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Document And Entity Information

v2.4.0.8
Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Mar. 25, 2015
Jun. 30, 2014
Document Information [Line Items]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2014    
Document Fiscal Year Focus 2014    
Document Fiscal Period Focus FY    
Trading Symbol PRPH    
Entity Common Stock, Shares Outstanding   15,892,296  
Entity Registrant Name ProPhase Labs, Inc.    
Entity Central Index Key 0000868278    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Smaller Reporting Company    
Entity Public Float     $ 20,476,528

CONSOLIDATED BALANCE SHEETS

v2.4.0.8
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
ASSETS    
Cash and cash equivalents (Note 2) $ 2,926 $ 1,638
Accounts receivable, net (Note 2) 5,836 5,319
Inventory (Note 2) 3,292 2,521
Prepaid expenses and other current assets (Note 2) 1,404 1,801
Total current assets 13,458 11,279
Property, plant and equipment, net of accumulated depreciation of $4,341 and $4,064, respectively (Note 3) 2,599 2,564
Intangible asset, licensed technology (Note 9) 0 3,577
Total assets 16,057 17,420
LIABILITIES    
Accounts payable 667 1,011
Accrued advertising and other allowances (Note 2) 3,685 2,847
Other current liabilities (Note 4) 889 766
Total current liabilities 5,241 4,624
Other long term obligation (Note 8) 100 200
Total long term liabilities 100 200
COMMITMENTS AND CONTINGENCIES (Note 8)      
STOCKHOLDERS' EQUITY    
Common stock, $.0005 par value; authorized 50,000,000; issued: 25,125,113 and 21,437,059 shares, respectively (Note 5) 13 11
Additional paid-in-capital 54,664 43,607
Accumulated deficit (13,219) (5,385)
Treasury stock, at cost, 9,232,817 and 5,336,053 shares, respectively (Note 5) (30,742) (25,637)
Total stockholders' equity 10,716 12,596
Liabilities and Stockholders' Equity, Total $ 16,057 $ 17,420

CONSOLIDATED BALANCE SHEETS [Parenthetical]

v2.4.0.8
CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Accumulated depreciation (in dollars) $ 4,341 $ 4,064
Common Stock, par value (in dollars per share) $ 0.0005 $ 0.0005
Common Stock, shares authorized 50,000,000 50,000,000
Common Stock, shares issued 25,125,113 21,437,059
Treasury stock, shares (in shares) 9,232,817 5,336,053

CONSOLIDATED STATEMENTS OF OPERATIONS

v2.4.0.8
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Net sales (Notes 2 and 11) $ 22,070 $ 25,032 $ 22,406
Cost of sales (Note 2) 7,891 8,361 8,154
Gross profit 14,179 16,671 14,252
Operating expenses:      
Sales and marketing 8,965 9,538 8,946
Administrative 8,143 5,893 6,127
Research and development (Note 2) 1,322 824 1,301
Settlement benefit (Note 5) 0 0 (1,024)
Impairment Charge (Note 9) 3,577 0 0
Total operating expense 22,007 16,255 15,350
Income (loss) from operations (7,828) 416 (1,098)
Interest income 4 2 7
Interest expense (10) (13) 0
Income (loss) from operations before taxes (7,834) 405 (1,091)
Income tax (benefit) (Note 7) 0 0 0
Net income (loss) $ (7,834) $ 405 $ (1,091)
Basic income (loss) per share:      
Net income (loss) (in dollars per share) $ (0.47) $ 0.03 $ (0.07)
Diluted income (loss) per share:      
Net income (loss) (in dollars per share) $ (0.47) $ 0.03 $ (0.07)
Weighted average common shares outstanding:      
Basic (in shares) 16,773 15,839 14,843
Diluted (in shares) 16,773 16,276 14,843

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

v2.4.0.8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings (Deficit) [Member]
Treasury Stock [Member]
Balance at Dec. 31, 2011 $ 11,226 $ 10 $ 41,552 $ (4,699) $ (25,637)
Balance (in shares) at Dec. 31, 2011   14,825,583      
Net income (loss) (1,091)     (1,091)  
Proceeds from exercise of stock options (in shares) 0        
Share-based compensation expense 153   153    
Common stock granted pursuant to a compensation plan 93   93    
Common stock granted pursuant to a compensation plan (in shares)   10,757      
Common stock issued (Note 5) 1,070 1 1,069    
Common stock issued (Note 5) (in shares)   883,722      
Balance at Dec. 31, 2012 11,451 11 42,867 (5,790) (25,637)
Balance (in shares) at Dec. 31, 2012   15,720,062      
Net income (loss) 405     405  
Proceeds from exercise of stock options 27   27    
Proceeds from exercise of stock options (in shares) 25,000 25,000      
Share-based compensation expense 160   160    
Common stock granted pursuant to a compensation plan 109   109    
Common stock granted pursuant to a compensation plan (in shares)   66,470      
Common stock issued (Note 5) 444   444    
Common stock issued (Note 5) (in shares)   289,474      
Balance at Dec. 31, 2013 12,596 11 43,607 (5,385) (25,637)
Balance (in shares) at Dec. 31, 2013   16,101,006      
Net income (loss) (7,834)     (7,834)  
Proceeds from exercise of stock options (in shares) 0        
Share-based compensation expense 472   472    
Common stock granted pursuant to a compensation plan 179   179    
Common stock granted pursuant to a compensation plan (in shares)   128,327      
Common stock issued for services performed (Note 5) 393   393    
Common stock issued for services performed (Note 5) (in shares)   300,000      
Common stock issued (Note 5) 4,910 2 4,908    
Common stock issued (Note 5) (in shares)   3,259,727      
Treasury stock acquired puruant to a settlement agreement (Note 5) 0   5,105   (5,105)
Treasury stock acquired puruant to a settlement agreement (Note 5) (in shares)   (3,896,764)      
Balance at Dec. 31, 2014 $ 10,716 $ 13 $ 54,664 $ (13,219) $ (30,742)
Balance (in shares) at Dec. 31, 2014   15,892,296      

CONSOLIDATED STATEMENTS OF CASH FLOWS

v2.4.0.8
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash flows from operating activities:      
Net (loss) income $ (7,834) $ 405 $ (1,091)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:      
Depreciation 277 243 252
Gain on the sale of fixed assets (6) 0 0
Reduction of payment obligation, settlement benefit 0 0 (1,024)
Impairment charge 3,577 0 0
Share-based compensation expense 1,044 269 246
Changes in operating assets and liabilities:      
Accounts receivable (517) 90 (2,190)
Inventory (771) (470) 637
Prepaid expenses and other assets 397 886 (940)
Accounts payable (344) (285) 411
Accrued advertising and other allowances 838 87 (199)
Accrued royalties and commissions 0 0 (2,100)
Other operating assets and liabilities, net 123 (88) 269
Net cash provided by (used in) operating activities (3,216) 1,137 (5,729)
Cash flows from investing activities:      
Capital expenditures (312) (442) (310)
Proceeds from the sale of fixed assets 6 0 0
Net cash flows used in investing activities (306) (442) (310)
Cash flows from financing activities:      
Proceeds from the exercise of stock options 0 27 0
Proceeds from issuance of common stock 4,910 444 1,070
Payment of long term obligation (100) (100) 0
Net cash provided by financing activities 4,810 371 1,070
Net increase (decrease) in cash and cash equivalents 1,288 1,066 (4,969)
Cash and cash equivalents at beginning of year 1,638 572 5,541
Cash and cash equivalents at end of year 2,926 1,638 572
Supplemental disclosures of cash flow information:      
Treasury stock acquired pursuant to a settlement agreement 5,105 0 0
Interest paid 10 13 0
Common stock issued, in lieu of cash, as payment for service $ 393 $ 0 $ 0

ORGANIZATION AND BUSINESS

v2.4.0.8
ORGANIZATION AND BUSINESS
12 Months Ended
Dec. 31, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
NOTE 1 – ORGANIZATION AND BUSINESS
 
ProPhase Labs, Inc (“we”, “us” or the “Company”), organized under the laws of the State of Nevada, is a manufacturer, marketer and distributor of a diversified range of homeopathic and health 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 based health products along with supplement, personal care and cosmeceutical products.
 
Our primary business is the manufacture, distribution, marketing and sale of OTC cold remedy products to consumers through national chain, regional, specialty and local retail stores. Our flagship brand is Cold-EEZE® Cold Remedy and our principal product is Cold-EEZE® Cold Remedy zinc gluconate lozenges, proven in clinical studies to reduce the duration of the common cold. In addition to Cold-EEZE® Cold Remedy lozenges, we market and distribute non-lozenge forms of our proprietary zinc gluconate formulation, (i) Cold-EEZE® Cold Remedy QuickMelts® and (ii) Cold-EEZE® Cold Remedy Oral Spray. Cold-EEZE® Cold Remedy Oral Spray is a liquid form of our zinc gluconate formulation that is sprayed in the mouth. Cold-EEZE® Cold Remedy QuickMelts® are fast dissolving tablets that are taken orally.
 
The Cold-EEZE® Cold Remedy QuickMelts® product line is comprised of (i) Cold-EEZE® Daytime/Nighttime QuickMelts® (launched in Fiscal 2012), (ii) Cold-EEZE® Plus Immune Support + Energy QuickMelts® (launched in Fiscal 2013) and (iii) Cold-EEZE® Plus Multi-Symptom QuickMelts® (launched in Fiscal 2014). We also manufacture, market and distribute organic cough drops and a Vitamin C supplement (“Organix”) and perform contract manufacturing services of cough drop and other OTC cold remedy products for third parties.
 
Cold-EEZEÒ Cold Remedy is an established product in the health care and cold remedy market. For Fiscal 2014, 2013 and 2012, our revenues have come principally from our OTC cold remedy products. For Fiscal 2014 and 2013, our net sales for each period were related to markets in the United States.
 
Our business is subject to seasonal variations thereby impacting liquidity and working capital during the course of our fiscal year.
 
We use a December 31 year-end for financial reporting purposes. References herein to the fiscal year ended December 31, 2014 shall be the term “Fiscal 2014” and references to other “Fiscal” years shall mean the year, which ended on December 31 of the year indicated. The term the “we”, “us: or the “Company” as used herein also refer, where appropriate, to the Company, together with its subsidiaries unless the context otherwise requires.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

v2.4.0.8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
The consolidated financial statements (“Financial Statements”) include the accounts of the Company and its wholly owned subsidiaries and Phusion Laboratories LLC (“Phusion”), a variable interest entity (see Note 9). All intercompany transactions and balances have been eliminated.
 
Seasonality of the Business
Our net sales are derived principally from our OTC 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 its 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.
 
As a consequence of the seasonally of our business, we realize variations in operating results and demand for working capital from quarter to quarter. As of December 31, 2014, we had working capital of approximately $8.2 million and 438,480 shares of Common Stock available for sale under the 2014 Equity line. We believe our current working capital and available 2014 Equity Line is an acceptable and adequate level of working capital to support our business for at least the next twelve months ending March 31, 2016.
 
Use of Estimates
The preparation of financial statements and the accompanying notes thereto, in conformity with generally accepted accounting principles in the United States of America (“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-EEZEÒ Cold Remedy lozenges, utilizes a proprietary zinc gluconate formulation which has been clinically proven to reduce the severity and duration of common cold symptoms. Factors considered in estimating the appropriate sales returns and allowances for this product include it being (i) a unique product with limited competitors, (ii) competitively priced, (iii) promoted, (iv) unaffected for remaining shelf-life as there is no product expiration date and (v) monitored for inventory levels at major customers and third-party consumption data. In addition to Cold-EEZE® Cold Remedy lozenges, we market and distribute a variety of Cold-EEZE® Cold Remedy QuickMelts® and a Cold-EEZE® Cold Remedy Oral Spray. We also manufacture, market and distribute an organic cough drop and a Vitamin C supplement (“Organix®”). Each of the Cold-EEZE® Cold Remedy Oral Spray and QuickMelts® products, and Organix® products carry shelf-life expiration dates for which we aggregate such new product market experience data and update our sales returns and allowances estimates accordingly. Sales allowances estimates are tracked at the specific customer and product line levels and are tested on an annual historical basis, and reviewed quarterly. 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 an initial 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
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 December 31, 2014 and 2013, the financial statements include adjustments to reduce inventory for excess or obsolete inventory of $797,000 and $635,000, respectively. The components of inventory are as follows (in thousands):
 
 
 
December 31,
 
 
 
2014
 
2013
 
 
 
 
 
 
 
Raw materials
 
$
798
 
$
434
 
Work in process
 
 
418
 
 
164
 
Finished goods
 
 
2,076
 
 
1,923
 
 
 
$
3,292
 
$
2,521
 
 
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. The depreciation expense is computed in accordance with the estimated asset lives (see Note 3).
 
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 requirements associated with the development of OTC and other personal care products in order to continue to compete on a national 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 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 December 31, 2014, our cash was $2.9 million and our bank balance was $3.1 million. Of the total bank balance, $626,000 was covered by federal depository insurance and $2.4 million was uninsured.
 
Trade accounts receivable potentially subjects us to credit risk. We extend credit to our customers based upon an evaluation of the customer’s financial condition and credit history and generally we do not require collateral. Our broad range of customers includes many national chain, regional, specialty and local retail stores (see Note 11). During Fiscal 2014, 2013 and 2012, effectively all of our net revenues were related to domestic markets.
 
Our revenues are principally generated from the sale of OTC cold remedy products which approximated 94%, 94% and 95% of total revenues for Fiscal 2014, 2013 and 2012, respectively. A significant portion of our business is highly seasonal, which causes major variations in operating results from quarter to quarter. The third and fourth quarters generally represent the largest sales volume for the OTC cold remedy products.
 
Raw materials used in the production of the products are available from numerous sources. Certain raw material active ingredients used in connection with Cold-EEZE® Cold Remedy products are purchased from a single unaffiliated supplier. Should the relationship terminate or the vendor become unable supply material, we believe that the current contingency plans would prevent a termination from materially affecting our operations. However, if the relationship was terminated, there may be delays in production of our products until an acceptable replacement supplier is located.
 
Long-lived Assets
We review the 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.
 
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 fall 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 December 31, 2014 and 2013, we included a provision for sales allowances of $129,000 and $128,000, respectively, which are reported as a reduction to account receivables. Additionally, accrued advertising and other allowances as of December 31, 2014 include $1.5 million for estimated future sales returns and $2.1 million for cooperative incentive promotion costs. As of December 31, 2013, accrued advertising and other allowances include $1.5 million for estimated future sales returns and $1.3 million for cooperative incentive promotion costs.
 
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 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 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 5). Stock options are exercisable during a period determined by us, but in no event later than ten years from the date granted. In Fiscal 2014, 2013 and 2012, we charged to operations $1.0 million, $269,000 and $246,000, respectively, for share-based compensation expense for the aggregate fair value of stock and stock grants issued, and vested stock options earned.
 
Variable Interest Entity
The Joint Venture, of which we own a 50% membership interest, qualifies as a variable interest entity (“VIE”) and we have consolidated the Phusion joint venture beginning with the quarter ended March 31, 2010 (see Note 9).
 
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 media advertising, presented as part of sales and marketing expense; cooperative incentive promotions and coupon program expenses, which are accounted for as part of net sales; and free product, which is accounted for as part of cost of sales. Advertising and incentive promotion costs incurred for Fiscal 2014, 2013 and 2012 were $10.9 million, $10.8 million and $10.2 million, respectively. At December 31, 2014 and 2013, prepaid expenses and other current assets included $885,000 and $1.3 million, respectively, relating to prepaid deposits for advertising and promotion programs scheduled principally for the first quarter of Fiscal 2015 and 2014, respectively.
 
Research and Development
Research and development costs are charged to operations in the period incurred. Expenditures for Fiscal 2014, 2013 and 2012 were $1.3 million, $824,000 and $1.3 million, respectively. For Fiscal 2014, Fiscal 2013 and Fiscal 2012, research and development costs are related principally to new product development initiatives and costs associated with OTC 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 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 net current and non-current deferred tax asset is being provided (see Note 7).
 
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 uncertain tax positions will be recorded as interest or administrative expense, respectively.
 
The major jurisdiction for which we file income tax returns is the United States. The Internal Revenue Service (“IRS”) has examined our then tax year ended September 30, 2005 and has made no changes to the filed tax returns. The tax years 2006 and forward remain open to examination by the IRS. The tax years 2004 and forward remain open to examination by the various state taxing authorities to which we are subject.
 
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable and accounts payable are reflected in the Financial Statements at carrying value which approximates fair value because of the short-term maturity of these instruments. Determination of the fair value of related party payables, if any, is not practicable due to their related party nature.
 
Recently Issued Accounting Standards
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 amends Accounting Standards Codification 740, “Income Taxes,” to require that in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. The adoption of ASU 2013-11 did not have a material impact on our consolidated financial position, results from operations or cash flows.
 
In May 2014, the FASB issued new accounting guidance ASU No. 2014-09, “Revenue from Contracts with Customers”, on revenue recognition.  The new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts.  Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard.  There is no option for early adoption.  This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016.  We are currently evaluating the impact of the new guidance on our consolidated financial statements.
 
In June 2014, the FASB issued new accounting guidance ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Companies should apply existing guidance in ASC 718, “Compensation - Stock Compensation”, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective as of January 1, 2016. Earlier adoption is permitted. We may apply the amendments in this update either: (1) prospectively to all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If a retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if a retrospective transition is adopted, we may use hindsight in measuring and recognizing the compensation cost. We are currently assessing the impact of this update, and believe that its adoption on January 1, 2016 will not have a material impact on our consolidated financial statements.
 
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The amendments in this update state that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period beginning after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our consolidated financial statements.

PROPERTY, PLANT AND EQUIPMENT

v2.4.0.8
PROPERTY, PLANT AND EQUIPMENT
12 Months Ended
Dec. 31, 2014
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Disclosure [Text Block]
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
 
The components of property and equipment are as follows (in thousands):
 
 
 
December 31,
 
 
 
 
 
2014
 
2013
 
Estimated Useful Life
 
 
 
 
 
 
 
 
 
Land
 
$
504
 
$
504
 
 
 
Buildings and improvements
 
 
3,016
 
 
2,852
 
10 - 39 years
 
Machinery and equipment
 
 
2,933
 
 
2,812
 
3 - 7 years
 
Computer software
 
 
291
 
 
271
 
3 years
 
Furniture and fixtures
 
 
196
 
 
189
 
5 years
 
 
 
 
6,940
 
 
6,628
 
 
 
 
 
 
 
 
 
 
 
 
 
Less: Accumulated depreciation
 
 
4,341
 
 
4,064
 
 
 
 
 
$
2,599
 
$
2,564
 
 
 
 
Depreciation expense for Fiscal 2014, 2013 and 2012 was $277,000, $243,000 and $252,000, respectively.

OTHER CURRENT LIABILITIES

v2.4.0.8
OTHER CURRENT LIABILITIES
12 Months Ended
Dec. 31, 2014
Other Liabilities Disclosure [Abstract]  
Other Liabilities Disclosure [Text Block]
NOTE 4 – OTHER CURRENT LIABILITIES
 
At December 31, 2014 and 2013, other current liabilities include $372,000 and $350,000, respectively, related to accrued compensation.

STOCKHOLDERS' EQUITY AND STOCK COMPENSATION

v2.4.0.8
STOCKHOLDERS' EQUITY AND STOCK COMPENSATION
12 Months Ended
Dec. 31, 2014
Stockholders Equity Note [Abstract]  
Transactions Affecting Stock Holders Equity [Text Block]
NOTE 5 – STOCKHOLDERS’ EQUITY AND STOCK COMPENSATION
 
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 “1998 Rights Agreement”). The Plan was amended effective May 23, 2008 and further amended effective August 18, 2009. The 1998 Rights Agreement, as amended, provides that each Right entitles the stockholder of record to purchase from the Company that number of common shares 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 common shares, 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 common shares. The dividend has the effect of giving the stockholder a 50% discount on the share’s current market value for exercising such right. 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 common share of the Company. The 1998 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.
 
On June 10, 2014, the Board of Directors of the Company approved, and on June 18, 2014, the Company entered into, an Amended and Restated Rights Agreement with American Stock Transfer & Trust Company, LLC, as Rights Agent (the “2014 Rights Agreement”), which amends and restates the 1998 Rights Agreement, as amended. The Rights Agreement modifies the existing terms of the 1998 Rights Agreement, as amended, in the following ways: (i) the expiration date of rights issued pursuant to the Rights Agreement (the “Rights”) is extended to June 18, 2024, (ii) the limited exemption for Guy Quigley from the definition of “Acquiring Person” is decreased to his ownership as reported in the Company’s proxy statement for the 2014 annual meeting of shareholders, or any lesser amount he subsequently owns, (iii) an exemption was added for Ted Karkus, our Chairman and Chief Executive Officer, to acquire up to 20% of the Company’s Common Stock, (iv) the redemption price for the Rights was decreased from $0.01 per Right to $0.0001 per Right, and (v) certain other changes were made for the sake of clarity and consistency.
 
Treasury Stock Acquired Pursuant to a Settlement Agreement
Effective September 4, 2014, we consummated a definitive, global Settlement Agreement (“Settlement Agreement”) resolving all of our litigation with certain of the Company’s former managers and with certain shareholders. The cases that have been settled include ProPhase Labs, Inc. v. Quigley, et al., Court of Common Pleas of Bucks County, Pennsylvania, Civ. A. No. 2010-08227; ProPhase Labs, Inc. v. Quigley, et al., Court of Common Pleas of Bucks County, Pennsylvania, Civ. A. No. 2011-09815; the appeal filed by the plaintiff in the matter Quigley v. ProPhase Labs. Inc.’s Officers and Directors, el al, Court of Common Pleas of Philadelphia County, December Term, 2011, No. 111200409; together with certain ancillary litigation.
 
The Settlement Agreement amicably resolved these matters and provided, in part, that the parties adverse to the Company in the two Bucks County cases (i) returned to the Company 3,896,764 shares of the Company’s Common Stock for which they are listed as the record owners to the Company; and (ii) paid $440,000 to the Company. In addition, the Company paid $500,000 to the benefit of one of the defendants and $37,000 to a third party, to defray certain costs and expenses associated with the Settlement Agreement. Exclusive of legal related costs, the payments received and the payments made pursuant to the Settlement Agreement resulted in a net charge to administrative expense of $97,000 for Fiscal 2014. Pursuant to the Settlement Agreement, the parties also have agreed to (i) a mutual release of all claims, (ii) a standstill agreement whereby, for a period of ten years, the adverse parties will not acquire Company shares, and (iii) the dismissal of all pending litigation involving the Company, its directors and affiliates on the one hand, and the other parties.
 
The 3,896,764 shares of Common Stock received pursuant to the terms of the Settlement Agreement were recorded as treasury stock and as an additional contribution to our additional paid-in capital, valued at $5.1 million, or $1.31 per share, representing the fair value of the shares at September 4, 2014.
 
2012 Equity Line of Credit
On November 21, 2012, we entered into the equity line of credit agreement (such arrangement, the “2012 Equity Line”) with Dutchess Opportunity Fund II, LP (“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 2012 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. We amended this registration statement effective May 29, 2014 to withdraw and remove from registration all unissued and unsold shares. We also agreed with Dutchess to terminate the 2012 Equity Line as of May 28, 2014.
 
In December 2012, we sold an aggregate of 883,722 shares of Common Stock to Dutchess under and pursuant to the 2012 Equity Line.  We derived approximately $1.1 million in net proceeds through the usage of the 2012 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. In March 2013 and December 2013, we sold an aggregate of 125,000 and 164,474 shares of our Common Stock, respectively, under and pursuant to the 2012 Equity Line and derived net proceeds of $195,000 and $250,000, respectively. We have included in receivables $250,000 derived from the December 2013 sale of shares; we received the proceeds on January 8, 2014. During the period January 1, 2014 through May 23, 2014, we sold an aggregate of 698,207 shares of Common Stock to Dutchess under and pursuant to the 2012 Equity Line and we derived net proceeds of $1.2 million. The sales of the shares under the 2012 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).
 
2014 Equity Line of Credit
The Company and Dutchess executed a new equity line of credit agreement (such arrangement, the “2014 Equity Line”) dated May 28, 2014 whereby Dutchess committed to purchase, subject to certain restrictions and conditions, up to 3,000,000 shares of the Company’s 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. On May 29, 2014, we filed a registration statement with the SEC to register for sale up to 3,000,000 shares of our Common Stock and the registration statement was declared effective by the SEC on June 4, 2014.
 
We may in our discretion draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the 2014 Equity Line.  The maximum number of shares that the Company is entitled to put to Dutchess in any one draw down notice shall not exceed shares with a purchase price of $500,000, calculated in accordance with the 2014 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 Company’s Common Stock during the one trading day immediately following our put notice. The Company has 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 the Company; however, in the 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 Dutchess’s 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, the Company shall not be entitled to deliver another draw down notice. In addition, Dutchess will not be obligated to purchase shares if Dutchess’s total number of shares beneficially held at that time would exceed 4.99% 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.
 
During the period June 13, 2014 through December 31, 2014, we sold an aggregate of 2,561,520 shares of our Common Stock to Dutchess under and pursuant to the 2014 Equity Line and we derived net proceeds of $3.7 million. 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(2) (or Regulation D promulgated thereunder). At December 31, 2014, we have 438,480 shares of our Common Stock available for sale, at our discretion, under the terms of the 2014 Equity Line and covered pursuant to a registration statement.
 
The 1997 Option Plan
On December 2, 1997, our Board of Directors approved a Stock Option Plan (the “1997 Plan”), which was amended in 2005, and provided for the granting of up to 4.5 million shares of Common Stock. Under the 1997 Plan, we were permitted to grant options to employees, officers or directors of the Company at variable percentages of the market value of stock at the date of grant. No incentive stock option could be exercisable more than ten years after the date of grant or five years after the date of grant where the individual owns more than ten percent of the total combined voting power of all classes of stock. Stockholders approved the 1997 Plan in Fiscal 1998. No options were granted under this Plan during Fiscal 2014, 2013 or 2012.
 
At December 31, 2014, we are precluded from issuing any additional options or grants in the future under the 1997 Plan pursuant to the terms of the plan document. Options previously granted continue to be available for exercise at any time prior to such options’ respective expiration dates, but in no event later than ten years from the date granted. At December 31, 2014, there are 26,500 options outstanding under the 1997 Option Plan with an expiration date of December 2015.
 
The 2010 Equity Compensation Plan
On May 5, 2010, our shareholders approved the 2010 Equity Compensation Plan which was subsequently amended, restated and approved by our shareholders on April 24, 2011 and further amended and approved by shareholders on May 6, 2013 (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 1.6 million shares plus up to 900,000 shares that are authorized for issuance but unissued under the 1997 Plan for an aggregate of 2.5 million shares. At December 31, 2014, there are 1,713,000 options outstanding under the 2010 Equity Compensation Plan (see “Stock Options” below).
 
Stock Options
All of the Company’s employees, including employees who are officers or members of the Board are eligible to participate in the 2010 Plan. Consultants and advisors who perform services for the Company are also eligible to participate in the 2010 Plan. For Fiscal 2014, 2013 and 2012, we granted, 147,500, 420,500 and 15,000 options, respectively, to employees to acquire our Common Stock pursuant to the terms of 2010 Plan. Presented below is a summary of the terms of the grant of options:
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
Number of options granted
 
 
147,500
 
 
420,500
 
 
15,000
 
Vesting period
 
 
none
 
 
2 - 3 years
 
 
3 years
 
Maximum term of option from date of grant
 
 
7 years
 
 
6 - 7 years
 
 
7 years
 
Exercise price per share
 
$
1.39
 
$
1.48 - $1.65
 
$
1.36
 
Weighted average fair value per share of options granted during the year
 
$
0.59
 
$
0.56
 
$
0.85
 
 
We used the Black-Scholes option pricing model during Fiscal 2014, 2013 and 2012 to determine the fair value of the stock options at the date of grant. Based upon our limited historical experience, we determined the expected term of the stock option grants to be a range between 2.5 to 6.5 years, calculated using the “simplified” method in accordance with the SEC Staff Accounting Bulletin 110. We use the “simplified” method since our historical data does not provide a reasonable basis upon which to estimate expected term.
 
Presented below is a summary of assumptions used in determining the fair value of the stock options at the date of grant:
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
Expected option life
 
 
3.5 years
 
 
3.75 - 4.5 years
 
 
4.5 years
 
Weighted average risk free rate
 
 
0.10
%
 
0.36
%
 
0.75
%
Dividend yield
 
 
0
%
 
0
%
 
0
%
Expected volatility
 
 
52.43
%
 
47.33% - 82.09
%
 
83.06
%
 
The fair value of the stock options at the time of the grant in Fiscal 2014, 2013 and 2012 was $87,000, $237,000 and $13,000, respectively. For Fiscal 2014 stock options granted were not subject to a vesting period. Additionally, the remaining vesting period for options originally issued in Fiscal 2010 of 200,000 was accelerated to be fully vested at December 31, 2014. The aggregate fair value of $217,000 for each of the stock options granted in Fiscal 2014 and the accelerated vesting period of previously issued options were charged to operations in Fiscal 2014. Each of the stock options granted for Fiscal 2013 and Fiscal 2012 were subject to vesting such that the fair value of the stock options granted is charged to operations over the vesting period. For Fiscal 2013 and 2012, we charged to operations $160,000 and $153,000, respectively, for share-based compensation expense for the aggregate fair value of the vested stock options earned.
 
At December 31, 2014, of the options granted under the 2010 Equity Compensation Plan 1,450,250 were vested and 262,750 are subject to vesting. At December 31, 2014, there are 19,659 options available for grant to purchase shares of Common Stock that may be issued pursuant to the terms of the 2010 Plan.
 
A summary of the status of our stock options granted pursuant the 1997 Plan and the 2010 Plan as of December 31, 2014, 2013 and 2012 and changes during the years then ended is presented below (in thousands, except per share data):
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
 
 
 
 
Weighted Average
 
 
 
Weighted Average
 
 
 
Weighted Average
 
 
 
Shares
 
Exercise Price
 
Shares
 
Exercise Price
 
Shares
 
Exercise Price
 
Options outstanding - beginning of year
 
1,638
 
$
1.60
 
1,307
 
$
1.72
 
1,333
 
$
1.88
 
Granted
 
148
 
 
1.39
 
420
 
 
1.64
 
15
 
 
1.36
 
Exercised
 
-
 
 
-
 
(25)
 
 
1.08
 
-
 
 
-
 
Cancelled
 
(46)
 
 
9.50
 
(64)
 
 
4.53
 
(41)
 
 
8.11
 
Options outstanding - end of year
 
1,740
 
$
1.40
 
1,638
 
$
1.60
 
1,307
 
$
1.72
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options granted and subject to future vesting
 
263
 
$
-
 
884
 
$
1.32
 
719
 
$
1.01
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable, at end of year
 
1,477
 
 
 
 
1,085
 
 
 
 
588
 
 
 
 
Available for grant
 
20
 
 
 
 
262
 
 
 
 
-
 
 
 
 
 
The unrecognized share-based compensation expense related to the options granted but not vested, (options to acquire 262,750 shares) was $137,000 at December 31, 2014. These options subject to vesting (i) vest over the next 1 to 3 years, (ii) have a 6 to 7 year term from the date of grant, (iii) are exercisable at a weighted average price of $1.54 and (iv) the unrecognized share-based compensation expense is expected to be recognized over a weighted average period of 2.3 years.
 
The following table summarizes information about stock options outstanding and stock options exercisable at December 31, 2013 (in thousands, except remaining life and per share data):
 
 
 
Options Outstanding and Exercisable
 
 
 
 
 
 
Weighted Average
 
Weighted Average
 
Range of
 
Number
 
Remaining
 
Exercise Price Per
 
Exercise Prices
 
Outstanding
 
Contractual Life
 
Share
 
$0.87 - $1.17
 
 
1,081
 
3.1
 
$
1.01
 
$1.36 - $1.65
 
 
369
 
5.4
 
$
1.53
 
$13.80
 
 
27
 
1.0
 
$
13.80
 
Total
 
 
1,477
 
 
 
$
1.37
 
 
The total intrinsic value of options exercised during Fiscal 2013 was $12,000. There were no options exercised during Fiscal 2014 or 2012. The aggregate intrinsic value of (i) options outstanding, (ii) options outstanding and expected to vest in the future and (iii) options outstanding and exercisable at December 31, 2014 was $472,000, $16,000 and $456,000, respectively.
 
Stock Option Exercises
There were no stock options exercised in Fiscal 2014 or 2012. For Fiscal 2013, we derived net proceeds of $27,000, as a consequence of the exercise of options to acquire 25,000 of our Common Stock pursuant to the terms of our 2010 Option Plan.
 
Stock Grants and Other Issuances
In December 2014, we issued 300,000 shares of our Common Stock valued at $1.31 per share for an aggregate of $393,000, as payment for a portion of the litigation costs incurred prior to December 31, 2014 related to the Settlement Agreement. The 300,000 shares of our Common Stock were issued pursuant to an exemption from registration under the Securities Act, by virtue of Section 4(2) of the Securities Act and by virtue of Rule 506 of Regulation D under the Securities Act.
 
In each of December 2014 and 2013, the Compensation Committee of the Board of Directors granted Mr. Karkus 100,000 shares and 50,000 shares of Common Stock, respectively, under the 2010 Plan valued at $139,000 and $82,000, respectively, as payment for a portion of his Fiscal 2014 and 2013 bonus, respectively.
 
The 2010 Directors Equity Compensation Plan
On May 5, 2010, our shareholders approved the 2010 Directors’ Equity Compensation Plan which was subsequently amended and approved by shareholders on May 6, 2013 the “2010 Directors’ Plan). A primary purpose of the 2010 Directors’ 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’ Plan provides that the total number of shares of Common Stock that may be issued under the 2010 Directors’ Plan is equal to 425,000 shares. In Fiscal 2014, 2013 and 2012, we granted 28,327, 16,470 and zero shares, respectively, of our Common Stock valued at $41,000, $27,000 and zero, respectively, for director compensation. At December 31, 2014, there are 147,808 shares of Common Stock that may be issued pursuant to the terms of the 2010 Directors’ Equity Compensation Plan.

DEFINED CONTRIBUTION PLANS

v2.4.0.8
DEFINED CONTRIBUTION PLANS
12 Months Ended
Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]  
Pension and Other Postretirement Benefits Disclosure [Text Block]
NOTE 6 – DEFINED CONTRIBUTION PLANS
 
We maintain the ProPhase Labs, Inc 401(k) Savings and Retirement Plan, a defined contribution plan for our employees. Our contributions to the plan are based on the amount of the employee plan contributions and compensation. Our contributions to the plan in Fiscal 2014, 2013 and 2012 were $101,000, $100,000 and $104,000, respectively.

INCOME TAXES

v2.4.0.8
INCOME TAXES
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
NOTE 7 – INCOME TAXES
 
The components of the provision (benefit) for income taxes, in the consolidated statements of operations are as follows (in thousands):
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
Current
 
 
 
 
 
 
 
 
 
 
Federal
 
$
-
 
$
-
 
$
-
 
State
 
 
-
 
 
-
 
 
-
 
 
 
 
-
 
 
-
 
 
-
 
Deferred
 
 
 
 
 
 
 
 
 
 
Federal
 
 
(2,471)
 
 
1,216
 
 
(618)
 
State
 
 
(74)
 
 
(999)
 
 
1,377
 
 
 
 
(2,545)
 
 
217
 
 
759
 
Total
 
$
(2,545)
 
$
217
 
$
759
 
 
 
 
 
 
 
 
 
 
 
 
Income taxes from continuing operations before
 
 
 
 
 
 
 
 
 
 
valuation allowance
 
$
(2,545)
 
$
217
 
$
759
 
Change in valuation allowance
 
 
2,545
 
 
(217)
 
 
(759)
 
Income tax (benefit)
 
 
-
 
 
-
 
 
-
 
Total
 
$
-
 
$
-
 
$
-
 
 
A reconciliation of the statutory federal income tax expense (benefit) to the effective tax is as follows (in thousands):
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Statutory rate – federal
 
$
(2,662)
 
$
138
 
$
(661)
 
State taxes, net of federal benefit
 
 
(51)
 
 
17
 
 
1,377
 
Permanent differences and other
 
 
168
 
 
62
 
 
43
 
Income tax from continuing operation before
 
 
 
 
 
 
 
 
 
 
valuation allowance
 
 
(2,545)
 
 
217
 
 
759
 
 
 
 
 
 
 
 
 
 
 
 
Change in valuation allowance
 
 
2,545
 
 
(217)
 
 
(759)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax (benefit)
 
 
-
 
 
-
 
 
-
 
Total
 
$
-
 
$
-
 
$
-
 
 
The components of permanent and other differences are as follows (in thousands):
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
Permanent items:
 
 
 
 
 
 
 
 
 
 
Meals and Entertainment
 
$
7
 
$
7
 
$
6
 
Return to provision adjustment
 
 
-
 
 
-
 
 
(46)
 
Charitable contributions
 
 
1
 
 
1
 
 
4
 
Share-based compensation expense for stock options granted  (1)
 
 
160
 
 
54
 
 
79
 
 
 
$
168
 
$
62
 
$
43
 
 
(1)
This item relates to share-based compensation expense for financial reporting purposes not deducted for tax purposes until such options are exercised.
 
The tax effects of the primary “temporary differences” between values recorded for assets and liabilities for financial reporting purposes and values utilized for measurement in accordance with tax laws giving rise to our deferred tax assets are as follows (in thousands):
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Net operating loss and capital loss carryforward
 
 
14,983
 
$
13,569
 
$
14,158
 
Consulting-royalty costs
 
 
39
 
 
80
 
 
121
 
Trademark
 
 
752
 
 
819
 
 
-
 
Investment in Phusion
 
 
(483)
 
 
(387)
 
 
-
 
Depreciation
 
 
(45)
 
 
(34)
 
 
60
 
Other
 
 
2,508
 
 
1,009
 
 
983
 
Valuation allowance
 
 
(17,754)
 
 
(15,056)
 
 
(15,322)
 
Total
 
$
-
 
$
-
 
$
-
 
 
A valuation allowance for all of our net deferred tax assets has been provided as we are unable to determine, at this time, that the generation of future taxable income against which the net operating loss (“NOL”) carryforwards could be used can be predicted to be more likely than not. The net change in the valuation allowance for Fiscal 2014, 2013 and 2012 was $2.7 million, $266,000 and $271,000, respectively. Certain exercises of options and warrants, and restricted stock issued for services that became unrestricted resulted in reductions to taxes currently payable and a corresponding increase to additional-paid-in-capital for prior years. In addition, certain tax benefits for option and warrant exercises totaling $6.7 million are deferred and will be credited to additional-paid-in-capital when the NOL’s attributable to these exercises are utilized. As a result, these NOL’s will not be available to offset income tax expense. The net operating loss carry-forwards currently approximate $38.6 million for federal purposes will expire beginning in Fiscal 2020 through 2033. Additionally, there are net operating loss carry-forwards of $20.1 million for state purposes that will expire beginning in Fiscal 2018 through 2033.

COMMITMENTS AND CONTINGENCIES

v2.4.0.8
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]
NOTE 8 – COMMITMENTS AND CONTINGENCIES
 
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® 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 “Godfrey 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 Godfrey 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%. The annual installment of $100,000 plus accrued interest of $10,000 and $100,000 and accrued interest of $13,000 were paid in December 2014 and 2013, respectively. Under the Godfrey 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 Godfrey 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. At December 31, 2014, each of other current liabilities and other long term obligation include $100,000 and $100,000, respectively, for the two remaining annual installment payments due in Fiscal 2015 and 2016, respectively.
 
Eli Weisblum and James Loren Gibbs v. Prophase Labs, Inc. and Theodore Karkus and James Loren Gibbs v. Prophase Labs, INC.
On May 19, 2014, a putative class action complaint was filed by a consumer (the “Complainant”) against the Company and our Chief Executive Officer, in the United States District Court, Southern District of New York. On February 25, 2015, a putative class action complaint was filed by another consumer (the “Second Complainant”) against the Company, in the United States District Court, Northern District of California.
 
Both of these cases were settled and are pending dismissal with prejudice pursuant to a confidential settlement agreement reached among and between the parties as of March 23, 2015. The settlement agreement was reached after the parties had engaged in significant pre-trial discovery.  The Company determined to enter into this settlement agreement in order to allow the Company and its management team to focus their attention and resources towards the continued growth and operations of the Company.  The terms of the settlement were not material to the Company.
 
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 alleged Phosphagenics Entities’ breach of a certain amended and restated licenses 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. This matter is at its preliminary stage and at this time, no prediction as to the outcome of this action can be made.
 
Other Litigation
In the normal course of our business, we are named as defendant in legal proceedings. It is our policy to vigorously defend litigation and/or enter into settlements of claims where management deems appropriate.
 
Employment Agreements
On November 8, 2011, we entered into employment agreements, effective as of January 1, 2012, with each of executives, Mr. Ted Karkus, Chief Executive Officer, and Mr. Robert V. Cuddihy, Jr., Chief Operating Officer and Chief Financial Officer, (the “2012 Employment Agreements”). The scheduled termination date of the 2012 Employment Agreements is July 15, 2015.
 
Under Mr. Karkus’s employment agreement with the Company, Mr. Karkus agreed to an annual base salary of $675,000. Mr. Karkus is eligible to receive an annual increase in base salary and may be awarded a bonus in the sole discretion of the Compensation Committee and also will receive regular benefits routinely provided to other senior executives of the Company.
 
Under Mr. Cuddihy’s employment agreement with the Company, Mr. Cuddihy agreed to an annual base salary of $350,000. Mr. Cuddihy is eligible to receive an annual increase in base salary and may be awarded a bonus in the sole discretion of the Compensation Committee and also will receive regular benefits routinely provided to other senior executives of the Company.
 
On January 14, 2015, we entered into new employment agreements, effective as of January 1, 2015, with Mr. Karkus and Mr. Cuddihy (the "2015 Employment Agreements"). The 2015 Employment Agreements supersede the 2012 Employment Agreements that had been scheduled to terminate on July 15, 2015. The 2015 Employment Agreements were approved by our Compensation Committee.
 
Under his new employment agreement, Mr. Karkus agreed to an annual base salary of $675,000 as Chief Executive Officer. Mr. Karkus is eligible to receive an annual increase in base salary and may be awarded a bonus in the sole discretion of the Compensation Committee and also will receive regular benefits routinely provided to other senior executives of the Company. In the event of the termination by the Company of the employment of Mr. Karkus without cause or due to a voluntary resignation by Mr. Karkus with Good Reason (as defined in his employment agreement), Mr. Karkus will be paid 2.5 times his base salary ("Mr. Karkus Severance"), with one-half of such amount as a lump sum severance payment in cash and the remaining one-half paid in 12 equal consecutive, monthly installments commencing on the first business day of the month following the effective date of the termination; and all of the stock options and/or restricted stock held by Mr. Karkus shall automatically vest concurrently upon such termination of employment, regardless of any prior existing vesting schedules. If Mr. Karkus is terminated without cause or leaves with Good Reason in contemplation of (or within 24 months following) a change in control of the Company, then, in lieu of the Mr. Karkus Severance payment described above, Mr. Karkus shall instead receive a one-time severance payment in cash equal to the greater of (i) $2.5 million, and (ii) 299 percent of his average annual total Form W-2 compensation for the three calendar years immediately preceding the date of termination.
 
Under his new employment agreement, Mr. Cuddihy agreed to an annual base salary of $350,000 as Chief Financial Officer and Chief Operating Officer. Mr. Cuddihy is eligible to receive an annual increase in base salary and may be awarded a bonus in the sole discretion of the Compensation Committee and also will receive regular benefits routinely provided to other senior executives of the Company. In the event of the termination by the Company of the employment of Mr. Cuddihy without cause or due to a voluntary resignation by Mr. Cuddihy with Good Reason (as defined in his Employment Agreement), Mr. Cuddihy will be paid 1.5 times his base salary ("Mr. Cuddihy Severance"), with one-half of such amount as a lump sum severance payment in cash and the remaining one-half paid in 12 equal consecutive, monthly installments commencing on the first business day of the month following the effective date of the termination; and all of the stock options and/or restricted stock held by Mr. Cuddihy shall automatically vest concurrently upon such termination of employment, regardless of any prior existing vesting schedules. If Mr. Cuddihy is terminated without cause or leaves with Good Reason in contemplation of (or within 24 months following) a change in control of the Company, then, in lieu of the Mr. Cuddihy Severance payment described above, Mr. Cuddihy shall instead receive a one-time severance payment in cash equal to the greater of (i) $1.0 million and (ii) 299 percent of his average annual total Form W-2 compensation for the three calendar years immediately preceding the date of termination.
 
Future Obligations
We have approximate future obligations over the next five years as follows (in thousands):
 
 
 
 
 
Godfrey
 
 
 
 
 
Employment
 
Settlement
 
 
 
Year
 
Contracts
 
Agreement
 
Total
 
2015
 
$
1,025
 
$
100
 
$
1,125
 
2016
 
 
1,025
 
 
100
 
 
1,125
 
2017
 
 
1,025
 
 
-
 
 
1,025
 
2018
 
 
-
 
 
-
 
 
-
 
2019
 
 
-
 
 
-
 
 
-
 
Total
 
$
3,075
 
$
200
 
$
3,275
 

INVESTMENT IN A JOINT VENTURE

v2.4.0.8
INVESTMENT IN A JOINT VENTURE
12 Months Ended
Dec. 31, 2014
Investments in and Advances to Affiliates, Schedule of Investments [Abstract]  
Investments in and Advances to Affiliates, Schedule of Investments [Text Block]
NOTE 9 – INVESTMENT IN A 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, a Delaware limited liability company, entered into a Limited Liability Company Agreement (the “LLC Agreement”) of the Phusion 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™ 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.
 
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 Parent’s 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.
 
The Phusion joint venture is managed by a four-person Board of Managers, with two managers appointed by each member. The LLC Agreement contains other normally found terms in such arrangements, including provisions relating to governance of Phsuion, indemnification obligations of Phusion, allocation of profits and losses, the distribution of funds to the members and restrictions on transfer of a member’s interest.
 
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.
 
In accordance with a Contribution Agreement, dated March 22, 2010 (the “Contribution Agreement”), by and among us, PSI Parent, PSI, and the Phusion joint venture, we transferred, conveyed and assigned to Phusion all of our rights, title and interest in, to and under the Original License Agreement, and Phusion assumed, and undertook to pay, discharge and perform when due, all of our liabilities and obligations under and arising pursuant to the Original License Agreement (such actions, collectively, the “Assignment and Assumption”).
 
Pursuant to the Contribution Agreement and in order to reflect the Assignment and Assumption, we, PSI Parent and the Joint Venture entered into an Amended and Restated License Agreement, dated March 22, 2010 (the “Amended License Agreement”), which amends and restates the Original License Agreement to reflect that Phusion is the licensee thereunder and which otherwise contains substantially the same terms as the Original License Agreement. Phsuion has the right to grant one or more sub-licenses of the rights granted under the Amended License Agreement to one or more third parties for reasonable consideration in any part of the applicable territory. The Amended License Agreement provides that PSI Parent shall not, directly or through third parties, exploit the covered intellectual property during the term thereof, subject to certain limitations. The Amended License Agreement will remain in effect until the expiration of the last to expire of the patents included within the PSI Technology or any extensions thereof. Either party may terminate the Amended License Agreement upon written notice to the other party in the event of certain events involving bankruptcy or insolvency. The Amended License Agreement also contains, among other things, provisions concerning the treatment of confidential information, the ownership of intellectual property and indemnification obligations.
 
Pursuant to the LLC Agreement, we and PSI each own a 50% membership interest in the Phusion joint venture. PSI Parent will conduct and oversee much of the product development, formulation, testing and other research and development needed by Phsuion, and we will oversee much of the production, distribution, sales and marketing. The LLC Agreement provides that each member may be required, from time to time and subject to certain limitations, to make capital contributions to Phusion to fund its operations, in accordance with agreed upon budgets for products to be developed. Specifically, we contributed in Fiscal 2010 $500,000 in cash as initial capital and we are committed to fund up to $2.0 million, subject to agreed upon budgets (which have not been established to date), toward the initial development and marketing costs of new products for Phusion. Phusion has not engaged in any financial transactions, other than organizational expenses and general market and initial product evaluation and analysis. At December 31, 2014, cash and cash equivalents includes $371,000 which is available to be used by Phusion to fund future product development initiatives currently under consideration by PSI Parent, PSI and us.
 
Our determination is that the Joint Venture qualifies as a VIE and that we are the primary beneficiary. We have consolidated the Joint Venture financial statements beginning with the quarter ended March 31, 2010. In Fiscal 2010, we recorded the $3.6 million payment noted above representing the estimated fair value to acquire the product license as an intangible asset. The estimated the expected remaining useful life of the product license is approximately 12.50 years which we would have begun amortizing the cost of the intangible asset once product development and commercialization begins (see impairment charge discussed below). Thus far, the Joint Venture has not generated any revenues and its expenses, including organizational, marketing analysis and preliminary formulations have been absorbed by the respective Joint Venture members. Furthermore, the liabilities and other obligations incurred, if any, by the Joint Venture is without recourse to us and do not create a claim on our general assets.
 
As previously announced, we are implementing a series of new product development and pre-commercialization initiatives principally in the dietary supplement category. While several of our product development initiatives have advanced, including those specific to the dietary supplement category, our Phusion product development initiatives have not progressed to management’s satisfaction. At this time, management believes that any products embodying the licensed technology to be developed by Phusion will not be available until fiscal 2016 or 2017 at the earliest, and may be more limited than previously forecasted and may encompass fewer products or have limited retail distribution.
 
Pursuant to our established accounting policies, we conducted the Fiscal 2013 annual analysis of our intangible asset as of December 31, 2013 by comparing the estimated fair value of the licensed technology based on the income approach (which utilizes forecasted discounted cash flows to estimate the fair value of the licensed technology) against the then carrying value. As we concluded that, as of December 31, 2013, the fair value according to the income approach exceeded book value, we concluded there was no impairment of the subject intangible asset.
 
During the third quarter of Fiscal 2014, our evaluation of the Company’s progress in its new product development pipeline and delays in Phusion product development caused management to reassess projections (including income projections) relied upon in December 2013. Accordingly, management performed an impairment analysis for the period ended September 30, 2014 for the licensed technology. As a consequence of our impairment assessment, we determined that a full impairment occurred of the intangible asset, licensed technology. As a consequence, we charged to operations a $3.6 million impairment charge during the third quarter of Fiscal 2014.
 
On October 17, 2014, we initiated a demand for arbitration with the American Arbitration Association. This demand for arbitration pertains to the Phusion joint venture and the matter is against the Phosphagenics Entities. The Phosphagenics Entities have made counter claims of breaches against the Company and Phusion (see Note 8).

EARNINGS PER SHARE

v2.4.0.8
EARNINGS PER SHARE
12 Months Ended
Dec. 31, 2014
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]
NOTE 10 – EARNINGS PER SHARE
 
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS 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 EPS also utilizes 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. Since there is a large number of options and warrants outstanding, fluctuations in the actual market price can have a variety of results for each period presented.
 
A reconciliation of the applicable numerators and denominators of the income statement periods presented is as follows (in thousands, except per share amounts):
 
 
 
Year Ended December 31,
 
 
 
2014
 
2013
 
2012
 
 
 
Loss
 
 
Shares
 
EPS
 
Income
 
 
Shares
 
EPS
 
Loss
 
 
Shares
 
EPS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic EPS
 
$
(7,834)
 
 
16,773
 
$
(0.47)
 
$
405
 
 
15,839
 
$
0.03
 
$
(1,091)
 
 
14,843
 
$
(0.07)
 
Dilutives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options/Warrants
 
 
-
 
 
-
 
 
-
 
 
-
 
 
437
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
$
(7,834)
 
 
16,773
 
$
(0.47)
 
$
405
 
 
16,276
 
$
0.03
 
$
(1,091)
 
 
14,843
 
$
(0.07)
 
 
For Fiscal 2014 and 2012, diluted earnings per share is the same as basic earnings per share due to 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. For Fiscal 2014 and 2012, there were Common Stock Equivalents in the amount of 598,609 and 177,035, respectively, which were in-the-money, that were excluded in the earnings per share computation due to their dilutive effect. In addition, for Fiscal 2014, 2013 and 2012, there were Common Stock Equivalents in the amount of 26,500, 472,500 and 114,000, respectively, which were out-of-the-money (the exercise price of the stock option was greater than the average market price for the period), that were excluded in the earnings per share computation due to their dilutive effect.

SIGNIFICANT CUSTOMERS

v2.4.0.8
SIGNIFICANT CUSTOMERS
12 Months Ended
Dec. 31, 2014
Significant Customers [Abstract]  
Significant Customers [Text Block]
NOTE 11 – SIGNIFICANT CUSTOMERS
 
Our products are distributed through national chain, regional, specialty and local retail stores throughout the United States. Revenues for Fiscal 2014, 2013 and 2012 were $22.1 million, $25.0 million and $22.4 million, respectively. Walgreen Company (“Walgreens”), Wal-Mart Stores Inc (“Wal-Mart”) and CVS Health Corporation (“CVS”) accounted for approximately 18.9%, 16.9% and 11.3%, respectively, of our Fiscal 2014 revenues. Walgreens, Wal-Mart Stores and CVS accounted for approximately 20.4%, 14.3% and 11.6%, respectively, of our Fiscal 2013 revenues. Walgreens, Wal-Mart and CVS accounted for approximately 19.3%, 13.8% and 13.4%, respectively, of our Fiscal 2012 revenues. The loss of sales to any one or more of these large retail customers could have a material adverse effect on our business operations and financial condition.
 
We are subject to account receivable credit concentrations from time-to-time as a consequence of the timing, payment pattern and ultimate purchase volumes or shipping schedules with our customers. These 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. Customers comprising the five largest accounts receivable balances represented 67% and 68% of total trade receivable balances at December 31, 2014 and 2013, respectively. Management believes that the provision for possible losses on uncollectible accounts receivable is adequate for our credit loss exposure. The allowance for doubtful accounts was zero for both December 31, 2014 and 2013.

QUARTERLY INFORMATION (UNAUDITED)

v2.4.0.8
QUARTERLY INFORMATION (UNAUDITED)
12 Months Ended
Dec. 31, 2014
Quarterly Financial Information Disclosure [Abstract]  
Quarterly Financial Information [Text Block]
NOTE 12 – QUARTERLY INFORMATION (UNAUDITED)
 
The following table presents unaudited quarterly financial information for Fiscal 2014 and Fiscal 2013 (in thousands, except per share amounts):
 
 
 
Quarter Ended
 
 
 
March 31,
 
June 30,
 
September 30,
 
December 31,
 
Fiscal 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
6,171
 
$
1,797
 
$
5,130
 
$
8,972
 
Gross profit
 
$
3,980
 
$
792
 
$
3,510
 
$
5,896
 
Net income (loss)
 
$
(804)
 
$
(3,138)
 
$
(3,216)
 
$
(676)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(0.05)
 
$
(0.19)
 
$
(0.18)
 
$
(0.05)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

v2.4.0.8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]  
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Policy Text Block]
Basis of Presentation
The consolidated financial statements (“Financial Statements”) include the accounts of the Company and its wholly owned subsidiaries and Phusion Laboratories LLC (“Phusion”), a variable interest entity (see Note 9). All intercompany transactions and balances have been eliminated.
Nature Of Operations [Policy Text Block]
Seasonality of the Business
Our net sales are derived principally from our OTC 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 its 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.
 
As a consequence of the seasonally of our business, we realize variations in operating results and demand for working capital from quarter to quarter. As of December 31, 2014, we had working capital of approximately $8.2 million and 438,480 shares of Common Stock available for sale under the 2014 Equity line. We believe our current working capital and available 2014 Equity Line is an acceptable and adequate level of working capital to support our business for at least the next twelve months ending March 31, 2016.
Use of Estimates, Policy [Policy Text Block]
Use of Estimates
The preparation of financial statements and the accompanying notes thereto, in conformity with generally accepted accounting principles in the United States of America (“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-EEZEÒ Cold Remedy lozenges, utilizes a proprietary zinc gluconate formulation which has been clinically proven to reduce the severity and duration of common cold symptoms. Factors considered in estimating the appropriate sales returns and allowances for this product include it being (i) a unique product with limited competitors, (ii) competitively priced, (iii) promoted, (iv) unaffected for remaining shelf-life as there is no product expiration date and (v) monitored for inventory levels at major customers and third-party consumption data. In addition to Cold-EEZE® Cold Remedy lozenges, we market and distribute a variety of Cold-EEZE® Cold Remedy QuickMelts® and a Cold-EEZE® Cold Remedy Oral Spray. We also manufacture, market and distribute an organic cough drop and a Vitamin C supplement (“Organix®”). Each of the Cold-EEZE® Cold Remedy Oral Spray and QuickMelts® products, and Organix® products carry shelf-life expiration dates for which we aggregate such new product market experience data and update our sales returns and allowances estimates accordingly. Sales allowances estimates are tracked at the specific customer and product line levels and are tested on an annual historical basis, and reviewed quarterly. 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 and Cash Equivalents, Policy [Policy Text Block]
Cash Equivalents
We consider all highly liquid investments with an initial 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, Policy [Policy Text Block]
Inventory
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 December 31, 2014 and 2013, the financial statements include adjustments to reduce inventory for excess or obsolete inventory of $797,000 and $635,000, respectively. The components of inventory are as follows (in thousands):
 
 
 
December 31,
 
 
 
2014
 
2013
 
 
 
 
 
 
 
Raw materials
 
$
798
 
$
434
 
Work in process
 
 
418
 
 
164
 
Finished goods
 
 
2,076
 
 
1,923
 
 
 
$
3,292
 
$
2,521
 
Property, Plant and Equipment, Policy [Policy Text Block]
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. The depreciation expense is computed in accordance with the estimated asset lives (see Note 3).
Concentration Risk Disclosure [Policy Text Block]
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 requirements associated with the development of OTC and other personal care products in order to continue to compete on a national 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 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 December 31, 2014, our cash was $2.9 million and our bank balance was $3.1 million. Of the total bank balance, $626,000 was covered by federal depository insurance and $2.4 million was uninsured.
 
Trade accounts receivable potentially subjects us to credit risk. We extend credit to our customers based upon an evaluation of the customer’s financial condition and credit history and generally we do not require collateral. Our broad range of customers includes many national chain, regional, specialty and local retail stores (see Note 11). During Fiscal 2014, 2013 and 2012, effectively all of our net revenues were related to domestic markets.
 
Our revenues are principally generated from the sale of OTC cold remedy products which approximated 94%, 94% and 95% of total revenues for Fiscal 2014, 2013 and 2012, respectively. A significant portion of our business is highly seasonal, which causes major variations in operating results from quarter to quarter. The third and fourth quarters generally represent the largest sales volume for the OTC cold remedy products.
 
Raw materials used in the production of the products are available from numerous sources. Certain raw material active ingredients used in connection with Cold-EEZE® Cold Remedy products are purchased from a single unaffiliated supplier. Should the relationship terminate or the vendor become unable supply material, we believe that the current contingency plans would prevent a termination from materially affecting our operations. However, if the relationship was terminated, there may be delays in production of our products until an acceptable replacement supplier is located.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
Long-lived Assets
We review the 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.
Revenue Recognition, Policy [Policy Text Block]
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 fall 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 December 31, 2014 and 2013, we included a provision for sales allowances of $129,000 and $128,000, respectively, which are reported as a reduction to account receivables. Additionally, accrued advertising and other allowances as of December 31, 2014 include $1.5 million for estimated future sales returns and $2.1 million for cooperative incentive promotion costs. As of December 31, 2013, accrued advertising and other allowances include $1.5 million for estimated future sales returns and $1.3 million for cooperative incentive promotion costs.
Shipping and Handling Cost, Policy [Policy Text Block]
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.
Compensation Related Costs, Policy [Policy Text Block]
Stock 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 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 5). Stock options are exercisable during a period determined by us, but in no event later than ten years from the date granted. In Fiscal 2014, 2013 and 2012, we charged to operations $1.0 million, $269,000 and $246,000, respectively, for share-based compensation expense for the aggregate fair value of stock and stock grants issued, and vested stock options earned.
Consolidation, Variable Interest Entity, Policy [Policy Text Block]
Variable Interest Entity
The Joint Venture, of which we own a 50% membership interest, qualifies as a variable interest entity (“VIE”) and we have consolidated the Phusion joint venture beginning with the quarter ended March 31, 2010 (see Note 9).
Advertising and Incentive Promotions [Policy Text Block]
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 media advertising, presented as part of sales and marketing expense; cooperative incentive promotions and coupon program expenses, which are accounted for as part of net sales; and free product, which is accounted for as part of cost of sales. Advertising and incentive promotion costs incurred for Fiscal 2014, 2013 and 2012 were $10.9 million, $10.8 million and $10.2 million, respectively. At December 31, 2014 and 2013, prepaid expenses and other current assets included $885,000 and $1.3 million, respectively, relating to prepaid deposits for advertising and promotion programs scheduled principally for the first quarter of Fiscal 2015 and 2014, respectively.
Research and Development Expense, Policy [Policy Text Block]
Research and Development
Research and development costs are charged to operations in the period incurred. Expenditures for Fiscal 2014, 2013 and 2012 were $1.3 million, $824,000 and $1.3 million, respectively. For Fiscal 2014, Fiscal 2013 and Fiscal 2012, research and development costs are related principally to new product development initiatives and costs associated with OTC cold remedy products.
Income Tax, Policy [Policy Text Block]
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 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 net current and non-current deferred tax asset is being provided (see Note 7).
 
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 uncertain tax positions will be recorded as interest or administrative expense, respectively.
 
The major jurisdiction for which we file income tax returns is the United States. The Internal Revenue Service (“IRS”) has examined our then tax year ended September 30, 2005 and has made no changes to the filed tax returns. The tax years 2006 and forward remain open to examination by the IRS. The tax years 2004 and forward remain open to examination by the various state taxing authorities to which we are subject.
Fair Value of Financial Instruments, Policy [Policy Text Block]
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable and accounts payable are reflected in the Financial Statements at carrying value which approximates fair value because of the short-term maturity of these instruments. Determination of the fair value of related party payables, if any, is not practicable due to their related party nature.
New Accounting Pronouncements, Policy [Policy Text Block]
Recently Issued Accounting Standards
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 amends Accounting Standards Codification 740, “Income Taxes,” to require that in certain cases, an unrecognized tax benefit, or portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date, and retrospective application is permitted. The adoption of ASU 2013-11 did not have a material impact on our consolidated financial position, results from operations or cash flows.
 
In May 2014, the FASB issued new accounting guidance ASU No. 2014-09, “Revenue from Contracts with Customers”, on revenue recognition.  The new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts.  Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard.  There is no option for early adoption.  This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016.  We are currently evaluating the impact of the new guidance on our consolidated financial statements.
 
In June 2014, the FASB issued new accounting guidance ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Companies should apply existing guidance in ASC 718, “Compensation - Stock Compensation”, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this update will be effective as of January 1, 2016. Earlier adoption is permitted. We may apply the amendments in this update either: (1) prospectively to all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If a retrospective transition is adopted, the cumulative effect of applying this update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if a retrospective transition is adopted, we may use hindsight in measuring and recognizing the compensation cost. We are currently assessing the impact of this update, and believe that its adoption on January 1, 2016 will not have a material impact on our consolidated financial statements.
 
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The amendments in this update state that in connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period beginning after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our consolidated financial statements.