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Note 3 - Commitments And Contingencies
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12 Months Ended | ||||||||||||||||||||
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Dec. 31, 2012
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| Commitments and Contingencies Disclosure [Text Block] |
3. COMMITMENTS
AND CONTINGENCIES
Operating
Leases
The
Company has entered into non-cancelable operating lease
agreements for locations within the United States and for its
international subsidiaries, with expirations through October
2015. Rent expense in connection with operating
leases was $744,000 and $740,000 during 2011 and 2012,
respectively.
Future
minimum lease obligations as of December 31, 2012, are as
follows (in thousands):
Purchase
Commitment
The
Company has entered into an agreement with one of its
suppliers to purchase its product through December
2014. To maintain this agreement, the Company is
required to purchase a minimum of $260,000 of product in
2013. The minimum purchase requirement in the
following year is dependent on the volume in the preceding
year plus an incremental amount not to exceed $40,000.
Employment
Agreements
The
Company has employment agreements with certain members of its
management team that can be terminated by either the employee
or the Company upon four weeks’ notice. The
employment agreements entered into with the management team
contain provisions that guarantee the payments of specified
amounts in the event of a change in control, as defined, or
if the employee is terminated without cause, as defined, or
terminates employment for good reason, as
defined. In addition, the Company has an
employment agreement with another employee that can be
terminated at will by either the employee or the Company,
provided that the Company must pay a specified amount if it
terminates the agreement without cause, as defined, or the
employee terminates the agreement with good reason, as
defined. As of December 31, 2012, no outstanding
obligations existed under any severance agreements.
Consumer
Indemnity
As
required by the Door-to-Door Sales Act in South Korea, the
Company maintains insurance for consumer indemnity claims
with a mutual aid cooperative by possessing a mutual aid
contract with Mutual Aid Cooperative & Consumer (the
“Cooperative”). The contract secures
payment to distributors in the event that the Company is
unable to provide refunds to
distributors. Typically, requests for refunds are
paid directly by the Company according to the Company’s
normal Korean refund policy, which requires that refund
requests be submitted within three
months. Accordingly, the Company estimates and
accrues a reserve for product returns based on this policy
and its historical experience. Depending on the
sales volume, the Company may be required to increase or
decrease the amount of the contract. The maximum
potential amount of future payments the Company could be
required to make to address actual distributor claims under
the contract is equivalent to three months of rolling
sales. At December 31, 2012, non-current
other assets include KRW 100 million (USD $94,000) underlying
the contract, which can be utilized by the Cooperative to
fund any outstanding distributor claims. The
Company believes that the likelihood of utilizing these funds
to provide for distributors claims is remote.
Registration
Payment Arrangements
Pursuant
to the agreement with the original investors and the
placement agent in the May 2007 financing for the sale
of 1,759,307 shares of Series A preferred stock and
warrants representing the right to purchase 1,759,307 shares
of common stock (see Note 4), the Company is obligated for a
specified period of time to maintain the effectiveness of the
registration statement that was filed with the Securities and
Exchange Commission (the “SEC”) covering the
resale of the shares of common stock issuable upon the
exercise of warrants issued in the financing. On March
18, 2010, the Company filed a post-effective amendment
withdrawing unsold shares from registration. If
the Company fails to file a new registration statement, and
maintain its effectiveness, then it may be liable for payment
in cash of an amount equal to 2% of the product of $1.70
times the number of shares of Series A preferred stock
sold in the financing to the relevant purchasers, or up to
approximately $60,000, but only if the quoted closing price
of the Company’s common stock exceeds the warrant
exercise price of the warrants. The exercise price
of the warrants is $5.00 per share. Such warrants
expire May 4, 2013.
Pursuant
to the agreement with the investors in the Company’s
October 2007 financing of variable rate convertible
debentures having an aggregate face amount of $4,250,000,
seven-year warrants to purchase 1,495,952 shares of the
Company’s common stock, and one-year warrants to
purchase 1,495,952 shares of the Company’s common
stock, the Company was obligated to (i) file a
registration statement covering the resale of the maximum
number of Registrable Securities (as defined) that is
permitted by SEC Guidance (as defined) prior to
November 18, 2007, (ii) cause the registration
statement to be declared effective within certain specified
periods of time and (iii) maintain the effectiveness of the
registration statement until all Registrable Securities have
been sold, or may be sold without volume restrictions
pursuant to Rule 144(k) under the Securities Act. The
Company timely filed that registration statement covering the
shares of common stock underlying the debentures, which have
been redeemed, and the one-year warrants, which have
expired. At the time, the 1,495,952 shares of
common stock underlying the seven-year warrants, and 149,595
shares of common stock underlying certain five-year warrants
issued to the placement agent in the transaction, were not
deemed Registrable Securities and were not included in the
Registration Statement. If they are subsequently
deemed Registrable Securities and we fail to file a new
registration statement covering them, then the warrants may
be exercised by means of a cashless exercise. The maximum
number of shares that could be required to be issued upon
exercise of the warrants (whether on a cashless basis or
otherwise) is limited to the number of shares indicated on
the face of the warrants.
As
of December 31, 2012, no contingent obligations have
been recognized under registration payment
arrangements.
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