Commitments and Contingencies

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Operating Lease

On June 6, 2014, the Company entered into the First Amendment to Commercial Lease (the “Amendment”), which amends the operating lease of the Company’s corporate offices entered into on August 1, 2012. The Company entered into the Amendment to (a) lease additional space located adjacent to the Company’s current corporate offices and (b) extend the term of the lease. Under the Amendment, the additional leased space is approximately 9,079 square feet, bringing the total leased premises to approximately 14,304 square feet. The term of the lease for the additional space is five years commencing on January 1, 2015 and expiring on December 31, 2019. The initial base rent for the additional space will be approximately $9 per month, subject to the increases set forth in the Amendment. The Company will receive rent abatement for the first three months of occupancy during each of 2015 and 2016 for the additional space. The Amendment also extends the lease of the original space from July 31, 2017 through December 31, 2019. The base rent for the original space as of August 1, 2014 was approximately $5 per month, subject to annual increases.

The future minimum lease payments under the non-cancellable operating lease in excess of one year at December 31, 2014 is as follows:

(In thousand $)
Years Ended December 31,	Amount
2015	$	150
2016		152
2017		181
2018		187
2019		191
Total	$	861

Rent expense including common area maintenance charges and taxes for the years ended December 31, 2014 and 2013 was $75 and $70, respectively.

Defined Contribution Plan

The Company established a 401(K) Plan (the “401(K) Plan”) for eligible employees of the Company effective April 1, 2014. Generally, all employees of the Company who are at least twenty-one years of age and who have completed three months of service are eligible to participate in the 401(K) Plan. The 401(K) Plan is a defined contribution plan that provides that participants may make salary deferral contributions, of up to the statutory maximum allowed by law (subject to catch-up contributions) in the form of voluntary payroll deductions. The Company’s matching contribution is equal to 100 percent on the first four percent of a participant’s compensation which is deferred as an elective deferral. The Company’s aggregate matching contribution for the year ended December 31, 2014 was $26.

Sponsorship Agreement

On June 27, 2011, the Company entered into a one year agreement with a celebrity spokesperson pursuant to which the spokesperson agreed to perform certain services for the Company and granted the Company the worldwide right to use the spokesperson’s name and approved image in various media. The agreement provided for cash compensation, which was paid in 2011, and royalties based on units sold for the term of the agreement and an additional 12 months thereafter. The agreement expired in June 2012.

The agreement also granted warrants to purchase 3,000 shares of common stock, 2,000 of which were granted upon signing of the agreement and 1,000 of which were granted in December 2011. The warrants had a term of two years with an exercise price of $50.00 per share. The warrants further provided that in the event (a) the trading price of the common stock of the Company on its principal trading market does not exceed $100.00 within two years of grant and (b) the warrants are not exercised prior to such time, then the spokesperson shall have the right to sell any unexercised portion of the warrants to the Company in exchange for $50.00 for each share of common stock underlying the unexercised portion of the warrants. During 2013, all 3,000 warrants expired and a total liability of $150 was included in accrued expenses. For the year ended December 31, 2013, selling, general and administrative expenses included a mark-to-market loss of $28 related to the warrants issued to the celebrity spokesperson in 2011.

Supply Agreement

On July 18, 2014, the Company entered into the First Amended and Restated Exclusive Supply Agreement (the “Agreement”) with DIL. Pursuant to the Agreement, DIL will manufacture and supply Fortetropin exclusively to the Company and may not manufacture Fortetropin for other entities in exchange the Company will purchase minimum quantities of Fortetropin at fixed prices through 2016. In addition, DIL agreed to assign its United States patent application for the manufacture of the formula to the Company and the Company agreed, for a period of seven years from the expiration of the Agreement, it will pay DIL a low single-digit royalty payment for each kilogram of Fortetropin produced by the Company, subject to certain minimum and maximum amounts. DIL also granted the Company a right of first refusal to license and/or acquire the European patent it owns for the manufacture of the formula. The Agreement expires on December 31, 2016, and may be renewed for additional one-year periods unless terminated by either party by giving ninety days’ notice before the expiration of the current term. Included in prepaid expenses and other current assets at December 31, 2014 were payments of $664 that the Company paid in advance for 2014 inventory purchases yet to be delivered by DIL. The minimum purchase obligations under the agreement are approximately $2,394 in 2015 (includes $293 of 2014 purchase commitments that were not yet made) and $2,101 in 2016. The Company did not meet the minimum purchase requirements during the fourth quarter of 2014 and does not expect to meet such requirements for the first quarter of 2015. Under the terms of the agreement with DIL, DIL can terminate the agreement upon written notice to the Company of a material breach. The failure to meet the minimum purchase commitments could be considered a material breach. Upon receipt of such notification, the Company has sixty days to fulfill the purchase requirements.

Product Liability

As a manufacturer of nutritional supplements that are ingested by consumers, the Company may be subject to various product liability claims. Although we have not had any claims to date, it is possible that future product liability claims could have a material adverse effect on our business or financial condition, results of operations or cash flows. The Company currently maintains products liability insurance of $5 million per-occurrence and a $10 million annual aggregate coverage. At December 31, 2014, the Company had not recorded any accruals for product liability claims.

Legal Proceedings

On October 10, 2014 we filed a request for arbitration before the International Chamber of Commerce against Cenegenics asserting various causes of action, including breach of contract. The request sought payment from Cenegenics of approximately $2.72 million, consisting of unpaid invoices for product shipped and received and for unpaid inventory that was produced for Cenegenics pursuant to the distribution agreement but not yet shipped, as well as related costs and expenses. On November 28, 2014, we entered into a settlement agreement with Cenegenics whereby we agreed to withdraw our October 10, 2014 request for arbitration, and in exchange Cenegenics agreed to pay the Company $1.9 million by April 2016, including an aggregate of $300 during the fourth quarter of 2014, and $100 per month from January 2015 through April 2016. As of the date of this filing, Cenegenics has made all scheduled payments under the terms of the settlement agreement. The settlement resolves all of Cenegenics outstanding obligations with respect to the units of product produced by the Company, including units produced but not yet delivered to Cenegenics. Cenegenics also agreed to pay the Company a storage fee for units of product produced by the Company but not delivered to Cenegenics.

On January 22, 2015, we filed an Order to Show Cause for a Temporary Restraining Order and Preliminary Injunction before the United States District Court of New Jersey to enjoin and restrain MHP from utilizing the name 4D-Tropin and from selling, distributing, advertising, or making know any product using the name 4D-Tropin. Additionally, we filed a Verified Complaint and Jury Demand before the United States District Court of New Jersey against MHP and Gerard Dente, MHP’s CEO, for willful trademark infringement, trademark dilution, and unfair competition, among other federal and state law claims. On March 9, 2015, the parties settled the matter, with MHP agreeing to cease selling or marketing 4D-Tropin within ninety days of the settlement date and the Company dismissing the lawsuit.