x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ProPhase Labs, Inc. |
(Exact name of registrant as specified in its charter) |
Nevada | 23-2577138 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
621 N.Shady Retreat Road, Doylestown, Pennsylvania | 18901 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Stock, $0.0005 par value per share | NasdaqGlobal Market | |
Common Share Purchase Rights | NasdaqGlobal Market |
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x |
Yes
¨ NoxCommon stock, $0.0005 par value per share: 16,660,324 | ||||
Common share purchase rights: | - |
Page | |||||
Part I | |||||
Item | 1. | Business | 3 | ||
1A. | Risk Factors | 9 | |||
1B. | Unresolved Staff Comments | 18 | |||
2. | Properties | 18 | |||
3. | Legal Proceedings | 18 | |||
4. | Mine Safety Disclosures | 19 | |||
Part II | |||||
5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 20 | |||
6. | Selected Financial Data | 23 | |||
7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |||
7A. | Quantitative and Qualitative Disclosures About Market Risk | 33 | |||
8. | Financial Statements and Supplementary Data | 34 | |||
9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 58 | |||
9A | Controls and Procedures | 58 | |||
9B. | Other Information | 58 | |||
Part III | |||||
10. | Directors, Executive Officers and Corporate Governance | 59 | |||
11. | Executive Compensation | 59 | |||
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 59 | |||
13. | Certain Relationships and Related Transactions and Director Independence | 59 | |||
14. | Principal Accountant Fees and Services | 59 | |||
Part IV | |||||
15. | Exhibits and Financial Statement Schedules | 60 | |||
Signatures | 63 |
Page Part I Item 1. Business 3 1A. Risk Factors 8 1B. Unresolved Staff Comments 17 2. Properties 17 3. Legal Proceedings 17 4. Mine Safety Disclosures 18 Part II 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19 6. Selected Financial Data 22 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 7A. Quantitative and Qualitative Disclosures About Market Risk 31 8. Financial Statements and Supplementary Data 32 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 57 9A Controls and Procedures 57 9B. Other Information 57 Part III 10. Directors, Executive Officers and Corporate Governance 58 11. Executive Compensation 58 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 58 13. Certain Relationships and Related Transactions and Director Independence 58 14. Principal Accountant Fees and Services 58 Part IV 15. Exhibits and Financial Statement Schedules 59 Signatures 62
· | The ability of our management to successfully implement our business plan and strategy; |
· | Our ability to fund our operations including the cost and availability of capital and credit; |
· | Our ability to compete effectively, including our ability to maintain and increase our markets and/or market share in the markets in which we do business; |
· | Our dependence on sales from our principal product, Cold-EEZEÒCold Remedy, and our ability to successfully develop and commercialize our new products; |
· | Changes in our retail and distribution customers strategic business plans including, but not limited to, (i) expansions, mergers, and/or consolidations, (ii) retail shelf space allocations for products within each outlet and in particular the cough/cold category in which we compete, (iii) changes in their private label assortment and (iv) product selections, distribution allocation, merchandising programs and retail pricing of our products as well as competitive products; |
· | The uncertain length and severity of the general financial and economic downturn, the timing and strength of an economic recovery, if any, and their impacts on our business including demand for our products; |
· | Our ability to protect our proprietary rights; |
· | Our continued ability to comply with regulations relating to our current products and any new products we develop, including our ability to effectively respond to changes in laws and regulations or the interpretation thereof including changing market rules and evolving federal, state and regional laws and regulations; |
· | Potential disruptions in our ability to manufacture our products or our access to raw materials; |
· | Seasonal fluctuations in demand for our products; |
· | Our ability to attract, retain and motivate our key employees; |
· | The ability of Phusion Laboratories, LLC, a 50% owned joint venture, to successfully implement its business plan and strategy to develop and commercialize one or more non-prescription remedies using certain patented and proprietary technology; and |
· | Other risks identified in this Report. |
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Item 1. | Business |
Recent Developments
Revenue Growth
We have implemented a business
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new product opportunities consistent with our company and brand image, and our standard of proven consumer benefit and efficacy.
Through our strategic initiatives our net sales increased 28.4% in Fiscal 2012 as compared to Fiscal 2011. This growth is incremental to the net sales growth of 20.3% achieved in Fiscal 2011 as compared to Fiscal 2010. We have increased our net sales an aggregate of 54.6% in Fiscal 2012 as compared to Fiscal 2010.
Settlement Benefit
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® trademark., The Godfreys subsequently asserted against us counterclaims and sought monetary damages and injunctive and declaratory relief relative to the Cold-EEZE®trademarkRemedy lozenges and other intellectual property.
On December 20, 2012, welozenge products in addition to performing operational tasks such as warehousing and the Godfreys, including the Estate of Nancy Jane Godfrey, entered intoshipping. Our PMI facility is located in Lebanon, Pennsylvania. Additionally, our PMI facility is a Settlement AgreementUnited States Food and Mutual General Release (the “Settlement Agreement”Drug Administration (“FDA”), pursuant registered facility that engages in contract manufacturing and distribution activities. PMI also produces and sells therapeutic lozenges to which we resolved all disputes, including claims asserted by usunaffiliated third party retail, wholesale and counterclaims asserted against us in the action. Pursuant to the terms of the Settlement Agreement, we paid the Godfreys $2.1 million in December 2012 and we agreed to make four additional annual payments of $100,000 due in December of each of the next four years. Each annual payment in the amount of $100,000 will accrue interest at the per annum rate of 3.25%. Under the Settlement Agreement, the Godfreys assigned, transferred and conveyed to us all of their right, title, and interest in U.S. Trademark Registration No. 1,838,542 for the trademark Cold-EEZE®, among other intellectual property associated with such trademark. As a result of the Settlement Agreement, we realized $1.0 million benefit due to the reduction of the previously recorded accrued royalties and commission obligation of $3.5 million.
distribution outlets.
During Fiscal 2012 and due
Expression of Interest
In a letter dated May 29, 2012, we received an expression of interest and a non-binding proposal to be acquired by Matrixx Initiatives, Inc. ("Matrixx"). Matrixx is the owner of the Zicam® brand of cold and allergy products and is a direct competitor to our Cold-EEZE®Cold Remedy product line. At a meeting of the board of directors held on June 28, 2012, our board of directors, after careful consideration and consultation with its advisors, unanimously voted to reject the Matrixx proposal.
On September 4, 2012, Matrixx purchased for $200,000 a three year option to acquire 1,453,427 shares of our Common Stock for $1.40 per share from Guy J. Quigley, our former Chairman and Chief Executive Officer. Matrixx also acquired from Mr. Quigley a voting proxy to vote the shares subject to the option.
In a letter to us dated September 6, 2012, Matrixx then repeated its non-binding proposal on the same terms as its May 29, 2012 letter to ProPhase. Matrixx repeated the identical non-binding proposal in a September 14, 2012 letter.
On October 9, 2012, we received a revised non-binding proposal, on essentially the same terms as Matrixx's earlier offer, except that in this latest proposal Matrixx raised the proposed price by $0.20 per share. In response, we again sought advice from its independent financial advisors. At a meeting held on October 24, 2012, our board of directors unanimously voted to reject this latest Matrixx proposal after careful consideration and consultation with its advisors.
On February 5, 2013, Matrixx informed us that it has withdrawn its unsolicited offer to acquire us.
Description of Business Operations
Cold-EEZEÒis one of our most popular OTC cold remedy products and its benefits are derived from its proprietary zinc gluconate formulation. The product’s effectiveness has been substantiated in two double-blind clinical studies proving that Cold-EEZEÒlozenges reduce the duration of the common cold by 42%. We acquired worldwide manufacturing and distribution rights to our lozenge formulation in 1992 and commenced national marketing in 1996. The demand for our OTC cold remedy products is seasonal, where the third and fourth quarters of each year generally have the largest sales volume.
Our business operations are concentrated on the development, manufacturing, marketing and distribution of our proprietary Cold-EEZEÒcold-remedy lozenge products and on the development of various product extensions. Our product line of OTC cold remedy products are reviewed regularly to identify new consumer opportunities and/or trends in flavor, convenience, packaging and delivery systems or forms to help improve market share for our products. Additionally, we are active in exploring new product technologies, applications, product line extensions and other new product opportunities consistent with our brand image and standard of proven consumer benefit and efficacy.
Manufacturing Facility
Our wholly owned subsidiary, Pharmaloz Manufacturing, Inc. (“PMI”), produces our Cold-EEZE® lozenges and other lozenge products in addition to performing operational tasks such as warehousing and shipping. Our PMI facility is located in Lebanon, Pennsylvania. Additionally, our PMI facility maintains a United States Food and Drug Administration (“FDA”) registered facility that engages in contract manufacturing and distribution activities. PMI also produces and sells therapeutic lozenges to unaffiliated third party wholesale and distribution outlets.
Joint Venture – Phusion Laboratories, LLC
On March 22, 2010, we, PSI Parent, PSI and the Joint Venture entered into 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 Parent’s proprietary patented TPM.
Fiscal 2015.
Pursuant to the terms of the Original License Agreement, we issued to PSI Parent 1,440,000 shares of our common stock, $0.005 par value (“Common Stock”) having an aggregate value of $2.6 million (such share, the “PSI Shares”) and made a one-time payment of $1.0 million.
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During Fiscal 2012 and due to multiple factors affecting our capital position, including the payment we made in December 2012 under the Settlement Agreement and some of the product market research performed, we expect to modify the Joint Venture’s product development plans to stagger and/or defer into future periods certain product development initiatives due to the pre-commercialization investments required. We expect to continue pre-commercialization research and product development initiatives during the latter half of Fiscal 2013. Furthermore, we do not expect that the Joint Venture will derive any meaningful revenues, if any, until its commercialization efforts are completed which is not expected to occur until at the earliest the latter half of Fiscal 2014 when we traditionally seek to launch new products.
yet been scheduled.
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Item 1A. | Risk Factors |
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The amount ofcapital. There can be no assurances that we will have access to the capital that may be neededrequired to complete product development initiatives will depend on many factors which may include but are not limited to (i) the cost involved in applying for and obtaining FDA, international regulatory or other technical approvals, (ii) whether we elect to establish partnering arrangements for development, sales, manufacturing and marketing of such products, (iii) the level of future sales of OTC cold remedy products, and expense levels for marketing efforts, (iv) whether we can establish and maintain strategic arrangements for development, sales, manufacturing and marketingfun these aspects of our products, and (v) whether anybusiness on favorable terms or all of the options for our Common Stock issued to employees of the Company are exercised and the timing and amount of these exercises.
at all.
Equity Line and covered pursuant to aregistration statement.
Our Equity Line is limited and may not be sufficient to meet our capital requirements.
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The Joint Venture is at its early stage of development where product and market research has been initiated and new product initiatives are being evaluated and prioritized for future development and commercialization. Prior to any new product being available for sale, substantial resources will have to be committed to commercialize a product which may include research, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval. The Joint Venture may disrupt our ongoing operations, divert management from day-to-day responsibilities and increase our expenses.
We face significant technological risks inherent in developing these products. The Joint Venture may be subject to delays and/or ultimately unable to successfully implement its business plan and strategy to develop and commercialize one or more non-prescription remedies using certain patented and proprietary TPMTM that exploit certain compounds that embody the TPMTM for use in a product combining one or more of such compounds with an OTC drug. The commercialization and ultimate product market acceptance is subject to, among other influences, consumer purchasing trends, demand for our OTC drug, health and wellness trends, regulatory factors, retail acceptance and overall economic and market conditions. As a consequence, we may suspend or abandon some or all of our proposed new products before they become commercially viable. Even if we develop and obtain approval of a new product, if we cannot successfully commercialize it in a timely manner, our business and financial condition may be materially adversely affected.
During Fiscal 2010 through 2012, there has been substantial volatility in financial markets due at least in part to the global economic environment. In addition, there has been substantial uncertainty in the capital markets and access to financing is uncertain. Moreover, customer spending habits may be adversely affected by the current economic environment and prevailing high unemployment rates in the United States. These conditions could have an adverse effect on our industry and business, including our access to funding sources, demand for our products and our customers’ ability to continue to purchase our products, which could have a material adverse effect on our financial condition, results of operations and cash flows.
To the extent that we do not generate sufficient cash from operations, we may need to issue equity or to incur indebtedness to finance our growth. Recent turmoil and volatility in the credit markets and the potential impact on the liquidity of major financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings, under either existing or newly created instruments in the public or private markets on terms that we believe to be reasonable, or at all.
The sales of our primary product fluctuates by season and from Cold Season to Cold Season
If we do not manage our working capital needs and inventory, our business and financial condition may be materially adversely affected.
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We may not be able to hire, train, motivate, retain and manage professional staff; transitions in management may affect our business
We continue to look for safe and reliable multiple-location sources for products and raw materials so that we can continue to obtain products and raw materials in the event of a disruption in our business relationship with any single manufacturer or supplier. While secondary sources have been identified for some of our manufacturing and raw materials needs, our
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Management believes that the Company is realizing the rewards for our efforts and clearly one of our competitors has taken notice. However, our board continues to believe that the timing is not right to sell the Company for a number of reasons. Nevertheless,
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NASDAQ granted the Company an extension to December 31, 2012 to regain compliance. At December 31, 2012, we reported stockholder’s equity of $11.5 million and we were deemed to be in compliance with NASDAQ Global Market Listing Rule 5450(b)(1)(A).
NASDAQ will continue to monitor our ongoing compliance with the stockholders’ equity requirement and, if at the time of its next periodic report the Company does not evidence compliance, we may be subject to delisting again.
If our Common Stock is delisted, it could reduce the price of our Common Stock and the levels of liquidity available to our stockholders. In addition, the delisting of our Common Stock could materially adversely affect our access to the capital markets, and any limitation on liquidity or reduction in the price of our Common Stock could materially adversely affect our ability to raise capital on terms acceptable to us or at all. Delisting from The NASDAQ Global Market could also result in other negative implications, including the potential loss of confidence by suppliers, customers and employees, the loss of institutional investor interest and fewer business development opportunities.
Common Stock
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Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
2012 | 2011 | |||||||||||||||
Quarter Ended | High | Low | High | Low | ||||||||||||
March 31, | $ | 1.22 | $ | 0.90 | $ | 1.64 | $ | 1.07 | ||||||||
June 30, | $ | 1.14 | $ | 0.65 | $ | 1.22 | $ | 0.79 | ||||||||
September 30, | $ | 1.44 | $ | 1.00 | $ | 1.00 | $ | 0.70 | ||||||||
December 31, | $ | 1.68 | $ | 1.24 | $ | 1.50 | $ | 0.75 |
2013 | 2012 | ||||||||||||
Quarter Ended | High | Low | High | Low | |||||||||
March 31, | $ | 2.25 | $ | 1.40 | $ | 1.22 | $ | 0.90 | |||||
June 30, | $ | 1.72 | $ | 1.42 | $ | 1.14 | $ | 0.65 | |||||
September 30, | $ | 2.25 | $ | 1.42 | $ | 1.44 | $ | 1.00 | |||||
December 31, | $ | 2.31 | $ | 1.52 | $ | 1.68 | $ | 1.24 |
Description | Number of Options | Exercise Price | Expiration Date | |||||||
Option Plan | 32,000 | $ | 8.11 | October 29, 2013 | ||||||
Option Plan | 40,500 | $ | 9.50 | October 26, 2014 | ||||||
Option Plan | 26,500 | $ | 13.80 | December 11, 2015 | ||||||
Option Plan | 429,415 | $ | 1.00 | December 14, 2017 | ||||||
Option Plan | 25,000 | $ | 1.08 | May 28, 2018 | ||||||
Option Plan | 5,000 | $ | 0.87 | November 5, 2018 | ||||||
Option Plan | 25,000 | $ | 1.17 | December 18, 2018 | ||||||
Option Plan | 3,750 | $ | 1.36 | December 20, 2019 | ||||||
Total | 587,165 |
Description | Number of Options | Exercise Price | Expiration Date | |||||
Option Plan | 40,500 | $ | 9.50 | October 26, 2014 | ||||
Option Plan | 26,500 | $ | 13.80 | December 11, 2015 | ||||
Option Plan | 590,000 | $ | 1.00 | December 14, 2017 | ||||
Option Plan | 25,000 | $ | 1.08 | May 28, 2018 | ||||
Option Plan | 10,000 | $ | 0.87 | November 5, 2018 | ||||
Option Plan | 50,000 | $ | 1.17 | December 18, 2018 | ||||
Option Plan | 7,500 | $ | 1.36 | December 20, 2019 | ||||
Option Plan | 3,750 | $ | 1.48 | April 9, 2020 | ||||
Total | 753,250 |
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Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options (A) | Weighted Average Exercise Price of Outstanding Options (B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) ( C ) | |||||||||
Equity Plans Approved by Security Holders(1,2,3) | 1,306,500 | $ | 1.72 | 17,764 |
Number of | Number of Securities | |||||||
Securities to be | Weighted | Remaining Available for | ||||||
Issued Upon | Average | Future Issuance Under Equity | ||||||
Exercise of | Exercise Price | Compensation Plans | ||||||
Outstanding | of Outstanding | (Excluding Securities | ||||||
Options | Options | Reflected in Column A) | ||||||
Plan Category | (A) | (B) | ( C ) | |||||
Equity Plans Approved by Security Holders(1,2,3) | 1,637,500 | $ | 1.60 | 438,294 |
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Item 6. | Selected Financial Data |
Year Ended December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
Statement of Income Data: | ||||||||||||||||||||
Net sales | $ | 22,406 | $ | 17,453 | $ | 14,502 | $ | 19,816 | $ | 20,507 | ||||||||||
Gross profit | $ | 14,253 | $ | 11,282 | $ | 8,830 | $ | 11,569 | $ | 11,413 | ||||||||||
Loss - continuing operations | $ | (1,091 | ) | $ | (2,710 | ) | $ | (3,501 | ) | $ | (3,842 | ) | $ | (6,409 | ) | |||||
Income from discontinued operations(1) | - | - | - | - | 875 | |||||||||||||||
Net loss | $ | (1,091 | ) | $ | (2,710 | ) | $ | (3,501 | ) | $ | (3,842 | ) | $ | (5,534 | ) | |||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||||||
Continuing operations | $ | (0.07 | ) | $ | (0.18 | ) | $ | (0.25 | ) | $ | (0.30 | ) | $ | (0.50 | ) | |||||
Discontinued operations | - | - | - | - | 0.07 | |||||||||||||||
Net loss | $ | (0.07 | ) | $ | (0.18 | ) | $ | (0.25 | ) | $ | (0.30 | ) | $ | (0.43 | ) | |||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic and diluted | 14,843 | 14,817 | 14,285 | 12,963 | 12,878 |
As of December 31, | ||||||||||||||||||||
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Working capital | $ | 5,809 | $ | 5,342 | $ | 7,521 | $ | 11,475 | $ | 14,071 | ||||||||||
Total assets | $ | 16,661 | $ | 19,079 | $ | 21,695 | $ | 21,330 | $ | 24,369 | ||||||||||
Othr long term obligations | $ | 300 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Stockholders’ equity | $ | 11,451 | $ | 11,226 | $ | 13,460 | $ | 14,059 | $ | 17,774 |
(1) On February 29, 2008, we sold Darius to InnerLight Holdings, Inc. The sale of this segment was treated as discontinued operations and the Fiscal 2008 period has been reclassified.
Year Ended December 31, | ||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||
Statement of Income Data: | ||||||||||||||||
Net sales | $ | 25,032 | $ | 22,406 | $ | 17,453 | $ | 14,502 | $ | 19,816 | ||||||
Gross profit | $ | 16,671 | $ | 14,252 | $ | 11,282 | $ | 8,830 | $ | 11,569 | ||||||
Income (loss) from operations | $ | 405 | $ | (1,091) | $ | (2,710) | $ | (3,501) | $ | (3,842) | ||||||
Net income (loss) | $ | 405 | $ | (1,091) | $ | (2,710) | $ | (3,501) | $ | (3,842) | ||||||
Basic income (loss) per share | $ | 0.03 | $ | (0.07) | $ | (0.18) | $ | (0.25) | $ | (0.30) | ||||||
Diluted income (loss) per share | $ | 0.03 | $ | (0.07) | $ | (0.18) | $ | (0.25) | $ | (0.30) | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 15,839 | 14,843 | 14,817 | 14,285 | 12,963 | |||||||||||
Diluted | 16,276 | 14,843 | 14,817 | 14,285 | 12,963 |
As of December 31, | ||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||
Balance Sheet Data: | ||||||||||||||||
Working capital | $ | 6,655 | $ | 5,809 | $ | 5,342 | $ | 7,521 | $ | 11,475 | ||||||
Total assets | $ | 17,420 | $ | 16,661 | $ | 19,079 | $ | 21,695 | $ | 21,330 | ||||||
Other long term obligations | $ | 200 | $ | 300 | $ | - | $ | - | $ | - | ||||||
Stockholders’ equity | $ | 12,596 | $ | 11,451 | $ | 11,226 | $ | 13,460 | $ | 14,059 |
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Our
Settlement Benefit
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® trademark., The Godfreys subsequently asserted against us counterclaims and sought monetary damages and injunctive and declaratory relief relative to the Cold-EEZE®trademark and other intellectual property.
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 “Settlement Agreement”), pursuant to which we resolved all disputes, including claims asserted by us and counterclaims asserted against us in the action. Pursuant to the terms of the Settlement Agreement, we paid the Godfreys $2.1 million in December 20122011 and we agreedhave returned to make four additional annual payments of $100,000 due in December of each of the next four years. Each annual payment in the amount of $100,000 will accrue interest at the per annum rate of 3.25%. Under the Settlement Agreement, the Godfreys assigned, transferred and conveyed to us all of their right, title, and interest in U.S. Trademark Registration No. 1,838,542 for the trademark Cold-EEZE®, among other intellectual property associated with such trademark. As a result of the Settlement Agreement, we realized $1.0 million benefit due to the reduction of the previously recorded accrued royalties and commission obligation of $3.5 million.
profitability.
During Fiscal 2012 and due
Expression of Interest
In a letter dated May 29, 2012, we received an expression of interest and a non-binding proposal to be acquired by Matrixx Initiatives, Inc. ("Matrixx"). Matrixx is the owner of the Zicam® brand of cold and allergy products and is a direct competitor to our Cold-EEZE®Cold Remedy product line. At a meeting of the board of directors held on June 28, 2012, our board of directors, after careful consideration and consultation with its advisors, unanimously voted to reject the Matrixx proposal.
On September 4, 2012, Matrixx purchased for $200,000 a three year option to acquire 1,453,427 shares of our Common Stock for $1.40 per share from Guy J. Quigley, our former Chairman and Chief Executive Officer. Matrixx also acquired from Mr. Quigley a voting proxy to vote the shares subject to the option.
In a letter to us dated September 6, 2012, Matrixx then repeated its non-binding proposal on the same terms as its May 29, 2012 letter to ProPhase. Matrixx repeated the identical non-binding proposal in a September 14, 2012 letter.
On October 9, 2012, we received a revised non-binding proposal, on essentially the same terms as Matrixx's earlier offer, except that in this latest proposal Matrixx raised the proposed price by $0.20 per share. In response, we again sought advice from its independent financial advisors. At a meeting held on October 24, 2012, our board of directors unanimously voted to reject this latest Matrixx proposal after careful consideration and consultation with its advisors.
On February 5, 2013, Matrixx informed us that it has withdrawn its unsolicited offer to acquire us.
or Fiscal 2015.
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products.
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Fiscal 2011 compared with Fiscal 2010
Net sales for Fiscal 2011 increased $3.0 million, or 20.3%, to $17.5 million as compared to $14.5 million for Fiscal 2010. The increase in net sales is principally due to (i) an increase in our retail customers’ purchases in the first and fourth quarter of Fiscal 2011, as compared to Fiscal 2010, in an effort by those retailers to maintain adequate shelf and warehouse stock during peak seasonal demand to meet an increase in consumer demand at retail of our OTC cold remedy products, (ii) sales of our Cold-EEZE®Oral Spray, a new product launched in August 2011 and (iii) an increase associated with our retail customers increasing the number, timing and value of our promotional and/or display programs as a consequence of, among other influences, (a) space availability, (b) allocation of more promotional space to the Cold-EEZE® brand and (c) a general increase in off-shelf, price promotion opportunities scheduled for the 2011-2012 Cold Season. In addition, our net sales of our contract manufacturing operations increased $262,000 in Fiscal 2011 to $856,000 as compared to $594,000 in Fiscal 2010 due to fluctuations in contract manufacturing orders from non-related third party entities to produce lozenge-based products.
Industry data suggests that the highest incidence of upper respiratory disorders for the 2010-2011 Cold Season occurred late in the fourth quarter of Fiscal 2010 and during the first quarter of Fiscal 2011, and such incidences were at significantly lower levels during the second, third and fourth quarters of Fiscal 2011 when compared to Fiscal 2010 and the 2009-2010 Cold Season. Although the 2010-2009 Cold Season incidence of upper respiratory is below the prior Cold Season level, we have increased our net sales through, among other factors, increased investments in our sales, marketing, advertising, consumer communication and promotion of our flagship brand, Cold-EEZE®.
Cost of sales increased $499,000 for Fiscal 2011 to $6.2 million as compared to $5.7 million for Fiscal 2010. The increase in cost of sales is principally due to (i) increased revenues from period to period, offset by (ii) an improvement in gross margin. We realized gross margins of 64.6% for Fiscal 2011 as compared to 60.9% in Fiscal 2010, an improvement of 3.7%.Our improved gross margin reflectsthe net effect of(i) an increase in the absorption rate of fixed production overhead costs as a percentage of revenues as a consequence of increased shipments to retailers, offset by (ii) an increase in raw ingredient and packaging costs. Gross margins are principally influenced by fluctuations in quarter-to-quarter and year-to-year production volume, fixed production costs and related overhead absorption, raw ingredient costs, inventory mark to market write-downs, if any, and the timing of shipments to customers which are factors of the seasonality of our sales activities and products.
Sales and marketing expense for Fiscal 2011 increased $2.3 million to $7.9 million as compared to $5.6 million for Fiscal 2010. The increase in sales and marketing expense for Fiscal 2011 as compared to Fiscal 2010 was principally due to (i) an increase in personnel expense due principally to an increase in head count, (ii) an increase in sales commission as a consequence of an increase in sales and (iii) an increase in advertising expenditures as we expanded the scope and timing of our media and product promotion advertising campaigns with the cold season from period to period as we continue to make significant, strategic marketing investments in an effort to build and grow the sales of our OTC cold remedy products.
General and administrative (“G&A”) expenses decreased $1.0 million for Fiscal 2011 to $5.0 million as compared to $6.0 million in Fiscal 2010. The decrease in G&A expense for Fiscal 2011 as compared to Fiscal 2010 was primarily due a decrease in personnel expenses, professional fees and other general expenses.
Research and development costs for Fiscal 2011 and 2010 were $1.1 million and $794,000, respectively. The increase of $294,000 in research and development costs for Fiscal 2011 as compared to Fiscal 2010 was principally due to an increase in personnel expenses and an increase in the scope, timing and amount of research and development activity from period to period. In February 2011, we introduced to the retail trade an offering of a new product, Cold-EEZE® Oral Spray, an oral delivery application of our proprietary cold remedy formula of zinc gluconate. The Cold-EEZE® Oral Spray cold remedy commenced production in June 2011 and began shipping to retailers in August 2011. Additionally, we continue to engage in other research and development activities that we determine are appropriate and we may increase our research and development activities in future periods as a consequence of the Joint Venture.
Interest and other income for Fiscal 2011 was $28,000 as compared to $53,000 for Fiscal 2010. The decrease of $25,000 for Fiscal 2011 as compared to Fiscal 2010 was principally the result of decreased bank balances and lower interest rates.
As noted above, we have net operating loss carry-forwards for both federal and certain states. As a consequence of these loss carryforwards and our loss realized during Fiscal 2011, we did not incur income tax expense for Fiscal 2011. For Fiscal 2010, we had a current tax benefit of $40,000 as a consequence of a carry back of an alternative minimum tax net operating loss to a prior period.
As a consequence of the effects of the above, the net loss for Fiscal 2011, was $2.7 million, or ($0.18) per share, as compared to a net loss of $3.5 million, or ($0.25) per share, for Fiscal 2010.
Stock and the exercise of stock options offset by, (iii) capital expenditures of $442,000 and (iv) the installment payment of $100,000 pursuant to the terms of the Settlement Agreement.
- 26 - | ||
- 27 - | ||
Year | Employment Contracts | Settlment Agreement | Total | |||||||||
2013 | $ | 1,025 | $ | 100 | $ | 1,125 | ||||||
2014 | 1,025 | 100 | 1,125 | |||||||||
2015 | 555 | 100 | 655 | |||||||||
2016 | - | 100 | 100 | |||||||||
2017 | - | - | - | |||||||||
Total | $ | 2,605 | $ | 400 | $ | 3,005 |
Employment | Settlement | |||||||||
Year | Contracts | Agreement | Total | |||||||
2014 | $ | 1,025 | $ | 100 | $ | 1,125 | ||||
2015 | 555 | 100 | 655 | |||||||
2016 | 100 | 100 | ||||||||
2017 | - | - | ||||||||
2018 | - | - | - | |||||||
Total | $ | 1,580 | $ | 300 | $ | 1,880 |
- 28 - | ||
- 29 - | ||
Amount | ||||
Return provision at December 31, 2011 | $ | 1,667 | ||
Net change in the return provision Fiscal 2012 | (375) | |||
Return provision at December 31, 2012 | 1,292 | |||
Net change in the return provision Fiscal 2013 | 227 | |||
Return provision at December 31, 2013 | $ | 1,519 |
Amount | ||||
Return provision at December 31, 2010 | $ | 1,546 | ||
Net change in the return provision Fiscal 2011 | 121 | |||
Return provision at December 31, 2011 | 1,667 | |||
Net change in the return provision Fiscal 2012 | (375 | ) | ||
Returnprovision at December 31, 2012 | $ | 1,292 |
For Fiscal 2012, 2011 and 2010, net sales of products with limited shelf-life and expiration dates were $4.3 million, $3.2 million and $2.0 million, respectively.
Fiscal 2012 received and processed during Fiscal 2013.
For Fiscal 2011, the return provision increased by $121,000. The increase in the return provision was principally due to (i) a charge of $1.5 million, including $408,000 for products with shelf-life expiration dates (obsolete returns), offset by (ii) net returns of $1.4 million associated principally with Fiscal 2011 and Fiscal 2010 received and processed during Fiscal 2011.
In November 2008, the SEC issued for comment a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). The proposed roadmap has since been superseded by an SEC work plan and no date is currently proposed that we could be required to prepare financial statements in accordance with IFRS. The SEC has targeted Fiscal 2013 to make a determination regarding the mandatory adoption of IFRS. We are currently assessing the impact that this potential change would have on our consolidated financial statements and we will continue to monitor the development of the potential implementation of IFRS.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Intangibles – Goodwill and Other Topics” (“ASU 2011-08”) which provides authoritative guidance on testing goodwill for impairment that will become effective beginning January 1, 2012, with earlier adoption permitted. The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under ASU 2011-08, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The adoption of ASU 2011-082013-02 did not have a material impact on our consolidated financial position, results of operations or cash flows.
- 30 - | ||
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
- | ||
Item 8. | Financial Statements and Supplementary Data |
- 32 - | ||
December 31, | ||||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
Cash and cash equivalents (Note 2) | $ | 572 | $ | 5,541 | ||||
Accounts receivable (Note 2) | 5,409 | 3,219 | ||||||
Inventory (Note 2) | 2,051 | 2,688 | ||||||
Prepaid expenses and other current assets (Note 2) | 2,687 | 1,747 | ||||||
Total current assets | 10,719 | 13,195 | ||||||
Property, plant and equipment, net of accumulated depreciation of $3,860 and $3,608, respectively (Note 3) | 2,365 | 2,307 | ||||||
Intangible asset, licensed technology (Note 8) | 3,577 | 3,577 | ||||||
$ | 16,661 | $ | 19,079 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
LIABILITIES | ||||||||
Accounts payable | $ | 1,296 | $ | 885 | ||||
Accrued advertising and other allowances (Note 2) | 2,760 | 2,959 | ||||||
Other current liabilities (Note 4) | 854 | 485 | ||||||
Accrued royalties and sales commissions (Note 5) | - | 3,524 | ||||||
Total current liabilities | 4,910 | 7,853 | ||||||
Other long term obligation (Note 5) | 300 | - | ||||||
Total long term liabilities | 300 | - | ||||||
COMMITMENTS AND CONTINGENCIES (Note 5) | - | - | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $.0005 par value; authorized 50,000,000; issued: 21,056,115 and 20,161,636 shares, respectively (Note 6) | 11 | 10 | ||||||
Additional paid-in-capital | 42,867 | 41,552 | ||||||
Accumulated deficit | (5,790 | ) | (4,699 | ) | ||||
Treasury stock, at cost, 5,336,053 and 5,336,053 shares, respectively (Note 6) | (25,637 | ) | (25,637 | ) | ||||
11,451 | 11,226 | |||||||
$ | 16,661 | $ | 19,079 |
December 31, | |||||||
2013 | 2012 | ||||||
ASSETS | |||||||
Cash and cash equivalents (Note 2) | $ | 1,638 | $ | 572 | |||
Accounts receivable, net (Note 2) | 5,319 | 5,409 | |||||
Inventory (Note 2) | 2,521 | 2,051 | |||||
Prepaid expenses and other current assets (Note 2) | 1,801 | 2,687 | |||||
Total current assets | 11,279 | 10,719 | |||||
Property, plant and equipment, net of accumulated depreciation of $4,064 and $3,860, respectively (Note 3) | 2,564 | 2,365 | |||||
Intangible asset, licensed technology (Note 8) | 3,577 | 3,577 | |||||
$ | 17,420 | $ | 16,661 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
LIABILITIES | |||||||
Accounts payable | $ | 1,011 | $ | 1,296 | |||
Accrued advertising and other allowances (Note 2) | 2,847 | 2,760 | |||||
Other current liabilities (Note 4) | 766 | 854 | |||||
Total current liabilities | 4,624 | 4,910 | |||||
Other long term obligation (Note 5) | 200 | 300 | |||||
Total long term liabilities | 200 | 300 | |||||
COMMITMENTS AND CONTINGENCIES (Note 5) | - | - | |||||
STOCKHOLDERS' EQUITY | |||||||
Common stock, $.0005 par value; authorized 50,000,000; issued: 21,437,059 and 21,056,115 shares, respectively (Note 6) | 11 | 11 | |||||
Additional paid-in-capital | 43,607 | 42,867 | |||||
Accumulated deficit | (5,385) | (5,790) | |||||
Treasury stock, at cost, 5,336,053 and 5,336,053 shares, respectively (Note 6) | (25,637) | (25,637) | |||||
12,596 | 11,451 | ||||||
$ | 17,420 | $ | 16,661 |
- 33 - | ||
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net sales (Notes 2 and 11) | $ | 22,406 | $ | 17,453 | $ | 14,502 | ||||||
Cost of sales (Note 2) | 8,154 | 6,171 | 5,672 | |||||||||
Gross profit | 14,252 | 11,282 | 8,830 | |||||||||
Operating expenses: | ||||||||||||
Sales and marketing | 8,946 | 7,904 | 5,576 | |||||||||
Administrative | 6,127 | 5,028 | 6,054 | |||||||||
Research and development (Note 2) | 1,301 | 1,088 | 794 | |||||||||
Settlement benefit (Note 5) | (1,024 | ) | - | - | ||||||||
Total operating expense | 15,350 | 14,020 | 12,424 | |||||||||
Loss from operations | (1,098 | ) | (2,738 | ) | (3,594 | ) | ||||||
Interest income | 7 | 28 | 53 | |||||||||
Loss from operations before taxes | (1,091 | ) | (2,710 | ) | (3,541 | ) | ||||||
Income tax (benefit) (Note 9) | - | - | (40 | ) | ||||||||
Net loss | $ | (1,091 | ) | $ | (2,710 | ) | $ | (3,501 | ) | |||
Basic and dilutive loss per share | $ | (0.07 | ) | $ | (0.18 | ) | $ | (0.25 | ) | |||
Weighted average common shares outstanding: | ||||||||||||
Basic and diluted | 14,843 | 14,817 | 14,285 |
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Net sales (Notes 2 and 11) | $ | 25,032 | $ | 22,406 | $ | 17,453 | ||||
Cost of sales (Note 2) | 8,361 | 8,154 | 6,171 | |||||||
Gross profit | 16,671 | 14,252 | 11,282 | |||||||
Operating expenses: | ||||||||||
Sales and marketing | 9,538 | 8,946 | 7,904 | |||||||
Administrative | 5,893 | 6,127 | 5,028 | |||||||
Research and development (Note 2) | 824 | 1,301 | 1,088 | |||||||
Settlement benefit (Note 5) | - | (1,024) | - | |||||||
Total operating expense | 16,255 | 15,350 | 14,020 | |||||||
Income (loss) from operations | 416 | (1,098) | (2,738) | |||||||
Interest income | 2 | 7 | 28 | |||||||
Interest expense | (13) | - | - | |||||||
Income (loss) from operations before taxes | 405 | (1,091) | (2,710) | |||||||
Income tax (benefit) (Note 9) | - | - | - | |||||||
Net income (loss) | $ | 405 | $ | (1,091) | $ | (2,710) | ||||
Basic income (loss) per share: | ||||||||||
Net income (loss) | $ | 0.03 | $ | (0.07) | $ | (0.18) | ||||
Diluted income (loss) per share: | ||||||||||
Net income (loss) | $ | 0.03 | $ | (0.07) | $ | (0.18) | ||||
Weighted average common shares outstanding: | ||||||||||
Basic | 15,839 | 14,843 | 14,817 | |||||||
Diluted | 16,276 | 14,843 | 14,817 |
- | ||
Additional | Retained | |||||||||||||||||||||||
Common Stock | Par | Paid-In | Earnings | Treasury | ||||||||||||||||||||
Shares | Value | Capital | (Deficit) | Stock | Total | |||||||||||||||||||
Balance at December 31, 2009 | 13,033,383 | $ | 9 | $ | 37,726 | $ | 1,512 | $ | (25,188 | ) | $ | 14,059 | ||||||||||||
Net loss | (3,501 | ) | (3,501 | ) | ||||||||||||||||||||
Proceeds from exercise of stock options | 130,500 | 133 | 133 | |||||||||||||||||||||
Common Stock Issued to Phosphangenics Limited pursuant to an Exclusive License Agreement (Note 8) | 1,440,000 | 1 | 2,576 | 2,577 | ||||||||||||||||||||
Common stock granted pursuant to an employment agreement | 36,111 | 60 | 60 | |||||||||||||||||||||
Common stock granted pursuant to a compensation agreement | 67,625 | 90 | 90 | |||||||||||||||||||||
Share-based compensation expense | 42 | 42 | ||||||||||||||||||||||
Tax benefits from exercise of stock options | 42 | 42 | ||||||||||||||||||||||
Tax benefit allowance | (42 | ) | (42 | ) | ||||||||||||||||||||
Balance at December 31, 2010 | 14,707,619 | 10 | 40,627 | (1,989 | ) | (25,188 | ) | 13,460 | ||||||||||||||||
Net loss | (2,710 | ) | (2,710 | ) | ||||||||||||||||||||
Share-based compensation expense | 131 | 131 | ||||||||||||||||||||||
Common stock granted pursuant to an employment agreement | 341,254 | 294 | 294 | |||||||||||||||||||||
Common stock granted pursuant to a compensation plan | 466,710 | 500 | 500 | |||||||||||||||||||||
Treasury stock purchase (Note 8) | (690,000 | ) | (449 | ) | (449 | ) | ||||||||||||||||||
Balance at December 31, 2011 | 14,825,583 | 10 | 41,552 | (4,699 | ) | (25,637 | ) | 11,226 | ||||||||||||||||
Net loss | (1,091 | ) | (1,091 | ) | ||||||||||||||||||||
Share-based compensation expense | 153 | 153 | ||||||||||||||||||||||
Common stock granted pursuant to an employment agreement | 10,757 | 93 | 93 | |||||||||||||||||||||
Common stock issued (Note 6) | 883,722 | 1 | 1,069 | 1,070 | ||||||||||||||||||||
Balance at December 31, 2012 | 15,720,062 | $ | 11 | $ | 42,867 | $ | (5,790 | ) | $ | (25,637 | ) | $ | 11,451 |
Additional | Retained | |||||||||||||||||
Common Stock | Par | Paid-In | Earnings | Treasury | ||||||||||||||
Shares | Value | Capital | (Deficit) | Stock | Total | |||||||||||||
Balance at December 31, 2010 | 14,707,619 | 10 | 40,627 | (1,989) | (25,188) | 13,460 | ||||||||||||
Net loss | (2,710) | (2,710) | ||||||||||||||||
Share-based compensation expense | 131 | 131 | ||||||||||||||||
Common stock granted pursuant to an employment agreement | 341,254 | 294 | 294 | |||||||||||||||
Common stock granted pursuant to a compensation plan | 466,710 | 500 | 500 | |||||||||||||||
Treasury stock purchase (Note 8) | (690,000) | (449) | (449) | |||||||||||||||
Balance at December 31, 2011 | 14,825,583 | 10 | 41,552 | (4,699) | (25,637) | 11,226 | ||||||||||||
Net loss | (1,091) | (1,091) | ||||||||||||||||
Share-based compensation expense | 153 | 153 | ||||||||||||||||
Common stock granted pursuant to an employment agreement | 10,757 | 93 | 93 | |||||||||||||||
Common stock issued (Note 6) | 883,722 | 1 | 1,069 | 1,070 | ||||||||||||||
Balance at December 31, 2012 | 15,720,062 | 11 | 42,867 | (5,790) | (25,637) | 11,451 | ||||||||||||
Net income | 405 | 405 | ||||||||||||||||
Proceeds from exercise of stock options | 25,000 | 27 | 27 | |||||||||||||||
Share-based compensation expense | 160 | 160 | ||||||||||||||||
Common stock granted pursuant to a compensation plan | 66,470 | 109 | 109 | |||||||||||||||
Common stock issued (Note 6) | 289,474 | - | 444 | 444 | ||||||||||||||
Balance at December 31, 2013 | 16,101,006 | $ | 11 | $ | 43,607 | $ | (5,385) | $ | (25,637) | $ | 12,596 |
- | ||
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (1,091 | ) | $ | (2,710 | ) | $ | (3,501 | ) | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 252 | 355 | 363 | |||||||||
Gain on the sale of fixed assets | - | (28 | ) | - | ||||||||
Reduction of payment obligation, settlement benefit | (1,024 | ) | - | - | ||||||||
Share-based compensation expense | 246 | 631 | 192 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (2,190 | ) | 1,602 | (1,222 | ) | |||||||
Inventory | 637 | (1,006 | ) | (277 | ) | |||||||
Prepaid expenses and other assets | (940 | ) | (864 | ) | (68 | ) | ||||||
Accounts payable | 411 | 396 | (219 | ) | ||||||||
Accrued advertising and other allowances | (199 | ) | (565 | ) | 1,384 | |||||||
Accrued royalties and commissions | (2,100 | ) | - | - | ||||||||
Other operating assets and liabilities, net | 269 | 81 | (201 | ) | ||||||||
Net cash used in operating activities | (5,729 | ) | (2,108 | ) | (3,549 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Capital expenditures | (310 | ) | (300 | ) | (153 | ) | ||||||
Acquisition of product license | - | - | (1,000 | ) | ||||||||
Proceeds from the sale of fixed assets | - | 166 | - | |||||||||
Net cash flows used in investing activities | (310 | ) | (134 | ) | (1,153 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from the exercise of stock options | - | - | 133 | |||||||||
Proceeds from issuance of common stock | 1,070 | - | - | |||||||||
Purchase of treasury stock | - | (449 | ) | - | ||||||||
Net cash provided by (used in) financing activities | 1,070 | (449 | ) | 133 | ||||||||
Net decrease in cash and cash equivalents | (4,969 | ) | (2,691 | ) | (4,569 | ) | ||||||
Cash and cash equivalents at beginning of year | 5,541 | 8,232 | 12,801 | |||||||||
Cash and cash equivalents at end of year | $ | 572 | $ | 5,541 | $ | 8,232 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||
Income taxes paid | $ | - | $ | - | $ | 34 | ||||||
Common stock issued to Phosphagenics Limited pursuant to a product license agreement | $ | - | $ | - | $ | 2,577 | ||||||
Common stock issued, in lieu of cash, as payment of accrued compensation | $ | - | $ | 294 | $ | - |
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | 405 | $ | (1,091) | $ | (2,710) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||
Depreciation and amortization | 243 | 252 | 355 | |||||||
Gain on the sale of fixed assets | - | - | (28) | |||||||
Reduction of payment obligation, settlement benefit | - | (1,024) | - | |||||||
Share-based compensation expense | 269 | 246 | 631 | |||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 90 | (2,190) | 1,602 | |||||||
Inventory | (470) | 637 | (1,006) | |||||||
Prepaid expenses and other assets | 886 | (940) | (864) | |||||||
Accounts payable | (285) | 411 | 396 | |||||||
Accrued advertising and other allowances | 87 | (199) | (565) | |||||||
Accrued royalties and commissions | - | (2,100) | - | |||||||
Other operating assets and liabilities, net | (88) | 269 | 81 | |||||||
Net cash provided by (used in) operating activities | 1,137 | (5,729) | (2,108) | |||||||
Cash flows from investing activities: | ||||||||||
Capital expenditures | (442) | (310) | (300) | |||||||
Proceeds from the sale of fixed assets | - | - | 166 | |||||||
Net cash flows used in investing activities | (442) | (310) | (134) | |||||||
Cash flows from financing activities: | ||||||||||
Proceeds from the exercise of stock options | 27 | - | - | |||||||
Proceeds from issuance of common stock | 444 | 1,070 | - | |||||||
Payment of long term obligation | (100) | - | - | |||||||
Purchase of treasury stock | - | - | (449) | |||||||
Net cash provided by (used in) financing activities | 371 | 1,070 | (449) | |||||||
Net increase (decrease) in cash and cash equivalents | 1,066 | (4,969) | (2,691) | |||||||
Cash and cash equivalents at beginning of year | 572 | 5,541 | 8,232 | |||||||
Cash and cash equivalents at end of year | $ | 1,638 | $ | 572 | $ | 5,541 | ||||
Supplemental disclosures of cash flow information: | ||||||||||
Income taxes paid | $ | - | $ | - | $ | - | ||||
Interest paid | $ | 13 | $ | - | $ | - | ||||
Common stock issued, in lieu of cash, as payment of accrued compensation | $ | - | $ | - | $ | 294 |
- | ||
For Fiscal 2013 and 2012, our net sales for each period were related to markets in the United States.
For Fiscal 2012, 2011 and 2010, we have incurred a net loss as a consequence of our strategic initiatives to preserving the Cold-EEZE® brand, then repositioning the Cold-EEZE®brand for growth and then leveraging the Cold-EEZE®brand. Our strategy required significant investments in product development, retail merchandising and consumer marketing and advertising. As a consequence of these investments, our revenues have increased an aggregate of 54.5% from Fiscal 2010 to Fiscal 2012. Additionally our working capital for Fiscal 2012 increased $467,000 to $5.8 million as compared to $5.3 million for Fiscal 2011. Management believes that cash generated from operations, along with its current cash balances, will be sufficient to finance working capital and capital expenditure requirements for at least the next twelve months. In addition, we successfully resolved various disputes with certain third parties (see Note 5).
- 37 - | ||
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- 38 - | ||
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- 39 - | ||
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs.
- 40 - | ||
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Variable Interest Entity
- 41 - | ||
In November 2008, the SEC issued for comment a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). The proposed roadmap has since been superseded by an SEC work plan and no date is currently proposed that we could be required to prepare financial statements in accordance with IFRS. The SEC has targeted Fiscal 2013 to make a determination regarding the mandatory adoption of IFRS. We are currently assessing the impact that this potential change would have on our consolidated financial statements and we will continue to monitor the development of the potential implementation of IFRS.
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, “Comprehensive Income (ASU Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”) which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, comprehensive income must be presented in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 was effective for fiscal periods beginning after December 15, 2011 with early adoption permitted. In December 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This accounting update stated that the specific requirement to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred. In February 2013, the FASB issued ASU 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This accounting update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period. ASU 2013-02 is effective prospectively for fiscal years beginning after December 15, 2012. We do not expect the adoption of the amended guidance to have a significant impact on our consolidated financial position, results of operations or cash flows.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Intangibles – Goodwill and Other Topics” (“ASU 2011-08”) which provides authoritative guidance on testing goodwill for impairment that will become effective beginning January 1, 2012, with earlier adoption permitted. The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under ASU 2011-08, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The adoption of ASU 2011-082013-02 did not have a material impact on our consolidated financial position, results of operations or cash flows.
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December 31, | ||||||||||
2012 | 2011 | Estimated Useful Life | ||||||||
Land | $ | 504 | $ | 504 | ||||||
Buildings and improvements | 2,597 | 2,494 | 15 - 39 years | |||||||
Machinery and equipment | 2,771 | 2,567 | 3 - 7 years | |||||||
Computer software | 164 | 161 | 3 years | |||||||
Furniture and fixtures | 189 | 189 | 5 years | |||||||
6,225 | 5,915 | |||||||||
Less: Accumulated depreciation | 3,860 | 3,608 | ||||||||
$ | 2,365 | $ | 2,307 |
December 31, | |||||||||
2013 | 2012 | Estimated Useful Life | |||||||
Land | $ | 504 | $ | 504 | |||||
Buildings and improvements | 2,852 | 2,597 | 10 - 39 years | ||||||
Machinery and equipment | 2,812 | 2,771 | 3 - 7 years | ||||||
Computer software | 271 | 164 | 3 years | ||||||
Furniture and fixtures | 189 | 189 | 5 years | ||||||
6,628 | 6,225 | ||||||||
Less: Accumulated depreciation | 4,064 | 3,860 | |||||||
$ | 2,564 | $ | 2,365 |
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- | ||
- 45 - | ||
Year | Employment Contracts | Settlment Agreement | Total | |||||||||
2013 | $ | 1,025 | $ | 100 | $ | 1,125 | ||||||
2014 | 1,025 | 100 | 1,125 | |||||||||
2015 | 555 | 100 | 655 | |||||||||
2016 | - | 100 | 100 | |||||||||
2017 | - | - | - | |||||||||
Total | $ | 2,605 | $ | 400 | $ | 3,005 |
Equity Line of Credit
On November 21, 2012, we entered into the equity line of credit agreement (such arrangement, the “Equity Line”) with Dutchess whereby Dutchess committed to purchase, subject to certain restrictions and conditions, up to 2,500,000 shares of our Common Stock, over a period of 36 months from the first trading day following the effectiveness of the registration statement registering the resale of shares purchased by Dutchess pursuant to the Equity Line. On November 26, 2012, we filed a registration statement with Securities and Exchange Commission (“SEC”) to register for sale for up to 2,500,000 shares of our Common Stock and the registration statement was deemed effective by the SEC on December 12, 2012.
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employment | Settlement | |||||||||
Year | Contracts | Agreement | Total | |||||||
2014 | $ | 1,025 | $ | 100 | $ | 1,125 | ||||
2015 | 555 | 100 | 655 | |||||||
2016 | - | 100 | 100 | |||||||
2017 | - | - | - | |||||||
2018 | - | - | - | |||||||
Total | $ | 1,580 | $ | 300 | $ | 1,880 |
We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Equity Line. The maximum amount that we are entitled to put to Dutchess in any one draw down notice is the greater of (i) 500% of the average daily volume of our Common Stock traded on the NASDAQ Global Market for the one (1) trading day prior to the date of delivery of the applicable draw down notice, multiplied by the closing price for such trading day, or (ii) $250,000.
The purchase price under the Equity Line is set at ninety-five percent (95%) of the lowest daily volume weighted average price (VWAP) of our Common Stock during the five (5) consecutive trading day period beginning on the date of delivery of the applicable draw down 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 has the right to use any such excess proceeds to off-set against the aggregated deficit proceeds.
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 not allowed to deliver another draw down notice. In addition, Dutchess is not obligated to purchase shares if its total number of shares beneficially held at that time would exceed 9.99% of the number of shares of our 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.
In December 2012, we sold an aggregate of 883,722 shares of Common Stock to Dutchess under and pursuant to the Equity Line. We derived approximately $1.1 million in net proceeds through the usage of the Equity Line of which we received $839,000 of such proceeds prior to December 31, 2012 and we have included in receivables the balance of $230,000 which we received on January 4, 2013. On March 6, 2013, we sold an aggregate of 125,000 shares of our Common Stock under and pursuant to the Equity Line and derived net proceeds of $195,000. The sales of the shares under the 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 March 15, 2013, we have 1,491,278 shares of our Common Stock available for sale, at our discretion, under the terms of the Equity Line and covered pursuant to a registration statement.
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PROPHASE LABS, INC. AND SUBSIDIARIES
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2011.
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Number of options granted | 15,000 | 220,000 | 982,000 | |||||||||
Vesting period | 3 years | 4 years | 3-6 years | |||||||||
Maximum term of option from date of grant | 7 years | 7 years | 7 years | |||||||||
Exercise price per share | $ | 1.36 | $ | 0.87 - $1.17 | $ | 1.00 | ||||||
Weighted average fair value per share of options granted during the year | $ | 0.85 | $ | 0.58 | $ | 0.65 |
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – STOCKHOLDERS’ EQUITY AND STOCK COMPENSATION (CONTINUED)
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Number of options granted | 420,500 | 15,000 | 220,000 | |||||||
Vesting period | 2 - 3 years | 3 years | 4 years | |||||||
Maximum term of option from date of grant | 6 - 7 years | 7 years | 7 years | |||||||
Exercise price per share | $1.48 - $1.65 | $1.36 | $0.87-$1.17 | |||||||
Weighted average fair value per share of options granted during the year | $0.56 | $0.85 | $0.58 |
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Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Expected option life | 4.5 years | 4.75 years | 4.5 - 6.5 years | |||||||||
Weighted average risk free rate | 0.75 | % | 1.28 | % | 2.10 | % | ||||||
Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
Expected volatility | 83.06 | % | 75.84% - 78.62 | % | 72.17% - 77.63 | % |
Year Ended December 31, | |||||||||
2013 | 2012 | 2011 | |||||||
Expected option life | 3.75 - 4.5 years | 4.5 years | 4.75 years | ||||||
Weighted average risk free rate | 0.36 | % | 0.75 | % | 1.28 | % | |||
Dividend yield | 0 | % | 0 | % | 0 | % | |||
Expected volatility | 47.33% - 82.09 | % | 83.06 | % | 75.84% - 78.62 | % |
Year Ended December 31, | ||||||||||||||||||||||||
2012 | 2011 | 2010 | ||||||||||||||||||||||
Weighted Average | Weighted Average | Weighted Average | ||||||||||||||||||||||
Shares | Exercise Price | Shares | Exercise Price | Shares | Exercise Price | |||||||||||||||||||
Options outstanding - beginning of year | 1,333 | $ | 1.88 | 1,300 | $ | 2.99 | 1,488 | $ | 8.64 | |||||||||||||||
Granted | 15 | 1.36 | 220 | 1.10 | 982 | 1.00 | ||||||||||||||||||
Exercised | - | - | - | - | (131 | ) | 1.02 | |||||||||||||||||
Cancelled | (41 | ) | 8.11 | (187 | ) | 8.67 | (1,039 | ) | 9.45 | |||||||||||||||
Options outstanding - end of year | 1,307 | $ | 1.72 | 1,333 | $ | 1.88 | 1,300 | $ | 2.99 | |||||||||||||||
Options granted and subject to future vesting | 719 | $ | 1.01 | 957 | 1.02 | 937 | 1.00 | |||||||||||||||||
Exercisable, at end of year | 588 | 376 | 363 | |||||||||||||||||||||
Available for grant | - | 14 | 818 |
Year Ended December 31, | |||||||||||||||||||
2013 | 2012 | 2011 | |||||||||||||||||
Weighted Average | Weighted Average | Weighted Average | |||||||||||||||||
Shares | Exercise Price | Shares | Exercise Price | Shares | Exercise Price | ||||||||||||||
Options outstanding - beginning of year | 1,307 | $ | 1.72 | 1,333 | $ | 1.88 | 1,300 | $ | 2.99 | ||||||||||
Granted | 420 | 1.64 | 15 | 1.36 | 220 | 1.10 | |||||||||||||
Exercised | (25) | 1.08 | - | - | - | - | |||||||||||||
Cancelled | (64) | 4.53 | (41) | 8.11 | (187) | 8.67 | |||||||||||||
Options outstanding - end of year | 1,638 | $ | 1.60 | 1,307 | $ | 1.72 | 1,333 | $ | 1.88 | ||||||||||
Options granted and subject to future vesting | 884 | $ | 1.32 | 719 | $ | 1.01 | 957 | $ | 1.02 | ||||||||||
Exercisable, at end of year | 754 | 588 | 376 | ||||||||||||||||
Available for grant | 262 | - | 14 |
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Options Outstanding and Exercisable | ||||||||||||
Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price Per Share | |||||||||
$0.87 - $1.36 | 488 | 5.6 | $ | 1.10 | ||||||||
$1.37 - $8.11 | 32 | 0.8 | $ | 8.11 | ||||||||
$8.12 - $9.50 | 41 | 1.8 | $ | 9.50 | ||||||||
$9.51 - $13.80 | 27 | 3.0 | $ | 13.80 | ||||||||
Total | 588 | $ | 2.56 |
Options Outstanding and Exercisable | ||||||||
Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price Per Share | |||||
$0.87 - $1.17 | 675 | 4.6 | $ | 1.01 | ||||
$1.18 - $1.65 | 11 | 6.1 | $ | 1.40 | ||||
$1.66 - $9.50 | 40 | 0.8 | $ | 9.50 | ||||
$9.51 - $13.80 | 27 | 2.0 | $ | 13.80 | ||||
Total | 753 | $ | 1.93 |
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Pursuant
There were no stock options exercised in Fiscal 2012 or 2011. For Fiscal 2010, we derived net proceeds of $133,000, as a consequence of the exercise of options to acquire 130,500 of our Common Stock pursuant to the terms of our 1997 Option Plan.
Pursuant to the terms of the Original License Agreement, we issued to PSI Parent1,440,000 shares of our common stock, $0.005 par value (“Common Stock”) having an aggregate value of $2.6 million (such share, the “PSI Shares”) and made a one-time payment of $1.0 million.
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PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – INVESTMENT IN PHUSION LABORATORIES, LLC. (CONTINUED)
Pursuant to the Original License Agreement, we issued 1,440,000 shares of our Common Stock having an aggregate value of approximately $2.6 million to PSI Parent (such shares, the “PSI Shares”), and made a one-time payment to PSI Parent of $1.0 million.
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modify the Joint Venture’s product development plans to stagger and/or defer into future periods certain product development initiatives due to the pre-commercialization investments required. As of December 31, 2013, we have not established a formal commercialization program timeline pending the results from additional clinical studies. We do not project that any such OTC products will be available for shipment within the next twelve months. We expect to continue pre-commercialization research and product development initiatives during the latter half of Fiscal 2014. Furthermore, we do not expect that the Joint Venture will derive any meaningful revenues, if any, until its commercialization efforts are completed which is not expected to occur until at the earliest the latter half of Fiscal 2014 or Fiscal 2015.
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Current | ||||||||||||
Federal | $ | - | $ | - | $ | (40 | ) | |||||
State | - | - | - | |||||||||
- | - | (40 | ) | |||||||||
Deferred | ||||||||||||
Federal | (618 | ) | (877 | ) | (107 | ) | ||||||
State | 1,377 | (21 | ) | 160 | ||||||||
759 | (898 | ) | 53 | |||||||||
Total | $ | 759 | $ | (898 | ) | $ | 13 | |||||
Income taxes from continuing operations before valuation allowance | $ | 759 | $ | (898 | ) | $ | 13 | |||||
Change in valuation allowance | (759 | ) | 898 | (53 | ) | |||||||
Income tax (benefit) | - | - | (40 | ) | ||||||||
Total | $ | - | $ | - | $ | (40 | ) |
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Current | ||||||||||
Federal | $ | - | $ | - | $ | - | ||||
State | - | - | - | |||||||
- | - | - | ||||||||
Deferred | ||||||||||
Federal | 1,216 | (618) | (877) | |||||||
State | (999) | 1,377 | (21) | |||||||
217 | 759 | (898) | ||||||||
Total | $ | 217 | $ | 759 | $ | (898) | ||||
Income taxes from continuing operations before valuation allowance | $ | 217 | $ | 759 | $ | (898) | ||||
Change in valuation allowance | (217) | (759) | 898 | |||||||
Income tax (benefit) | - | - | - | |||||||
Total | $ | - | $ | - | $ | - |
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PROPHASE LABS, INC. AND SUBSIDIARIES
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Statutory rate - federal | $ | (661 | ) | $ | (925 | ) | $ | (1,204 | ) | |||
State taxes, net of federal benefit | 1,377 | (21 | ) | - | ||||||||
Permanent differences and other | 43 | 48 | (143 | ) | ||||||||
Income tax from continuing operation before valuation allowance | 759 | (898 | ) | (1,347 | ) | |||||||
Change in valuation allowance | (759 | ) | 898 | 1,307 | ||||||||
Income tax (benefit) | - | - | (40 | ) | ||||||||
Total | $ | - | $ | - | $ | (40 | ) |
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Statutory rate - federal | $ | 138 | $ | (661) | $ | (925) | ||||
State taxes, net of federal benefit | 17 | 1,377 | (21) | |||||||
Permanent differences and other | 62 | 43 | 48 | |||||||
Income tax from continuing operation before valuation allowance | 217 | 759 | (898) | |||||||
Change in valuation allowance | (217) | (759) | 898 | |||||||
Income tax (benefit) | - | - | - | |||||||
Total | $ | - | $ | - | $ | - |
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Permanent items: | ||||||||||||
Meals and Entertainment | $ | 6 | $ | 2 | $ | 5 | ||||||
Return to provision adjustment | (46 | ) | - | - | ||||||||
Contribution of inventory(1) | 4 | - | (162 | ) | ||||||||
Share-based compensation expense for stock options granted (2) | 79 | 45 | 14 | |||||||||
$ | 43 | $ | 47 | $ | (143 | ) |
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Permanent items: | ||||||||||
Meals and Entertainment | $ | 7 | $ | 6 | $ | 2 | ||||
Return to provision adjustment | - | (46) | - | |||||||
Charitable contributions | 1 | 4 | - | |||||||
Share-based compensation expense for stock options granted(1) | 54 | 79 | 46 | |||||||
$ | 62 | $ | 43 | $ | 48 |
(1) |
This item relates to share-based compensation expense for financial reporting purposes not deducted for tax purposes until such options are exercised. |
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net operating loss and capital loss carryforward | $ | 14,158 | $ | 13,170 | $ | 12,135 | ||||||
Consulting-royalty costs | 121 | 1,431 | 1,431 | |||||||||
Depreciation | 60 | 235 | 253 | |||||||||
Other | 983 | 757 | 877 | |||||||||
Valuation allowance | (15,322 | ) | (15,593 | ) | (14,696 | ) | ||||||
Total | $ | - | $ | - | $ | - |
Year Ended December 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||
Net operating loss and capital loss carryforward | $ | 13,569 | $ | 14,158 | $ | 13,170 | ||||
Consulting-royalty costs | 80 | 121 | 1,431 | |||||||
Trademark | 819 | - | - | |||||||
Investment in Phusion | (387) | - | - | |||||||
Depreciation | (34) | 60 | 235 | |||||||
Other | 1,009 | 983 | 757 | |||||||
Valuation allowance | (15,056) | (15,322) | (15,593) | |||||||
Total | $ | - | $ | - | $ | - |
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For Fiscal 2010, we had a current tax benefit of $40,000 for an alternative minimum tax refund due us as a consequence of a carry back of an alternative minimum tax net operating loss to a prior period. Our income tax classifications for Fiscal 2011 and Fiscal 2010 have been reclassified to conform to our Fiscal 2012 presentation.
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
2012 | 2011 | 2010 | ||||||||||||||||||||||||||||||||||
Loss | Shares | EPS | Loss | Shares | EPS | Loss | Shares | EPS | ||||||||||||||||||||||||||||
Basic EPS | $ | (1,091 | ) | 14,843 | $ | (0.07 | ) | $ | (2,710 | ) | 14,817 | $ | (0.18 | ) | $ | (3,501 | ) | 14,285 | $ | (0.25 | ) | |||||||||||||||
Dilutives: | ||||||||||||||||||||||||||||||||||||
Options/Warrants | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Diluted EPS | $ | (1,091 | ) | 14,843 | $ | (0.07 | ) | $ | (2,710 | ) | 14,817 | $ | (0.18 | ) | $ | (3,501 | ) | 14,285 | $ | (0.25 | ) |
Year Ended December 31, | |||||||||||||||||||||||||
2013 | 2012 | 2011 | |||||||||||||||||||||||
Income | Shares | EPS | Loss | Shares | EPS | Loss | Shares | EPS | |||||||||||||||||
Basic EPS | $ | 405 | 15,839 | $ | 0.03 | $ | (1,091) | 14,843 | $ | (0.07) | $ | (2,710) | 14,817 | $ | (0.18) | ||||||||||
Dilutives: | |||||||||||||||||||||||||
Options/Warrants | - | 437 | - | - | - | - | - | - | - | ||||||||||||||||
Diluted EPS | $ | 405 | 16,276 | $ | 0.03 | $ | (1,091) | 14,843 | $ | (0.07) | $ | (2,710) | 14,817 | $ | (0.18) |
PROPHASE LABS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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2012.
Quarter Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
Fiscal 2012 | ||||||||||||||||
Net sales | $ | 6,018 | $ | 1,894 | $ | 5,415 | $ | 9,079 | ||||||||
Gross profit | $ | 4,340 | $ | 825 | $ | 3,399 | $ | 5,688 | ||||||||
Net income (loss) | $ | (688 | ) | $ | (1,930 | ) | $ | 1,074 | $ | 453 | ||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||
Net income (loss) | $ | (0.05 | ) | $ | (0.13 | ) | $ | 0.07 | $ | 0.04 | ||||||
Fiscal 2011 | ||||||||||||||||
Net sales | $ | 3,166 | $ | 1,744 | $ | 5,083 | $ | 7,460 | ||||||||
Gross profit | $ | 1,994 | $ | 896 | $ | 3,596 | $ | 4,796 | ||||||||
Net income (loss) | $ | (1,013 | ) | $ | (976 | ) | $ | 1,110 | $ | (1,831 | ) | |||||
Basic and diluted earnings (loss) per share: | ||||||||||||||||
Net income (loss) | $ | (0.07 | ) | $ | (0.07 | ) | $ | 0.07 | $ | (0.12 | ) |
Quarter Ended | |||||||||||||
March 31, | June 30, | September 30, | December 31, | ||||||||||
Fiscal 2013 | |||||||||||||
Net sales | $ | 7,542 | $ | 1,939 | $ | 5,949 | $ | 9,602 | |||||
Gross profit | $ | 5,339 | $ | 928 | $ | 3,817 | $ | 6,587 | |||||
Net income (loss) | $ | 290 | $ | (1,719) | $ | 1,237 | $ | 597 | |||||
Basic and diluted income (loss) per share: | |||||||||||||
Basic income (loss) per share | $ | 0.02 | $ | (0.11) | $ | 0.08 | $ | 0.04 | |||||
Diluted income (loss) per share | $ | 0.02 | $ | (0.11) | $ | 0.08 | $ | 0.04 | |||||
Fiscal 2012 | |||||||||||||
Net sales | $ | 6,018 | $ | 1,894 | $ | 5,415 | $ | 9,079 | |||||
Gross profit | $ | 4,340 | $ | 825 | $ | 3,399 | $ | 5,688 | |||||
Net income (loss) | $ | (688) | $ | (1,930) | $ | 1,074 | $ | 453 | |||||
Basic and diluted income (loss) per share: | |||||||||||||
Net income (loss) | $ | (0.05) | $ | (0.13) | $ | 0.07 | $ | 0.04 |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; |
⋅ | provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and |
⋅ | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
2013.
Item 9B. | Other Information |
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Item 10. | Directors, Executive Officers and Corporate Governance |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 13. | Certain Relationships and Related Transactions and Director Independence |
Item 14. | Principal Accountant Fees and Services |
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(a) Exhibits:
3.1 | Articles of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 of Form 10-KSB/A filed on April 4, 1997). | |
3.2 | Certificate of Amendment to the Articles of Incorporation of the Company, effective May 5, 2010 (incorporated by reference to Exhibit 3.1 of Form 8-K filed on May 10, 2010). | |
3.3 | By-laws of the Company as amended and restated effective August 18, 2009, (incorporated by reference to Exhibit 3.1 of Form 8-K filed on August 18, 2009). | |
4.1 | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Form 10-KSB/A filed on April 4, 1997). | |
10.1* | 1997 Stock Option Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-8 (File No. 333-61313) filed on August 13, 1998). | |
10.2 | Exclusive Representation and Distribution Agreement dated May 4, 1992 between the Company and Godfrey Science and Design, Inc. et al (incorporated by reference to Exhibit 10.2 of Form 10-KSB/A filed on April 4, 1997). | |
10.3 | Rights Agreement dated September 15, 1998 between the Company and American Stock Transfer and Trust Company (incorporated by reference to Exhibit 1 to the Company’s Registration Statement on Form 8-A filed on September 18, 1998). | |
10.4 | First Amendment to the Rights Agreement, dated as of May 20, 2008 between the Company and American Stock Transfer and Trust Company (incorporated by reference to Exhibit 99.1 of Form 8-K filed on May 23, 2008). | |
10.5 | Sale agreement of Darius to Innerlight Holdings, Inc. dated February 29, 2008 incorporated by reference to Exhibit 99.1 of Form 8-K filed on March 3, 2008). | |
10.6 | Second Amendment to the Rights Agreement, dated as of August 18, 2009 between the Company and American Stock Transfer and Trust Company (incorporated by reference to Exhibit 10.1 of Form 8-K filed on August 18, 2009). | |
10.7 | Form of Indemnification Agreement between the Company and each of its Officers and Directors dated August 19, 2009 (incorporated by reference to Exhibit 10.1 of Form 8-K filed on August 19, 2009). | |
10.8 | Limited Liability Company Agreement, dated March 22, 2010, between the Company, Phosphagenics Limited, Phosphagenics Inc., and Phusion Laboratories, LLC. (incorporated by reference to Exhibit 10.11 of Form 10-K filed on March 24, 2010). | |
10.9 | Contribution Agreement, dated March 22, 2010, between the Company, Phosphagenics Limited, Phosphagenics Inc., and Phusion Laboratories, LLC. (incorporated by reference to Exhibit 10.12 of Form 10-K filed on March 24, 2010). | |
10.10 | License Agreement, dated March 22, 2010, between the Company and Phosphagenics Limited. (incorporated by reference to Exhibit 10.13 of Form 10-K filed on March 24, 2010). |
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10.11 | Amended and Restated License Agreement, dated March 22, 2010, between the Company, Phosphagenics Limited, Phosphagenics Inc., and Phusion Laboratories, LLC. (incorporated by reference to Exhibit 10.14 of Form 10-K filed on March 24, 2010). |
10.12* | 2010 Equity Compensation Plan (incorporated by reference to Exhibit B of the Company’s Annual Proxy Statement on Schedule 14A filed on April 2, 2010). | |
10.13* | 2010 Directors’ Equity Compensation Plan (incorporated by reference to Exhibit C of the Company’s Annual Proxy Statement on Schedule 14A filed on April 2, 2010). | |
10.14* | Amendment to 2010 Directors’ Equity Compensation Plan (incorporated by reference to Exhibit 10.3 of Form 8-K filed on May 10, 2010). | |
10.15 * | Form of Option Agreement pursuant to 2010 Equity Compensation Plan (incorporated by reference to Exhibit 10.4 of Form 8-K filed on May 10, 2010). | |
10.16* | Form of Option Agreement pursuant to 2010 Directors’ Equity Compensation Plan (incorporated by reference to Exhibit 10.5 of Form 8-K filed on May 10, 2010). | |
10.17* | Form of Restricted Stock Award Agreement pursuant to 2010 Directors’ Equity Compensation Plan (incorporated by reference to Exhibit 10.6 of Form 8-K filed on May 10, 2010). | |
10.18* | 2010 Amended and Restated Equity Compensation Plan (incorporated by reference to Exhibit A of the Company’s Annual Proxy Statement on Schedule 14A filed on March 14, 2011). | |
10.19 | Redemption Agreement withPhosphagenics Ltd. | |
10.20 | Employment Agreement dated January 1, 2012 between Ted Karkus and the Company | |
10.21* | Employment Agreement dated January 1, 2012 between Robert V. Cuddihy, Jr., and the Company (incorporated by reference to Exhibit 99.1 of Form 10-Q filed on November 10, 2011). | |
10.22* | Investment Agreement by and between ProPhase Labs, Inc. and Dutchess Opportunity Fund II, LP, dated as of November 26, 2012 (incorporated by reference to Exhibit 10.3 of Form 8-K filed on November 27, 2012). | |
10.23 | Registration Rights Agreement by and between ProPhase Labs, Inc. and Dutchess Opportunity Fund II, LP, dated as of November 26, 2012 (incorporated by reference to Exhibit 10.3 of Form 8-K filed on November 27, 2012). | |
10.24 | Settlement Agreement and Mutual Release between ProPhase Labs, Inc. f/k/a The Quigley Corporation and John C. Godfrey, the Estate of Nancy Jane Godfrey, and Godfrey Science and Design, Inc. dated December 20, | |
10.25* | Amendment to Amended and Restated 2010 Equity Compensation Plan (incorporated by reference to Appendix A of the Company’s Annual Proxy Statement on Schedule 14A filed on April 3, 2013). | |
10.26* | Amendment to 2010 Directors’ Equity Compensation Plan (incorporated by reference to Appendix B of the Company’s Annual Proxy Statement on Schedule 14A filed on April 3, 2013). | |
14.1 | Code of Ethics (incorporated by reference to Exhibit II of the Proxy Statement on Schedule 14A filed on March 31, 2003). |
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21.1** | Subsidiaries of ProPhase Labs, Inc. | |
23.1** | Consent of EisnerAmper LLP, Independent Registered Public Accounting Firm, dated March 27, | |
31.1** | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2** | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1** | Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2** | Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Indicates a management contract or compensatory plan or arrangement | ||
** Filed herewith |
PROPHASE LABS, INC. | ||||
Registrant | ||||
Date: | March 27, | By: | /s/ Ted Karkus | |
Ted Karkus, Chairman of the Board, | ||||
Chief Executive Officer and Director |
Principal Executive Officer | Principal Financial and Accounting Officer | |||
By: | /s/Ted Karkus | By: | /s/Robert V. Cuddihy, Jr. | |
Ted Karkus | Robert V. Cuddihy, Jr. | |||
Chairman of the Board and | Chief Operating Officer and Chief | |||
Chief Executive Officer | Financial Officer | |||
Date: | March 27, |
Directors
Directors | |||||
/s/Mark Burnett | |||||
Mark Burnett | |||||
/s/Mark Frank | /s/Louis Gleckel | ||||
Mark Frank | Louis Gleckel | ||||
/s/Mark Leventhal | /s/James McCubbin | ||||
Mark Leventhal | James McCubbin | ||||
Date: | March 27, | 2014 |
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