date, which will be the earlier of a public announcement that a person or group of affiliated or associated persons has acquired 15% or more of the outstanding shares of Common Stock, or the announcement of an intention by a similarly constituted party to make a tender or exchange offer resulting in the ownership of 15% or more of the outstanding shares of Common Stock (such person, the acquirer). The Rights Agreement allows for an exemption for Ted Karkus, the Companys Chairman and Chief Executive Officer, to acquire up to 20% of our Common Stock without our Board of Directors declaring a dividend distribution. The dividend has the effect of diluting the acquirer by giving our other stockholders a 50% discount on our Common Stocks current market value for exercising the Rights. In the event of a cashless exercise of the Right and the acquirer has acquired less than 50% beneficial ownership of the Company, a stockholder may exchange one Right for one share of Common Stock of the Company. The Rights Agreement, as amended, includes a provision pursuant to which our Board of Directors may exempt from the provisions of the Rights Agreement an offer for all outstanding shares of our Common Stock that the directors determine to be fair and not inadequate and to otherwise be in the best interests of the Company and its stockholders, after receiving advice from one or more investment banking firms. The expiration date of the Rights Agreement, as amended, is June 18, 2024. Equity Line of Credit On July 30, 2015, we entered into a new equity line of credit agreement (such arrangement, the 2015 Equity Line) with Dutchess Opportunity Fund II, LP (Dutchess). Pursuant to the 2015 Equity Line, Dutchess committed to purchase, subject to certain restrictions and conditions, up to 3,200,000 shares of our Common Stock, over a period of 36 months from the effectiveness of the registration statement registering the resale of shares purchased by Dutchess pursuant to the Investment Agreement. We may, at our discretion, draw on the 2015 Equity Line from time to time, as and when we determine appropriate in accordance with the terms and conditions of the 2015 Equity Line. The maximum number of shares that we are entitled to put to Dutchess in any one draw down notice shall not exceed 500,000 shares with a purchase price calculated in accordance with the 2015 Equity Line. We may deliver a notice for a subsequent put from time to time, following the one day pricing period for the prior put. The purchase price shall be set at ninety-five percent (95%) of the volume weighted average price (VWAP) of the Common Stock during the one trading day immediately following our put notice. We have the right to withdraw all or any portion of any put, except that portion of the put that has already been sold to a third party, including any portion of a put that is below the minimum acceptable price set forth on the put notice, before the closing. In the event Dutchess receives more than a five percent (5%) return on the net sales for a specific put, Dutchess must remit such excess proceeds to us; however, in the event Dutchess receives less than a five percent (5%) return on the net sales for a specific put, Dutchess will have the right to deduct from the proceeds of the put amount on the applicable closing date so Dutchesss return will equal five percent (5%). There are put restrictions applied on days between the draw down notice date and the closing date with respect to that particular put. During such time, we are entitled to deliver another draw down notice. In addition, Dutchess will not be obligated to purchase shares if Dutchess total number of shares beneficially held at that time would exceed 4.99% of the number of shares of Common Stock as determined in accordance with Rule 13d-1(j) of the Securities Exchange Act of 1934, as amended. In addition, we are not permitted to draw on the facility unless there is an effective registration statement to cover the resale of the shares. Pursuant to the terms of the 2015 Equity Line, we are obligated to file one or more registrations statements with the SEC to register the resale by Dutchess of the shares of Common Stock issued or issuable under the 2015 Equity Line. In addition, we are obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days after the registration statement is filed. On August 4, 2015, we filed a registration statement for the underlying shares of the 2015 Equity Line with the SEC and the registration statement was declared effective by the SEC on August 21, 2015. The sales of the shares under the 2015 Equity Line were deemed to be exempt from registration under the Securities Act of 1933, as amended in reliance upon Section 4(2) (or Regulation D promulgated thereunder). At June 30, 2016, we have 2,450,000 shares of our Common Stock available for sale, at our discretion, under the terms of the 2015 Equity Line and covered pursuant to a registration statement. During the three months ended June 30, 2015, we sold an aggregate of 438,480 shares of our Common Stock to Dutchess under and pursuant to a previous equity line of credit agreement (such arrangement, the 2014 Equity Line) with Dutchess and we derived net proceeds of $524,000. The sales of the shares under the 2014 Equity Line were deemed to be exempt from registration under the Securities Act of 1933, as amended in reliance upon Section 4(a)(2) (or Regulation D promulgated thereunder). The 2014 Equity Line was terminated by the Company in July 2015 (see 2015 Equity Line above). The 2010 Equity Compensation Plan On May 5, 2010, our stockholders approved the 2010 Equity Compensation Plan which was subsequently amended, restated and approved by stockholders on April 24, 2011, and further amended and approved by stockholders on May 6, 2013, and further amended and approved by stockholders on May 24, 2016 (the 2010 Plan). The 2010 Plan provides that the total number of shares of Common Stock that may be issued under the 2010 Plan is equal to 3.2 million shares, including 900,000 shares that are authorized for issuance but unissued under a 1997 incentive stock option plan and 700,000 shares added to the 2010 Plan effective May 24, 2016. No options were granted under the 2010 Plan for the six months ended June 30, 2016 or 2015. There were no stock options exercised for the six months ended June 30, 2016 or 2015. At June 30, 2016, there were 1,706,500 options outstanding under the 2010 Plan and 726,159 options available to be issued pursuant to the terms of the 2010 Plan. The 2010 Directors Equity Compensation Plan On May 5, 2010, our stockholders approved the 2010 Directors Equity Compensation Plan which was subsequently amended and approved by stockholders on May 6, 2013. A primary purpose of the 2010 Directors Equity Compensation Plan is to provide us with the ability to pay all or a portion of the fees of directors in restricted stock instead of cash. The 2010 Directors Equity Compensation Plan provides that the total number of shares of Common Stock that may be issued under the 2010 Directors Equity Compensation Plan is equal to 425,000. For the six months ended June 30, 2016 or 2015, no shares were granted to directors. At June 30, 2016, there were 147,808 shares of Common Stock that may be issued pursuant to the terms of the 2010 Directors Equity Compensation Plan. |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Note 5 Income Taxes As of December 31, 2015, we have net operating loss carry-forwards of approximately $44.5 million for federal purposes that will expire beginning in Fiscal 2020 through 2034. Additionally, there are net operating loss carry-forwards of $21.9 million for state purposes that will expire beginning in Fiscal 2020 through 2034. Until 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. As a consequence of the accumulated losses of the Company, we believe that this allowance is required due to the uncertainty of realizing these tax benefits in the future. |
Joint Venture
Joint Venture | 6 Months Ended |
Jun. 30, 2016 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Joint Venture | Note 6 Joint Venture 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 (Phusion), a Delaware limited liability company, entered into a Limited Liability Company Agreement (the LLC Agreement) of Phusion 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). TPM facilitates the delivery and depth of penetration of active molecules in pharmaceutical, nutraceutical, and other products. Pursuant to the LLC Agreement, we and PSI each own a 50% membership interest in the Phusion joint venture. Phusion qualifies as a variable interest entity and we have consolidated Phusion in our financial statements. In connection with the LLC Agreement, PSI Parent granted to us, pursuant to the terms of a License Agreement, dated March 22, 2010 (the Original License Agreement), (i) an exclusive, royalty-free, world-wide (subject to certain limitations), paid-up license to exploit OTC drugs and certain other products that embody certain of PSI Parents TPM-related patents and related know-how (collectively, the PSI Technology) and (ii) a non-exclusive, royalty-free, world-wide (subject to certain limitations), paid-up license to exploit certain compounds that embody the PSI Technology for use in a product combining one or more of such compounds with an OTC drug or in a product that is part of a regimen that includes the application of an OTC drug. On October 17, 2014, we initiated a demand for arbitration with the American Arbitration Association, case number 01-14-0001-7373. The Phosphagenics Entities (defined below) have made counter claims of breaches against the Company and Phusion (see Note 7). At June 30, 2016, cash and cash equivalents includes $366,000 which is available to be used by Phusion to fund future product development initiatives. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 7 Commitments and Contingencies PROPHASE LABS, INC. PROPHASE LABS, INC. FOR THE BENEFIT OF PHUSION LABORATORIES, LLC vs. Phosphagenics, Inc., Phosphagenics, LTD and Phusion Laboratories, LLC as a nominal defendant On October 17, 2014, we initiated a demand for arbitration with the American Arbitration Association, case number 01-14-0001-7373. This demand for arbitration pertains to our Phusion joint venture and the matter is against Phosphagenics, Inc. and Phosphagenics LTD (collectively known as the Phosphagenics Entities). We have raised certain claims based upon the Phosphagenics Entities alleged breach of a certain amended and restated license agreement for the exploitation of certain intellectual property and, separately, breach of the Phusion joint venture operating agreement as between the Company and the Phosphagenics Entities. The Phosphagenics Entities have made counter claims of breaches against the Company and Phusion. The arbitration hearing was held during December 2015 and January 2016 and the evidentiary hearing is now concluded. Each of the parties submitted to the arbitrator their post-hearing briefs on or before March 15, 2016. At this time while no prediction as to the outcome of this action can be made, we anticipate an arbitral ruling will likely be rendered in or about September 2016 and we do not expect a material adverse outcome. We have estimated future minimum obligations over the next five years, including the remainder of Fiscal 2016, as follows (in thousands): Fiscal Year Employment Contracts Godfrey Settlement Agreement Note Total 2016 512 100 - 612 2017 1,025 - 1,500 2,525 2018 512 - - 512 2019 - - - - 2020 - - - - Total $ 2,049 $ 100 $ 1,500 $ 3,649 |
Earnings (Loss) Per Share
Earnings (Loss) Per Share | 6 Months Ended |
Jun. 30, 2016 | |
Earnings Per Share [Abstract] | |
Earnings (Loss) Per Share | Note 8 Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income or loss attributable to common stockholders by the weighted-average number of shares of our Common Stock outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that shared in the earnings of the entity. Diluted earnings (loss) per share also utilize the treasury stock method which prescribes a theoretical buy-back of shares from the theoretical proceeds of all options and warrants outstanding during the period. Options and warrants outstanding to acquire shares of our Common Stock at June 30, 2016 and 2015 were 1,706,500 and 1,739,500, respectively. For the three and six months ended June 30, 2016 and 2015, dilutive earnings (loss) per share is the same as basic earnings per share due to (i) the inclusion of Common Stock, in the form of stock options and warrants (Common Stock Equivalents), would have an anti-dilutive effect on the loss per share or (ii) there were no Common Stock Equivalents for the respective period. For the three months ended June 30, 2016 and 2015, there were 276,165 and 274,594 Common Stock Equivalents, respectively, which were in the money, that were excluded from the earnings (loss) per share computation as a consequence of their anti-dilutive effect. For the six months ended June 30, 2016 and 2015, there were 244,112 and 314,342 Common Stock Equivalents, respectively, which were in the money, that were excluded from the earnings (loss) per share computation as a consequence of their anti-dilutive effect. A reconciliation of the applicable numerators and denominators of the income statement periods presented, as reflected in the results of continuing operations, is as follows (in thousands, except per share amounts): Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Loss Shares EPS Loss Shares EPS Loss Shares EPS Loss Shares EPS Basic loss per share $ (1,127 ) 17,081 $ (0.06 ) $ (1,566 ) 16,020 $ (0.10 ) $ (2,463 ) 17,081 $ (0.14 ) $ (2,946 ) 15,956 $ (0.18 ) Dilutives: Options - - - - - - - - - - - - Diluted loss per share $ (1,127 ) 17,081 $ (0.06 ) $ (1,566 ) 16,020 $ (0.10 ) $ (2,463 ) 17,081 $ (0.14 ) $ (2,946 ) 15,956 $ (0.18 ) |
Summary of Significant Accoun15
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | 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, 2015. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of operating results that may be achieved over the course of the full year. |
Seasonality of the Business | 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 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. For the three and six months ended June 30, 2016 and 2015, our net sales were principally related to domestic markets. |
Use of Estimates | 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 ® ® ® ® ® ® ® ® ® ® ®® ® Additionally, we monitor current developments by customer, market conditions and any other occurrences that could affect the expected provisions relative to net sales for the period presented. |
Cash Equivalents | 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 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, 2016 and December 31, 2015, the financial statements include adjustments to reduce inventory for excess or obsolete inventory of $531,000 and $501,000, respectively. The components of inventory are as follows (in thousands): June 30, 2016 December 31, 2015 Raw materials $ 1,528 $ 1,303 Work in process 246 530 Finished goods 2,575 2,498 $ 4,349 $ 4,331 |
Property, Plant and Equipment | 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 | 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 health care and cold remedy products are subject to regulations by various federal, state and local agencies, including the Food and Drug Administration (FDA) and, as applicable, the Homeopathic Pharmacopoeia of the United States. 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, 2016, our cash balance was $1.1 million and our bank balance was $1.1 million. Of the total bank balance, $396,000 was covered by federal depository insurance and $745,000 was uninsured at June 30, 2016. 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 offset our account receivable with an allowance for bad debt of $61,000 and zero, respectively, at June 30, 2016 and December 31, 2015. |
Long-lived Assets | 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 | Fair Value of Financial Instruments Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable are reflected in the Condensed Consolidated Financial Statements at carrying value which approximates fair value. |
Revenue Recognition | 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, 2016 and December 31, 2015, we included a provision for (i) sales allowances of $22,000 and $83,000, respectively, and an allowance for bad debt of $61,000 as of June 30, 2016, which each are reported as a reduction to account receivables. Additionally, accrued advertising and other allowances as of June 30, 2016 included (i) $1.4 million for estimated future sales returns and (ii) $393,000 for cooperative incentive promotion costs. As of December 31, 2015, accrued advertising and other allowances included (i) $1.4 million for estimated future sales returns and (ii) $786,000 for cooperative incentive promotion costs. |
Advertising and Incentive Promotions | 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, 2016 and 2015 were $694,000 and $442,000, respectively. Advertising and incentive promotion expenses incurred for the six months ended June 30, 2016 and 2015 were $3.8 million and $3.6 million, respectively. Included in prepaid expenses and other current assets was $149,000 and $854,000 at June 30, 2016 and December 31, 2015, respectively, relating to prepaid advertising and promotion expenses. |
Shipping and Handling | 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 | 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, 2016 and 2015, we charged to operations zero and $34,000, 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, 2016 and 2015, we charged to operations $1,000 and $68,000, respectively, for share-based compensation expense for the aggregate fair value of stock grants issued and vested stock options earned. |
Research and Development | 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, 2016 and 2015 were $169,000 and $272,000, respectively. Research and development costs for the six months ended June 30, 2016 and 2015 were $255,000 and $480,000, 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 | 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 | Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued 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. As amended by ASU No. 2015-14 issued in August 2015, this ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. 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 August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. In July 2015, the FASB issued ASU No. 2015-11 Simplifying the Measurement of Inventory which 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. In February 2016, the FASB issued ASU No. 2016-02 Leases. The new standard will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting remains substantially similar to current guidance. The new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2018, which for us is the first quarter of fiscal 2019 and mandates a modified retrospective transition method. 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 April 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for financial statements that have not already been issued. We are currently assessing the impact that this ASU will have on our consolidated financial position, results of operations and cash flows. |
Summary of Significant Accoun16
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Components of Inventory | The components of inventory are as follows (in thousands): June 30, 2016 December 31, 2015 Raw materials $ 1,528 $ 1,303 Work in process 246 530 Finished goods 2,575 2,498 $ 4,349 $ 4,331 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Estimated Future Minimum Obligations | We have estimated future minimum obligations over the next five years, including the remainder of Fiscal 2016, as follows (in thousands): Fiscal Year Employment Contracts Godfrey Settlement Agreement Note Total 2016 512 100 - 612 2017 1,025 - 1,500 2,525 2018 512 - - 512 2019 - - - - 2020 - - - - Total $ 2,049 $ 100 $ 1,500 $ 3,649 |
Earnings (Loss) Per Share (Tabl
Earnings (Loss) Per Share (Tables) | 6 Months Ended |
Jun. 30, 2016 | |
Earnings Per Share [Abstract] | |
Schedule of Reconciliation of Applicable Numerators and Denominators of Income Statement Periods | A reconciliation of the applicable numerators and denominators of the income statement periods presented, as reflected in the results of continuing operations, is as follows (in thousands, except per share amounts): Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Loss Shares EPS Loss Shares EPS Loss Shares EPS Loss Shares EPS Basic loss per share $ (1,127 ) 17,081 $ (0.06 ) $ (1,566 ) 16,020 $ (0.10 ) $ (2,463 ) 17,081 $ (0.14 ) $ (2,946 ) 15,956 $ (0.18 ) Dilutives: Options - - - - - - - - - - - - Diluted loss per share $ (1,127 ) 17,081 $ (0.06 ) $ (1,566 ) 16,020 $ (0.10 ) $ (2,463 ) 17,081 $ (0.14 ) $ (2,946 ) 15,956 $ (0.18 ) |
Summary of Significant Accoun19
Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | Dec. 31, 2015 | |
Adjustments to reduce inventory for excess or obsolete inventory | $ 531 | $ 531 | $ 501 | ||
Cash balance | 1,100 | 1,100 | |||
Bank balance | 1,100 | 1,100 | |||
Amount of bank balance covered by federal depository insurance | 396 | 396 | |||
Amount of bank balance uninsured | 745 | 745 | |||
Allowance for bad debt | 61 | 61 | 0 | ||
Provision for sales allowances | 22 | 83 | |||
Advertising and incentive promotion expenses | 694 | $ 442 | 3,800 | $ 3,600 | |
Prepaid expenses and other current assets | $ 149 | $ 149 | $ 854 | ||
Common stock, par value | $ 0.0005 | $ 0.0005 | $ 0.0005 | ||
Share-based compensation expense | $ 0 | 34 | $ 1 | 68 | |
Research and development | 169 | $ 272 | 255 | $ 480 | |
Estimated Future Sales Return [Member] | |||||
Accrued liabilities | 1,400 | 1,400 | $ 1,400 | ||
Cooperative Incentive [Member] | |||||
Accrued liabilities | $ 393 | $ 393 | $ 786 | ||
Building And Improvements [Member] | Minimum [Member] | |||||
Property, plant and equipment estimated asset lives | 10 years | ||||
Building And Improvements [Member] | Maximum [Member] | |||||
Property, plant and equipment estimated asset lives | 39 years | ||||
Machinery And Equipment [Member] | Minimum [Member] | |||||
Property, plant and equipment estimated asset lives | 3 years | ||||
Machinery And Equipment [Member] | Maximum [Member] | |||||
Property, plant and equipment estimated asset lives | 7 years | ||||
Computer Equipment and Software [Member] | |||||
Property, plant and equipment estimated asset lives | 3 years | ||||
Furniture and Fixtures [Member] | |||||
Property, plant and equipment estimated asset lives | 5 years |
Summary of Significant Accoun20
Summary of Significant Accounting Policies - Components of Inventory (Details) - USD ($) $ in Thousands | Jun. 30, 2016 | Dec. 31, 2015 |
Accounting Policies [Abstract] | ||
Raw materials | $ 1,528 | $ 1,303 |
Work in process | 246 | 530 |
Finished goods | 2,575 | 2,498 |
Total inventory | $ 4,349 | $ 4,331 |
Secured Promissory Notes and 21
Secured Promissory Notes and Other Obligations (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | Dec. 11, 2015 | Dec. 20, 2012 | Jun. 30, 2016 | Dec. 31, 2015 |
Class of warrants issued during period | 51,000 | |||
Warrants exercise price per share | $ 1.35 | |||
Incurred loan origination costs | $ 22 | $ 1,500 | ||
Fair value of warrants | $ 14 | |||
Unamortized interest for the loan origination costs | 22 | |||
Accrued interest | 7 | |||
Notes bear interest at rate per annum | 12.00% | |||
Debt instruments maturity date | Jun. 15, 2017 | |||
Percentage of warrant and loan origination costs | 14.30% | |||
Interest expense | 105 | |||
Godfrey Settlement Agreement [Member] | ||||
Accrued interest | $ 100 | $ 100 | ||
Notes bear interest at rate per annum | 3.25% | |||
Debt instruments maturity date | Dec. 31, 2016 | |||
Secured Promissory Notes [Member] | ||||
Percentage of providing for purchase of secured promissory notes | 12.00% | |||
Debt instruments principal amount, maximum limit | $ 3,000 | |||
Proceeds from notes payable | $ 1,500 |
Transactions Affecting Stockh22
Transactions Affecting Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||||
Jul. 30, 2015 | Jun. 30, 2015 | Jun. 30, 2016 | May 24, 2016 | Dec. 31, 2015 | Dec. 11, 2015 | May 05, 2010 | Mar. 22, 2010 | |
Common stock, shares authorized | 50,000,000 | 50,000,000 | ||||||
Preferred stock, shares authorized | 1,000,000 | 1,000,000 | ||||||
Preferred stock, par value | $ 0.0005 | $ 0.0005 | ||||||
Common stock rights exercise price | $ 1.35 | |||||||
Equity method investment ownership percentage | 50.00% | 50.00% | ||||||
Common stock, shares issued | 26,313,593 | 26,313,593 | ||||||
Options outstanding - shares | 1,713,000 | |||||||
Available for grant, shares | 20,000 | |||||||
2015 Equity Line of Credit [Member] | Dutchess [Member] | ||||||||
Stock issued during period shares | 3,200,000 | |||||||
Maximum number of shares of draw down notice | 500,000 | |||||||
Derivative transaction, conditions description | The purchase price shall be set at ninety-five percent (95%) of the volume weighted average price (VWAP) of the Common Stock during the one trading day immediately following our put notice. We have the right to withdraw all or any portion of any put, except that portion of the put that has already been sold to a third party, including any portion of a put that is below the minimum acceptable price set forth on the put notice, before the closing. In the event Dutchess receives more than a five percent (5%) return on the net sales for a specific put, Dutchess must remit such excess proceeds to us; however, in the event Dutchess receives less than a five percent (5%) return on the net sales for a specific put, Dutchess will have the right to deduct from the proceeds of the put amount on the applicable closing date so Dutchesss return will equal five percent (5%). | |||||||
Number of shares beneficially held maximum percentage | 4.99% | |||||||
Common stock, shares issued | 2,450,000 | |||||||
Chairman and Chief Executive Officer [Member] | Rights Agreement [Member] | ||||||||
Equity method investment ownership percentage required for rights exercisable under right agreement | 20.00% | |||||||
Dutchess Opportunity Fund II, LP [Member] | ||||||||
Aggregate sold shares of our common stock | 438,480 | |||||||
Net proceeds | $ 524,000 | |||||||
Stockholder Rights Plan [Member] | ||||||||
Common stock rights exercise price | $ 45 | |||||||
Equity method investment ownership percentage required for rights exercisable under right agreement | 15.00% | |||||||
Percentage of discount on exercise of right | 50.00% | |||||||
Rights agreement expiration date | Jun. 18, 2024 | |||||||
2010 Equity Compensation Plan [Member] | ||||||||
Options outstanding - shares | 1,706,500 | |||||||
Plan provides total number of shares of common stock issued | 700,000 | 3,200,000 | ||||||
Available for grant, shares | 726,159 | |||||||
Number of option granted | ||||||||
Number of option exercised | ||||||||
1997 Equity Compensation Plan [Member] | ||||||||
Plan provides total number of shares of common stock issued | 900,000 | |||||||
2010 Directors' Equity Compensation Plan [Member] | ||||||||
Plan provides total number of shares of common stock issued | 425,000 | |||||||
Available for grant, shares | 147,808 |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2016 | Dec. 31, 2015 | |
Net operating loss carry-forwards | $ 44,500 | |
Additional net operating loss carry-forwards | $ 21,900 | |
Domestic Tax Authority [Member] | ||
Operating loss carry forwards expiration dates description | Expire beginning in Fiscal 2020 through 2034. | |
State and Local Jurisdiction [Member] | ||
Operating loss carry forwards expiration dates description | Expire beginning in Fiscal 2020 through 2034 |
Joint Venture (Details Narrativ
Joint Venture (Details Narrative) - USD ($) $ in Thousands | Jun. 30, 2016 | Dec. 31, 2015 | Jun. 30, 2015 | Dec. 31, 2014 | Mar. 22, 2010 |
Schedule of Investments [Line Items] | |||||
Equity ownership interest | 50.00% | 50.00% | |||
Cash and cash equivalents | $ 1,149 | $ 1,664 | $ 3,761 | $ 2,926 | |
Future Product Development [Member] | |||||
Schedule of Investments [Line Items] | |||||
Cash and cash equivalents | $ 366 |
Commitments and Contingencies -
Commitments and Contingencies - Schedule of Estimated Future Minimum Obligations (Details) $ in Thousands | Jun. 30, 2016USD ($) |
2,016 | $ 612 |
2,017 | 2,525 |
2,018 | 512 |
2,019 | |
2,020 | |
Total | 3,649 |
Godfrey Settlement Agreement [Member] | |
2,016 | 100 |
2,017 | |
2,018 | |
2,019 | |
2,020 | |
Total | 100 |
Notes [Member] | |
2,016 | |
2,017 | 1,500 |
2,018 | |
2,019 | |
2,020 | |
Total | 1,500 |
Employment Contracts [Member] | |
2,016 | 512 |
2,017 | 1,025 |
2,018 | 512 |
2,019 | |
2,020 | |
Total | $ 2,049 |
Earnings (Loss) Per Share (Deta
Earnings (Loss) Per Share (Details Narrative) - shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Earnings Per Share [Abstract] | ||||
Options and warrants outstanding to acquire shares | 1,706,500 | 1,739,500 | ||
Anti diluted shares | 276,165 | 274,594 | 244,112 | 314,342 |
Earnings (Loss) Per Share - Sch
Earnings (Loss) Per Share - Schedule of Reconciliation of Applicable Numerators and Denominators of Income Statement Periods (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2016 | Jun. 30, 2015 | |
Earnings Per Share [Abstract] | ||||
Basic EPS - Income (Loss) | $ (1,127) | $ (1,566) | $ (2,463) | $ (2,946) |
Basic EPS - Shares | 17,081 | 16,020 | 17,081 | 15,956 |
Basic EPS - EPS | $ (0.06) | $ (0.10) | $ (0.14) | $ (0.18) |
Options - Income (Loss) | ||||
Options - Shares | ||||
Options - EPS | ||||
Diluted EPS - Income (Loss) | $ (1,127) | $ (1,566) | $ (2,463) | $ (2,946) |
Diluted EPS - Shares | 17,081 | 16,020 | 17,081 | 15,956 |
Diluted EPS - EPS | $ (0.06) | $ (0.10) | $ (0.14) | $ (0.18) |