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Litigation
9 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]  
Litigation

Note 3 – Litigation

 

The Company is engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach of contracts, product liabilities and intellectual property matters resulting from the Company’s business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The Company continues to assess the requirements to account for additional contingencies in accordance with the standard on contingencies.

 

The following summaries highlight the current status of certain material commercial litigation in which the Company is involved.

 

Protica, Inc., a former manufacturer of products for the Company, sued the Predecessor Company for an alleged debt in the approximate amount of $384,000 and also unspecified damages for an alleged breach of an exclusive manufacturing agreement. The Predecessor Company has filed counterclaims alleging that the manufacturer breached the parties' agreement and the warranties implied therein and fraudulently concealed damage to the product manufactured for it resulting in an FDA recall of its product and loss of a significant portion of its commercial market. The case is referred to as Protica, Inc v. iSatori Technologies, LLC, Civil Action No. 11-1105, filed February 15, 2011 in United States District Court, Eastern District of Pennsylvania. The Predecessor Company seeks an unspecified amount of direct damages, punitive damages, and attorneys' fees. The Company and Protica, Inc. have engaged in preliminary settlement negotiations. The Company has an accrued liability of approximately $59,000 related to products purchased by Protica. The Company is unable to estimate the likelihood of an unfavorable outcome, and therefore has not accrued any additional loss. The range of loss that is reasonably possible is $0 to $325,000. The Company has filed discovery documents and mediation has been scheduled for December 6, 2012.

 

Jeffrey Grube brought a class action lawsuit against three companies, including the Company, based on the defendants' alleged marketing, distribution, or sales of products purporting to contain human chorionic gonadotropin ("hCG") or a natural hCG alternative. The case is referred to as Colonel Paul Jeffrey Grube v. GNC, iSatori Technologies LLC and HCG Platinum, LLC, Case No. 11-1005, filed August 4, 2011 in United States District Court, for the Western District of Pennsylvania. Grube claims that the defendants engaged in deceptive trade practices in violation of numerous state consumer protection laws, breached express warranties, and were unjustly enriched. The Company has also recently received a letter from GNC Corp., demanding the Company indemnify GNC Corp. pursuant to a distribution agreement between the Company and GNC Corp. The Company is contractually obligated to indemnify GNC Corp and will fulfill that responsibility. The action has been legally stayed pending the outcome of a settlement of a nationwide class action suit involving GNC and HCG Platinum. Because it is not probable or remote, the Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome. The range of any possible loss cannot be reasonably estimated as of the date of the financial statements.

 

Jerry Aviles brought a class action complaint against the Company relating to its product, ISA- TEST. The case is referred to as Jerry Aviles vs. iSatori Technologies, LLC, Case No. CIV DS1111487, filed October 4, 2011 in United Superior Court of the State of California, County of San Bernardino. Aviles alleges the Company violated the California Consumer Legal Remedies Act and engaged in unfair or deceptive business practice and false advertising in violation of the California Business and Professions Code. The Company has reached a settlement in the case, and payment was made on October 16, 2012. This settlement was not material.

 

The Company received a demand letter (the "Letter"); dated November 14, 2011, from the law firm of Milstein, Adelman LLP, claiming the Company's sale of its hCG Activator Natural hCG Alternative (the "Product") violated the California Consumer Legal Remedies Act and certain other provisions of California State Law. The Letter demanded the Company: (i) substantiate its advertising claims with respect to the Product; (ii) change its advertising with respect to the Product; (iii) recall the Product; (iv) identify all purchasers of the product; and (v) establish a fund for the providing for a full refund for all purchasers of the Product. The Company responded to the Letter on December 23, 2011 declining its request to engage in settlement negotiations or otherwise institute a recall of the Product. The Company received a response letter from Milstein Adelman LLP dated February 10, 2012. No formal litigation has been initiated against the Company as of this date. Because it is not probable or remote, the Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome. The range of any possible loss cannot be reasonably estimated as of the date of the financial statements.

 

The Company received a demand letter (the “Second Letter”), dated February 17, 2012, from the Breeden Law firm, claiming the Company’s sale of its African Mango Super Fruit™ diet product, (the “Mango Product”) violated the California Consumer Legal Remedies Act and certain other provisions of California State law. The Second Letter demanded the Company: (i) substantiate its advertising claims with respect to the Mango Product; (ii) change its advertising with respect to the Mango Product; (iii) recall the Mango Product; (iv) identify all purchasers of the Mango Product; and (v) establish a fund for the providing for a full refund for all purchasers of the Mango Product. No formal litigation has been initiated against the Company as of this date. On March 23, 2012, the Company received a letter from Vitamin World, Inc. (“Vitamin World”) requesting the Company indemnify Vitamin World for similar claims brought against it by the Breeden Law Firm concerning the Mango Product sold by Vitamin World. The Company’s indemnification obligations to Vitamin World arise from the standard terms and conditions contained in Vitamin World’s distribution agreements. The company has agreed to indemnify Vitamin World in this matter. Because it is not probable or remote, the Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome. The range of any possible loss cannot be reasonably estimated as of the date of the financial statements. The Company’s counsel is in communication with the complainant with regard to the requested label changes and settlement issues.

 

The Company was served a class action complaint on May 21, 2012 which was filed April 30, 2012 in the Southern District of California alleging Violation of False Advertising Act, Violation of Consumer Legal Remedies Act resulting from the issuance of the FDA warning letter regarding the Company’s PWR product and the DMAA contained in its formula. The Company’s attorneys requested and were granted an extension of time to respond to the allegations until August 10, 2012. Because of the Company’s action to reformulate this product before the suit was filed and agreeing to some replacement requirements, the Company has filed to block any claims for monetary damages under the Consumer Legal Remedies Act. Responses to subsequent filings have brought this case to the final settlement stage. An agreement on a settlement amount has been reached but final settlement language is still being negotiated. Final settlement of this case may occur during the fourth quarter of 2012, and is not expected to be material.

 

The Company received a demand letter (the "Third Letter"), dated August 7, 2012, from the Newport Trial Group, claiming the Company's sale of its hCG Activator Natural hCG Alternative violated the California Consumer Legal Remedies Act and certain other provisions of California State Law. The Company has responded appropriately to the Third Letter but the Plaintiff has taken no further action. As a result no other actions are planned by the Company on this matter until a response is received from the plaintiff. Because it is not probable or remote, the Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome. The range of any possible loss cannot be reasonably estimated as of the date of the financial statements.

 

A case was filed by The Newport Trial Group against iSatori and 56 other retailers/distributors for infringement of a patented ingredient “Citrline Malate”. This ingredient is utilized by the Company in certain of its product formulations. The judge for the case ordered the Newport Trial Group to resubmit this case as the complaint was insufficient and stayed the case until the case could be resubmitted no later than October 31, 2012. The case was resubmitted in time but the action is still stayed. If the stay is lifted the Company’s counsel is prepared to respond to the complaint.