Attached files
| file | filename |
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| EX-32 - EXHIBIT 32 - ICTV Brands Inc. | ex32.htm |
| EX-31.2 - EXHIBIT 31.2 - ICTV Brands Inc. | ex31_2.htm |
| EX-31.1 - EXHIBIT 31.1 - ICTV Brands Inc. | ex31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
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x
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2009
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________ to ________
Commission file number: 0-49638
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INTERNATIONAL COMMERCIAL TELEVISION INC.
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(Exact name of small business issuer as specified in its charter)
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Nevada
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76-0621102
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State or other jurisdiction of
incorporation or organization
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(IRS Employer Identification No.)
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299 Madison Avenue N. Suite C Bainbridge Island, WA 98110
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(Address of principal executive offices)
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(206) 780-8203
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,” accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non - accelerated filer o (Do not check if smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
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| Yes o No x |
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of June 25, 2010, the Issuer had 14,505,912 shares of common stock, par value $0.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes o No x
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ITEM 1.
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2 | ||
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ITEM 2.
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16 | ||
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ITEM 3.
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21 | ||
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ITEM 4T.
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21 | ||
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ITEM 1.
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22 | ||
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ITEM 1A.
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22 | ||
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ITEM 2.
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22 | ||
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ITEM 3.
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22 | ||
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ITEM 4.
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22 | ||
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ITEM 5.
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22 | ||
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ITEM 6.
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22 | ||
| 24 | |||
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ITEM 1.
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FINANCIAL STATEMENTS
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Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008 (audited)
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2 | ||
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Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 (unaudited)
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3
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Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 (unaudited)
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4
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Notes to the Consolidated Financial Statements
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5-15
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
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December 31,
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March 31, 2009
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2008
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$ | 64,646 | $ | 254,179 | ||||
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Restricted cash
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167,735 | 137,649 | ||||||
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Accounts receivable, net of doubtful account reserves of $11,608 and $29,869, respectively
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893,654 | 509,367 | ||||||
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Inventories, net
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1,465,740 | 2,474,344 | ||||||
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Prepaid expenses and deposits
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107,206 | 168,652 | ||||||
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Total current assets
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2,698,981 | 3,544,191 | ||||||
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Furniture and equipment
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183,117 | 182,005 | ||||||
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Less accumulated depreciation
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123,280 | 119,562 | ||||||
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Furniture and equipment, net
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59,837 | 62,443 | ||||||
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Total assets
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$ | 2,758,818 | $ | 3,606,634 | ||||
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LIABILITIES AND SHAREHOLDERS’ DEFICIT
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CURRENT LIABILITIES:
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Accounts payable and accrued liabilities
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$ | 2,025,133 | $ | 2,784,109 | ||||
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Accounts payable - related parties
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31,669 | 33,965 | ||||||
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Deferred revenue
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50,028 | 22,303 | ||||||
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Tax penalties payable
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240,000 | 240,000 | ||||||
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Note Payable to Shareholder
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590,723 | 590,723 | ||||||
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Total current liabilities
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2,937,553 | 3,671,100 | ||||||
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COMMITMENTS AND CONTINGENCIES
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SHAREHOLDERS’ DEFICIT:
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Preferred stock 20,000,000 shares authorized, no shares issued and outstanding
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Common stock, $0.001 par value, 100,000,000 shares authorized shares authorized, 14,505,912 and14,505,912 issued and outstanding as of March 31,2009 and December 31, 2008, respectively
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4,407 | 4,407 | ||||||
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Additional paid-in-capital
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5,111,937 | 5,111,937 | ||||||
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Subscriptions received in advance
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- | - | ||||||
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Accumulated deficit
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(5,295,079 | ) | (5,180,810 | ) | ||||
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Total shareholders’ deficit
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(178,735 | ) | (64,466 | ) | ||||
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Total liabilities and shareholders’ deficit
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$ | 2,758,818 | $ | 3,606,634 | ||||
See accompanying notes to consolidated financial statements.
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
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(Unaudited)
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For the three months ended
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March 31, 2009
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March 31, 2008
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NET SALES
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$ | 2,893,204 | $ | 3,866,078 | ||||
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COST OF SALES
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1,415,300 | 1,174,983 | ||||||
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GROSS PROFIT
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1,477,904 | 2,691,095 | ||||||
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OPERATING EXPENSES:
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General and administrative
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573,833 | 859,162 | ||||||
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Selling and marketing
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1,018,518 | 2,017,439 | ||||||
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Total operating expenses
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1,592,351 | 2,876,601 | ||||||
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OPERATING INCOME (LOSS)
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(114,447 | ) | (185,506 | ) | ||||
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INTEREST (EXPENSE) INCOME
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178 | 20,733 | ||||||
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NET INCOME (LOSS)
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(114,269 | ) | (164,773 | ) | ||||
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BASIC NET (LOSS) PER SHARE
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$ | (0.01 | ) | $ | (0.01 | ) | ||
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DILUTED NET(LOSS) PER SHARE
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$ | (0.01 | ) | $ | (0.01 | ) | ||
See accompanying notes to consolidated financial statements.
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
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(Unaudited)
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2009
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2008
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (114,269 | ) | $ | (164,773 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation
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3,718 | 1,660 | ||||||
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Change in assets and liabilities
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Accounts receivable
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(384,287 | ) | (338,356 | ) | ||||
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Inventory
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1,008,604 | (34,483 | ) | |||||
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Prepaid expenses and deposits
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61,446 | (189,364 | ) | |||||
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Accounts payable and accrued liabilities
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(758,976 | ) | (146,391 | ) | ||||
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Deferred revenue
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27,725 | 9,545 | ||||||
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Net cash used in operating activities
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(156,039 | ) | (862,162 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Additions to property and equipment
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(1,112 | ) | (34,111 | ) | ||||
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Net cash used in investing activities
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(1,112 | ) | (34,111 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Advances from related parties
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- | 44,605 | ||||||
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Payments to related parties
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(2,296 | ) | (60,594 | ) | ||||
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Net cash used in financing activities
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(2,296 | ) | (15,989 | ) | ||||
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NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
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(159,447 | ) | (912,262 | ) | ||||
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CASH AND CASH EQUIVALENTS, beginning of the year
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391,828 | 3,788,944 | ||||||
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CASH AND CASH EQUIVALENTS, end of the year
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$ | 232,381 | $ | 2,876,682 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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Interest paid
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$ | 108 | $ | 199 | ||||
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Income taxes paid
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$ | - | $ | - | ||||
See accompanying notes to consolidated financial statements.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies
Organization and Nature of Operations
International Commercial Television Inc., (the “Company” or “ICTV”) was organized under the laws of the State of Nevada on June 25, 1998.
Strategic Media Marketing Corp. (“SMM”) was incorporated in the Province of British Columbia on February 11, 2003 and has a December 31 fiscal year-end.
The Company sells various consumer products. The products are primarily marketed and sold throughout the United States and internationally via infomercials. Although our companies are incorporated in Nevada and British Columbia, operations are currently run from Washington State, Pennsylvania, and British Columbia.
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company generated negative cash flows from operating activities in the 3 month period ended March 31, 2009 of approximately $156,000, and the Company, for the most part, has experienced recurring losses from operations. The Company had a negative working capital of approximately $239,000 and an accumulated deficit of approximately $5,295,000 as of March 31, 2009.
Although we currently sell our products primarily through infomercials, the goal of our business plan is to use the brand awareness we create in our infomercials to sell our products (along with additional line extentions) under distinct brand names in traditional retail stores. Our objective is to have these families of products sold in the traditional retail environment in shelf-space dedicated to the product category. We are developing the infrastructure to create these brands of products so that we can implement our business plan.
There is no guarantee that the Company will be successful in bringing our products into the traditional retail environment. If the Company is unsuccessful in achieving this goal, the Company will be required to raise additional capital to meet its working capital needs. If the Company is unsuccessful in completing additional financings, it will not be able to meet its working capital needs or execute its business plan. In such case the Company will assess all available alternatives including a sale of its assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result should the Company be unable to continue as a going concern.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and within the rules of the Securities and Exchange Commission applicable to interim financial statements and therefore do not include all disclosures that might normally be required for financial statements prepared in accordance with generally accepted accounting principles. The accompanying unaudited consolidated financial statements have been prepared by management without audit and should be read in conjunction with the our consolidated financial statements, including the notes thereto, appearing in our Annual Report on Form 10-K for the year ended December 31, 2008. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position, consolidated results of operations and consolidated cash flows, for the periods indicated, have been made. The results of operations for the three months ended March 31, 2009 are not necessarily indicative of operating results that may be achieved over the course of the full year.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary SMM. All significant inter-company transactions and balances have been eliminated.
Concentration of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, include cash and trade receivables. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. As of March 31, 2009, the Company did not exceed the federally insured limit in its investment savings. The Company has not experienced any losses and believes it is not exposed to any significant risks on its cash in bank accounts. As of March 31, 2009 and March 31, 2008, 83% and 99% of the Company’s accounts receivable were due from various individual customers to whom our products had been sold directly via Direct Response Television; the remaining 17% and 1% of the Company’s accounts receivable were due from three and four wholesale infomercial operators, respectively.
Fair value of financial instruments
Fair value estimates, assumptions and methods used to estimate fair value of the Company’s financial instruments are made in accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The Company has used available information to derive its estimates. However, because these estimates are made as of a specific point in time, they are not necessarily indicative of amounts the Company could realize currently. The use of different assumptions or estimating methods may have a material effect on the estimated fair value amounts. The carrying values of financial instruments such as cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short settlement period for these instruments. It is not practicable to estimate the fair value of the Note Payable to Shareholder due to its related party nature.
Cash and cash equivalents
The Company considers all unrestricted highly liquid investments with an original maturity of three months or less to be cash equivalents.
Restricted Cash
Transfirst ePayment Services (“Transfirst”), ICTV’s credit card processing vendor for VISA and Mastercard transactions in the United States, maintains a reserve fund within our processing account to cover all fees, charges, and expenses due them, including those estimated for possible customer charge backs. These reserves are updated periodically by Transfirst and maintained for a rolling 180 days of activity. Based upon established levels of risk, this normally represents approximately 2% of transaction volume for the period, and is considered as “Restricted Cash”. At March 31, 2009 the amount of Transfirst reserves was $167,735 and at December 31, 2008 the reserve balance was $137,649.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Accounts receivable
Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $67,000 for the quarter ended March 31, 2009 and $62,000 for the year ended December 31, 2008 respectively. The allowances are calculated based on historical customer returns and bad debts.
In addition to reserves for returns on accounts receivable, an accrual is made against returns for product that have been sold to customer and had cash collections, while the customer still has the right to return the product. The amounts of these accruals included in accounts payable and accrued liabilities in our consolidated Balance Sheets were approximately $332,000 at March 31, 2009, and $248,000 for the year ended December 31, 2008.
Inventories
Inventories consist primarily of products held for resale, and are valued at the lower of cost (first-in, first-out method) or market. The Company adjusts inventory for estimated obsolescence when necessary based upon demand and market conditions. Included in inventory is approximately $21,000 of consigned product as of March 31, 2009 and $33,000 for the year ended December 31, 2008, that has been shipped to customers under the 30-day free trial period for which the trial period has not expired and as such the customer has not accepted the product.
Furniture and equipment
Furniture and equipment are carried at cost and depreciation is computed over the estimated useful lives of the individual assets ranging from 3 to 7 years. Depreciation is computed using the straight-line method. The related cost and accumulated depreciation of assets retired or otherwise disposed of are removed from the accounts and the resultant gain or loss is reflected in earnings. Maintenance and repairs are expensed currently while major renewals and betterments are capitalized.
Depreciation expense amounted to $3,718 and $1,660 for the three months ended March 31, 2009 and 2008, respectively.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value. No impairment losses were identified or recorded in the fiscal quarters ended March 31, 2009 and 2008.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Revenue recognition
For our domestic direct response television sales generated by our infomercials, product sales revenue is recognized when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. The Company’s revenues in the Statement of Operations are net of sales taxes.
The Company offers a 30-day risk-free trial as one of its payment options. Revenue on the 30-day risk-free trial sales is not recognized until customer acceptance and collectability are assured which we determine to be when the trial period ends. If the risk-free trial expires without action by the customer, product is determined to be accepted by the customer and revenue is recorded. Revenue for items purchased without the 30-day free trial is recognized upon shipment of the product to the customer and collectability is assured.
After the Company entered into the exclusive distribution agreement with Allstar in May 2009, the Company no longer had any sales with a 30-day free trial period. As part of the agreement with Allstar the Company received non-refundable royalty advances which were booked as deferred revenue until Allstar sold DermaWands. Allstar is required to provide ICTV with monthly royalty statements per the contract within 30 days of the end of each month. The Company records revenue in the month goods were sold per the Allstar royalty report.
Revenue related to international wholesale customers is recorded at gross amounts with a corresponding charge to cost of sales.
The Company has a return policy whereby the customer can return any product received within 30 days of receipt for a full refund excluding shipping and handling. However, historically the Company has accepted returns past 30 days of receipt. The Company provides an allowance for returns based upon past experience. All significant returns for the periods presented have been offset against gross sales.
Shipping and handling
Amounts billed to a customer for shipping and handling are included in revenue; shipping and handling revenue approximated $175,000 and $281,000 for the three months ended March 31, 2009 and 2008, respectively. Shipping and handling costs are included in cost of sales. Shipping and handling costs approximated $192,000 and $384,000 for the three months ended March 31, 2009 and 2008, respectively.
Research and development
Research and development costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements. Research and development costs primarily consist of efforts to discover and develop new products and the testing and development of direct-response advertising related to these products.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Media and production costs
Media and production costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements. The Company incurred $537,000 and $1,535,000 in such costs for the periods ended March 31, 2009 and 2008, respectively.
Income taxes
In preparing our consolidated financial statements, we make estimates of our current tax exposure and temporary differences resulting from timing differences for reporting items for book and tax purposes. We recognize deferred taxes by the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In consideration of our accumulated losses and lack of historical ability to generate taxable income to utilize our deferred tax assets, we have estimated that we will not be able to realize any benefit from our temporary differences and have recorded a full valuation allowance. If we become profitable in the future at levels which cause management to conclude that it is more likely than not that we will realize all or a portion of the net operating loss carry-forward, we would immediately record the estimated net realized value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would be approximately 40% under current tax laws. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period.
The Company’s policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations.
Stock options
The Company adopted a stock option plan (“Plan”). The purpose of this Plan is to provide additional incentives to key employees, officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best available personnel for positions of responsibility and otherwise promoting the success of the business activities. It is intended that options issued under this Plan constitute nonqualified stock options. The general terms of awards under the option plan are that 10% will vest every 6 months. The maximum term of options granted is 10 years and the number of shares authorized for grants of options is 3,000,000.
The Company uses Financial Accounting Standards Board issued Statement Number 123 (“FAS 123 (R)”), Share-Based Payments, to account for stock-based compensation. The Company recognizes compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees over the requisite vesting period of the awards. Stock options granted to non-employees are remeasured at each reporting period.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Stock options (continued)
For the quarter ended March 31, 2009 and 2008, the Company issued no options and recorded no stock compensation expense related to vesting of options previously granted.
The following is a summary of stock options outstanding under the existing stock option plan for the three months ended March 31, 2009 and 2008:
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Number of Shares
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Weighted
Average
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Employee
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Non-
Employee
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Totals
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Exercise
Price
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Balance, January 1, 2008
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- | 1,157,000 | 1,157,000 | $ | 1.40 | |||||||||||
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Granted during 2008
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- | - | - | - | ||||||||||||
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Exercised during the year
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- | - | - | - | ||||||||||||
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Cancelled during the year
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- | - | - | - | ||||||||||||
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Balance, March 31, 2008
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- | 1,157,000 | 1,157,000 | $ | 1.40 | |||||||||||
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Number of Shares
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Weighted
Average
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Employee
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Non-
Employee
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Totals
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Exercise
Price
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Balance, January 1, 2009
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- | 1,117,000 | 1,117,000 | $ | 1.39 | |||||||||||
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Granted during 2009
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- | - | - | - | ||||||||||||
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Exercised during the period
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- | - | - | - | ||||||||||||
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Cancelled during the period
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- | - | - | - | ||||||||||||
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Balance, March 31, 2009
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- | 1,117,000 | 1,117,000 | $ | 1.39 | |||||||||||
There were no stock options granted during the period ended March 31, 2009 and 2008. Of the stock options currently outstanding, 1,052,000 options are currently vested and exercisable at exercise price from $0.35 to $2.00. The weighted average exercise price of these options was $1.40. These options expire at dates ranging between May 31, 2009 and September 28, 2011. The aggregate intrinsic value for options outstanding and exercisable at March 31, 2009 was immaterial.
New Accounting Pronouncements
During 2009, the Company adopted the EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.” As a result of adoption of this guidance, the Company determined that its private placement agreement entered into in 2007 contains certain anti-dilution provisions which require the Company to issue a variable number of shares of the Company’s Common Stock in the event the Company issues any equity-based instruments below the sale price of the private placement units of $2.20. As of March 31, 2009, the Company would be required to issue an additional 14,400,000 shares of Common Stock to the private placement investors if the Company issued any equity-based instruments at the current market price of our Common Stock.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”), which clarifies the application of SFAS 157 when there is no active market or where the price inputs being used represent distressed sales. Additional guidance is provided regarding estimating the fair value of an asset or liability (financial and nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of FASB 162 is not expected to have a material impact on the Company’s financial position.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 sets forth the authoritative U.S. generally accepted accounting principles to be applied by nongovernmental entities on a going-forward basis. However, SFAS No. 168 is anticipated to only result in a change of accounting standards for nonpublic entities that have not previously applied the revenue recognition provisions of AICPA Technical Inquiry Service Section 5100. The Company does not anticipate that SFAS No. 168 will have a material effect on its consolidated results of operations or financial condition.
Note 2 - License and reconveyance agreements
Effective April 1, 2000, the Company entered into a License and Reconveyance Agreement with WSL and RJML. These agreements are royalty-free. WSL and RJML owned or had rights in certain intellectual properties that were transferred or assigned to ICTV during 2003. Accordingly, WSL and RJML granted all production rights, proprietary rights, inventory, development rights, tangible assets, licenses and any assets or rights to the Company. The Company has the right to further develop and enhance the intellectual properties as the Company sees fit.
Note 3 - Commitments and contingencies
Leases
As of March 31, 2009, the Company had three active leases related to the office space rented in three locations: Bainbridge Island, Washington, Wayne, Pennsylvania, and Vancouver, British Columbia. Total rent expense incurred during the three months ended March 31. 2009 and 2008 totaled 21,546 and 9,102, respectively. The schedule below details the future financial obligations under these three leases.
|
2009
|
2010
|
2011
|
2012
|
2013
|
2014
|
TOTAL OBLIGATION
|
|||||||||||||||||||||||
|
Bainbridge Island - Corporate HQ
|
$ | 14,512 | $ | 4,950 | $ | - | $ | - | $ | - | $ | - | $ | 19,462 | |||||||||||||||
|
Wayne - Operations Office
|
$ | 26,217 | $ | 35,594 | $ | 8,925 | $ | - | $ | - | $ | - | $ | 70,736 | |||||||||||||||
|
West Vancouver, BC - International
|
$ | 5,426 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,426 | |||||||||||||||
|
Total Lease Obligations
|
$ | 46,155 | $ | 40,544 | $ | 8,925 | $ | - | $ | - | $ | - | $ | 95,624 | |||||||||||||||
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 3 - Commitments and contingencies (continued)
Cell RXT
During 2007, the Company and Info Marketing Group Inc. (“IMG”) entered into a Exclusive License Letter Agreement (“Agreement”) granting an exclusive license to ICTV with respect to Cell RX and associated products (”Product”).
IMG granted to the Company an exclusive license to manufacture, market and sell Cell RX and associated products anywhere in the world. With respect to marketing and selling assistance to be provided by IMG, such assistance shall include making best efforts to obtain commitments from all of the talent who have in the past or are presently endorsing the Product to continue to do so. IMG shall assign to ICTV all of its rights with respect to intellectual property, tangible property, and agreements related to Product.
DermaWandTM
On October 15, 1999, WSL entered into an endorsement agreement with an individual for her appearance in a DermaWand infomercial. On July 11, 2001, the agreement was amended to include a royalty payment for each unit sold internationally, up to a maximum royalty payment for any one calendar quarter. Further, if the infomercial is aired in the United States, then the airing fee will revert back to the same flat rate per calendar quarter. The initial term of the agreement is five years starting October 15, 1999. The agreement automatically and continually renews for successive additional five-year terms unless RJML is in material default and is notified in writing at least thirty days prior to the end of the then current term that the individual intends to terminate the agreement.
The Company assumed any and all responsibilities associated with the agreements noted above on April 1, 2000, pursuant to the license and reconveyance agreement disclosed in Note 2.
On January 5, 2001, WSL entered into a marketing and royalty agreement with Omega 5. WSL shall have worldwide nonexclusive rights to manufacture, market and distribute DermaWandTM. In consideration of these rights, WSL shall pay a royalty for each unit sold of DermaWand depending on various scenarios as defined in the agreement. The agreement is silent as to its duration.
During 2007, the Company entered into an exclusive license agreement with Omega 5 wherein ICTV was assigned all of the trademarks and all of the patents and pending patents relating to the DermaWandTM and was granted exclusive license with respect to the commercial rights to the DermaWandTM. The geographical scope of the license granted is the entire world consisting of the United States of America and all of the rest of the world. The license remains exclusive to ICTV provided ICTV pays to Omega 5 a minimum annual royalty of $250,000 in the initial 18 month term of the agreement and in each succeeding one-year period. If the Company fails to meet the minimum requirements as outlined in the agreement, it may be forced to assign the trademarks and patents back to Omega 5. After the initial term, the exclusive license granted shall renew automatically for a three year period, and thereafter automatically at three-year intervals.
The amount of royalty expenses incurred for sales of the DermaWandTM were approximately $137,000 and $116,000 for the periods ended March 31, 2009 and 2008, respectively.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 3 - Commitments and contingencies (continued)
Other matters
Product Liability Insurance
For certain products, the Company was (and is) listed as an additional insured party under the product manufacturers’ insurance policy. The current policy has a scheduled expiration of April 20, 2010. The policy was renewed again in April 2010 with a new scheduled expiration date of April 20, 2011.
At present, management is not aware of any claims against the Company for any products sold.
Note 4 - Related party transactions
The Company has received short-term advances from a shareholder. There were no advances for the quarter ended March 31, 2009. There was approximately $45,000 in advances during the period ended March 31, 2008. The advances are offset by repayments which amounted to approximately $2,000 and $61,000 during the periods ended March 31, 2009 and 2008, respectively. These advances are non-interest bearing and without specific terms of repayment. These advances are included in accounts payable – related parties, on the accompanying consolidated balance sheets.
The Company has a note payable to a shareholder in the amount of $590,723. This loan is interest-free and has no specific terms of repayment.
Note 5 - Capital transactions
During the three months ended March 31, 2009 and 2008, the Company had no capital transactions.
The 2007 stock purchase agreement for the private placement stock at $2.20 per share included an anti-dilution clause that states if the Company issues, sells, or otherwise distributes any shares, or any other securities convertible into Share, other than pursuant to a stock split, stock dividend or consolidation of its outstanding shares into a smaller number of Shares, for a consideration per share less than $2.20 per share, then effective upon such share distribution, the Company will issue to each investor additional shares in an amount equal to the purchase price, divided by the consideration per share received by the Company in the share distribution, less the number of shares previously issued to the investor in the transaction. There was no capital transaction in 2009 or 2008 that triggered this clause.
Note 6 - Basic and diluted loss per share
Statement of Financial Accounting Standards No. 128 (SFAS 128), “Earnings Per Share” requires presentation of basic earnings per share and diluted earnings per share.
INTERNATIONAL COMMERCIALTELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 6 - Basic and diluted loss per share (continued)
The computation of basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives the effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on net income or loss.
The computations for basic and fully diluted earnings per share are as follows:
|
For the 3-month ended March 31, 2009:
|
Loss
(Numerator)
|
Weighted Average
Shares
(Denominator)
|
Per Share
Amount
|
|||||||||
|
Basic and diluted earnings per share
|
||||||||||||
|
Loss to common shareholders
|
$ | (114,269 | ) | 14,505,912 | $ | (0.01 | ) | |||||
|
For the 3-month ended March 31, 2008:
|
Loss
(Numerator)
|
Weighted
Average Shares
(Denominator)
|
Per Share
Amount
|
|||||||||
|
Basic and diluted loss per share
|
||||||||||||
|
Loss to common shareholders
|
$ | (164,773 | ) | 14,279,287 | $ | (0.01 | ) | |||||
Note 7 - Segment reporting
The Company operates in one industry segment and is engaged in the selling of various consumer products primarily through direct marketing infomercials and televised home shopping. The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is operating income (loss) by geographic area. Operating expenses are primarily prorated based on the relationship between domestic and international sales.
Information with respect to the Company’s operating loss by geographic area is as follows:
|
For the three months ended March 31, 2009
|
For the three months ended March 31, 2008
|
|||||||||||||||||||||||
|
Domestic
|
International
|
Totals
|
Domestic
|
International
|
Totals
|
|||||||||||||||||||
|
NET SALES
|
$ | 2,673,176 | $ | 220,028 | $ | 2,893,204 | $ | 3,794,609 | $ | 71,469 | $ | 3,866,078 | ||||||||||||
|
COST OF SALES
|
1,292,254 | 123,046 | 1,415,300 | 1,133,696 | 41,287 | 1,174,983 | ||||||||||||||||||
|
Gross profit
|
1,380,922 | 96,982 | 1,477,904 | 2,660,913 | 30,182 | 2,691,095 | ||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
General and administrative
|
554,632 | 19,201 | 573,833 | 741,562 | 117,600 | 859,162 | ||||||||||||||||||
|
Selling and marketing
|
1,011,613 | 6,905 | 1,018,518 | 2,016,146 | 1,293 | 2,017,439 | ||||||||||||||||||
|
Total operating expense
|
1,566,245 | 26,106 | 1,592,351 | 2,757,708 | 118,893 | 2,876,601 | ||||||||||||||||||
|
Operating income (loss)
|
$ | (185,323 | ) | $ | 70,876 | $ | (114,447 | ) | $ | (96,795 | ) | $ | (88,711 | ) | $ | (185,506 | ) | |||||||
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2009 and March 31, 2008
(Unaudited)
Note 8 - Income taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has provided a full valuation allowance on the net deferred tax asset because of uncertainty regarding its realization. This asset primarily consists of net operating losses. For the most part, the Company has experienced operating losses since inception. Therefore the Company has accumulated approximately $3,700,000 and $3,600,000 of net operating loss carryforwards for federal and state purposes, respectively, which expire twenty years from the time of incurrence for federal purposes. Expiration for the state net operating carryforwards may vary based on different state rules.
The Company’s policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations. The Company recorded zero interest and penalties for the quarters ended March 31, 2009 and 2008. At March 31, 2009 and December 31, 2008 the Company has approximately $240,000 accrued for various tax penalties.
The Company has not filed income tax returns since inception; therefore, the statute for all years remains open and any of these years could potentially be audited.
Note 9 – Subsequent events
On February 25, 2010, we issued a press release on Marketwire that announced the cancellation of our plans to distribute the “Cell RX” product line.
On March 15, 2010, we issued a press release on Marketwire that announced the termination of our distribution arrangement with Allstar Marketing Group for our DermaWand product in the United States, with an effective date of March 13, 2010.
|
ITEM 2.
|
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
Except for the historical information presented in this document, the matters discussed in this Form 10-Q, and specifically in the "Management's Discussion and Analysis or Plan of Operation”, or otherwise incorporated by reference into this document contain "forward looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "intends", "should", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. You should not place undue reliance on forward-looking statements. Forward-looking statements involve risks and uncertainties. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this report on Form 10-Q and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business.
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Financial Statements and accompanying notes and the other financial information appearing elsewhere in this report.
Overview
Although we currently sell products through infomercials, the goal of our business plan is to use the brand awareness we create in our infomercials so that we can sell the products featured in our infomercials, along with related families of products, under distinct brand names in traditional retail stores. Our goal is to have these families of products sold in the traditional retail environment in shelf-space dedicated to the product category. We are developing the infrastructure to create these brands of products so that we can implement our business plan.
Fluctuations in our revenue are driven by changes in our product mix. Revenues may vary substantially from period to period depending on our product line-up. A product that generates revenue in one quarter may not necessarily generate revenues in each quarter of a fiscal year for a variety of reasons, including, seasonal factors, the product’s stage in its life-cycle, the public’s general acceptance of the infomercial and other outside factors, such as the general state of the economy.
Just as fluctuations in our revenues are driven by changes in our product mix, our gross margins from period to period depend on our product mix. Our gross margins vary according to whether the products we are selling are primarily our own products or third-party products. As a general rule, the gross margins for our own products are considerably higher based on proportionately smaller cost of sales. For third-party products, our general experience is that our gross margins are lower, because we record as cost of sales the proportionately higher cost of acquiring the product from the manufacturer. Within each category (i.e., our own products versus third-party products), gross margins still tend to vary based on factors such as market price sensitivity and cost of production.
Many of our expenses for our own products are incurred “up-front”. Some of our up-front expenditures include infomercial production costs and purchases of media time. If our infomercials are successful, these “up-front” expenditures produce revenue on the back-end, as consumers purchase the products aired on the infomercials. We do not incur infomercial production costs and media time for our International third-party products, because we merely act as the distributor for pre-produced infomercials. It is the responsibility of the international infomercial operators to whom we sell the third-party products to take the pre-produced infomercial, adapt it to their local standards and pay for media time.
In conjunction with its on-going business expansion, the Company opened its new operations headquarters office in Wayne, Pennsylvania on April 1, 2008. The office is managed by Richard Scheiner, who was named the Company’s Chief Operating Officer on May 30, 2008.
Results of Operations
The following discussion compares operations for the quarter ended March 31, 2009 with the quarter ended March 31, 2008.
Revenues
Our revenues decreased to approximately $2,893,000 for the quarter ended March 31, 2009, down from approximately $3,866,000 recorded during the comparative quarter in 2008, a 25% decrease. In March 2009, our revenue was generated solely from the sale of our DermaWand product simply because this product has received the highest amount of interest from our international and domestic infomercial operators and is also selling very well in the United States through our direct response television and televised home shopping campaigns. All revenues recorded during the quarter ended March 31, 2009 were generated by our own products, as was the case during the comparative period in 2008.
Gross Margin
Gross margin percentage was approximately 51% for the quarter ended March 31, 2009, down from approximately 70% during the comparative quarter in 2008. The major reason for the decrease relates to the decline of our DRTV campaign for the DermaWand, which generated the highest selling price of all of our distribution channels. During the quarter ended March 31, 2009, we generated gross margins of approximately $1,478,000 for DermaWand, and in the quarter ended March 31, 2008, we received gross margins of $2,691,000 for DermaWand.
Operating Expenses
Total operating expenses decreased to approximately $1,592,000 during the quarter ended March 31, 2009, from approximately $2,877,000 during the quarter ended March 31, 2008, down approximately $1,285,000, or 45%. This decrease is attributed primarily to four factors; $537,000 in media costs were incurred during the current period as compared to $1,535,000 during the quarter ended March 31, 2008, $190,000 in fulfillment charges were charged during the current period compared to $213,000 during the quarter ended March 31, 2008, bad debt expense was $75,000 for the period ending March 31, 2009 as compared to $316,000 during the quarter ended March 31, 2008, and finally $83,000 in answering service charges in relation to product sales were incurred during the current period as compared to $183,000 during the quarter ended March 31, 2008.
Net Income/Loss
The Company generated a net loss of approximately $114,000 for the quarter ended March 31, 2009, compared with a net loss of approximately $165,000 for the quarter ended March 31, 2008. Despite a decrease in revenue due to the reduction in our DRTV campaign for DermaWand, the related reduction in selling and marketing expenses was greater than the decrease in revenue, thus causing the net loss to decrease for the quarter end March 31, 2009 as compared to the quarter end March 31, 2008.
Liquidity and Capital Resources
At March 31, 2009, we had approximately $232,000 in cash on hand (including restricted cash), compared to approximately $392,000 at December 31, 2008. We generated negative cash flows from operations of approximately $156,000 in the first quarter of 2009 compared to a negative cash flow from operations of approximately $862,000 for the same period in 2008. The negative cash flow from operations during the current period was a result of a net loss of approximately $114,000, an increase in accounts receivable of approximately $384,000, an increase in inventory of approximately $1,008,000, an increase in prepaid expense and deposits of approximately $61,000, a decrease in accounts payable of approximately $759,000, an increase in deferred revenue of approximately $28,000, and depreciation expense of approximately $4,000
We have a note payable to The Better Blocks Trust (“BB Trust”) in the amount of approximately $591,000.
The Company has granted 1,117,000 stock options: 900,000 at $0.35, 160,000 at $0.36, 60,000 at $0.50, 35,000 at $1.50 and 20,000 at $2.00. All option grants vest over a five-year period. To date, a total of 34,000 stock options have been exercised at $0.50 for proceeds of $17,000. If the optionees exercise the remainder of these options as they vest, we will receive $468,820 in capital. The options granted on September 28, 2001 resulted in a deferred non-cash compensation expense of approximately $32,000. During 2005, $16,000 of this deferred non-cash compensation expense was amortized; the remaining $16,000 was amortized during 2006. This assumes an estimated fair value of $1.50 per share, based on the price of our offering of $1.50 per share at the time. No options were granted or exercised during the period ended March 31, 2009.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company generated negative cash flows from operating activities during the quarter ended March 31, 2009, of approximately $156,000, and the Company, for the most part, has experienced recurring losses from operations. As of March 31, 2009, the Company had a negative working capital of approximately $239,000, compared to a negative working capital of approximately $127,000 at December 31, 2008, and an accumulated deficit of approximately $5,295,000 as of March 31, 2009.
As noted above under “Business,” our goal is to use the brand awareness we create in our infomercials to sell the products featured in our infomercials, along with related families of products, under distinct brand names in traditional retail stores. We will need to raise additional capital to execute that business plan. There can be no assurance that the required capital will be available on commercially reasonable terms, if at all. If we are unable to raise additional capital, we will assess all available alternatives including a sale of our assets or a merger. If none of these alternatives are available, we will be unable to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in Note 1 in the Notes to the Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.
Fair value of financial instruments
Fair value estimates, assumptions and methods used to estimate fair value of the Company’s financial instruments are made in accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The Company has used available information to derive its estimates. However, because these estimates are made as of a specific point in time, they are not necessarily indicative of amounts the Company could realize currently. The use of different assumptions or estimating methods may have a material effect on the estimated fair value amounts. The carrying values of financial instruments such as cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short settlement period for these instruments. It is not practicable to estimate the fair value of the Note Payable to Shareholder due to its related party nature.
Accounts receivable
Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $67,000 for the quarter ended March 31, 2009 and $62,000 for the year ended December 31, 2008. The allowances are calculated based on historical customer returns and bad debts.
In addition to reserves for returns on accounts receivable, an accrual is made against returns for product that have been sold to customer and had cash collections, while the customer still has the right to return the product. The amounts of these accruals included in accounts payable and accrued liabilities in our consolidated Balance Sheets were approximately $332,000 at March 31, 2009 and $248,000 at December 31, 2008.
Inventories
Inventories consist primarily of products held for resale, and are valued at the lower of cost (first-in, first-out method) or market. The Company adjusts inventory for estimated obsolescence when necessary based upon demand and market conditions. Included in inventory is approximately $21,000 of consigned product as of March 31, 2009 and $33,000 for the year ended December 31, 2008, that has been shipped to customers under the 30-day free trial period for which the trial period has not expired and as such the customer has not accepted the product.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets, are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value. No impairment losses were identified or recorded in the fiscal quarters ended March 31, 2009 and 2008.
Revenue recognition
For our domestic direct response television sales generated by our infomercials, product sales revenue is recognized when the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. The Company’s revenues in the Statement of Operations are net of sales taxes.
The Company offers a 30-day risk-free trial as one of its payment options. Revenue on the 30-day risk-free trial sales is not recognized until customer acceptance and collectability are assured which we determine to be when the trial period ends. If the risk-free trial expires without action by the customer, product is determined to be accepted by the customer and revenue is recorded. Revenue for items purchased without the 30-day free trial is recognized upon shipment of the product to the customer and collectability is assured.
After the Company entered into the exclusive distribution agreement with Allstar in May 2009, the Company no longer had any sales with a 30-day free trial period. As part of the agreement with Allstar the Company received non-refundable royalty advances which were booked as deferred revenue until Allstar sold DermaWands. Allstar is required to provide ICTV with monthly royalty statements per the contract within 30 days of the end of each month. The Company records revenue in the month goods were sold per the Allstar royalty report.
Revenue related to international wholesale customers is recorded at gross amounts with a corresponding charge to cost of sales.
The Company has a return policy whereby the customer can return any product received within 30 days of receipt for a full refund excluding shipping and handling. However, historically the Company has accepted returns past 30 days of receipt. The Company provides an allowance for returns based upon past experience. All significant returns for the years presented have been offset against gross sales.
Income taxes
In preparing our consolidated financial statements, we make estimates of our current tax exposure and temporary differences resulting from timing differences for reporting items for book and tax purposes. We recognize deferred taxes by the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In consideration of our accumulated losses and lack of historical ability to generate taxable income to utilize our deferred tax assets, we have estimated that we will not be able to realize any benefit from our temporary differences and have recorded a full valuation allowance. If we become profitable in the future at levels which cause management to conclude that it is more likely than not that we will realize all or a portion of the net operating loss carry-forward, we would immediately record the estimated net realized value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would be approximately 40% under current tax laws. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period.
The Company’s policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations. The Company recorded no interest and penalties for the quarters ended March 31, 2009 and 2008, respectively.
New Accounting Pronouncements
During 2009, the Company adopted the EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.” As a result of adoption of this guidance, the Company determined that its private placement agreement entered into in 2007 contains certain anti-dilution provisions which require the Company to issue a variable number of shares of the Company’s Common Stock in the event the Company issues any equity-based instruments below the sale price of the private placement units of $2.20. As of March 31, 2009, the Company would be required to issue an additional 14,400,000 shares of Common Stock to the private placement investors if the Company issued any equity-based instruments at the current market price of our Common Stock.
In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”), which clarifies the application of SFAS 157 when there is no active market or where the price inputs being used represent distressed sales. Additional guidance is provided regarding estimating the fair value of an asset or liability (financial and nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The adoption of FASB 162 is not expected to have a material impact on the Company’s financial position.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 sets forth the authoritative U.S. generally accepted accounting principles to be applied by nongovernmental entities on a going-forward basis. However, SFAS No. 168 is anticipated to only result in a change of accounting standards for nonpublic entities that have not previously applied the revenue recognition provisions of AICPA Technical Inquiry Service Section 5100. The Company does not anticipate that SFAS No. 168 will have a material effect on its consolidated results of operations or financial condition.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable
|
ITEM 4T.
|
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time frames specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and its Chief Financial Officer, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) and 15d-15(e).
As of March 31, 2009, the Company carried out an evaluation, under the supervision and within the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. During the Company’s internal review of its financial statements for the Third Quarter of 2008, the Company discovered that it was understating customer returns and bad debts for its infomercial product sales. In conjunction with this discovery, the Company also reviewed its timing for recognizing revenues on product sales and determined that certain revenues were being recorded before completion of the sale. As a result, the Company determined that it was necessary to restate its financial statements for the quarterly periods ended March 31, 2007, June 30, 2007, September 30, 2007, March 31, 2008, June 30, 2008 and the annual period ended December 31, 2007 which have previously been restated. As a result, the Company’s Chief Executive Officer and Chief Financial Officer have since concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2009.
As of March 31, 2009, there had been no change in the Company's internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fiscal quarter ended March 31, 2008 that materially affected, or is reasonably likely to materially affect our internal control over financial reporting. However, as a result of the issues noted above, the Company has since reviewed its revenue recognition policies and revised its internal procedures and controls to ensure that such transactions are recorded properly, and the company has restated its financial statements in this report for the applicable period
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
PART II – OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
None
|
ITEM 1A.
|
Not required for smaller reporting company
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES
|
None
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None
|
ITEM 4.
|
(REMOVED AND RESERVED)
|
|
ITEM 5.
|
OTHER INFORMATION
|
None
|
ITEM 6.
|
EXHIBITS
|
Exhibit
|
Number
|
Description
|
|
2 *
|
Share and Option Purchase Agreement (incorporated by reference from Form SB-2 (No. 333-70878) filed with the Securities and Exchange Commission on October 3, 2001)
|
|
3.1 *
|
Amended and Restated Articles of Incorporation (incorporated by reference from Form SB-2 (No. 333-70878) filed with the Securities and Exchange Commission on October 3, 2001)
|
|
3.2 *
|
Amended and Restated Bylaws
|
|
3.3 *
|
First Amendment to Amended and Restated Bylaws
|
|
10.1 *
|
2001 Stock Option Plan
|
|
10.2 *
|
Promissory Note by Moran Dome Exploration Inc. payable to the Trustees of the Better Blocks Trust, in the amount of $590,723.27
|
|
10.3 *
|
Extension of Promissory Note dated August 23, 2001, by and between the Trustees of the Better Blocks Trust and International Commercial Television Inc.
|
|
10.4 **
|
Second Extension of Promissory Note dated March 25, 2002, by and between the Trustees of the Better Blocks Trust and International Commercial Television Inc.
|
|
10.5 ***
|
Assignment of Trademark by Dimensional Marketing Concepts, Inc.
|
|
31.1 ****
|
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
|
|
31.2 ****
|
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer
|
|
32 ****
|
Section 1350 Certifications
|
* Incorporated by reference from Form SB-2 filed with the Securities and Exchange Commission on October 3, 2001.
** Incorporated by reference from Post-Effective Amendment No. 1 to Form SB-2 filed with the Securities and Exchange Commission on April 12, 2002.
*** Incorporated by reference from Amendment No. 1 to Form SB-2 filed with the Securities and Exchange Commission on December 24, 2001.
**** Filed herewith
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INTERNATIONAL COMMERCIAL TELEVISION INC. | ||||
| Registrant | ||||
|
Date: June 28, 2010
|
By: |
/s/ Kelvin Claney
|
||
| Name: Kelvin Claney | ||||
| Title: Chief Executive Officer | ||||
|
Date: June 28, 2010
|
By: |
/s/ Richard Ransom
|
||
| Name: Richard Ransom | ||||
|
|
Title: Chief Financial Officer | |||
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