NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 1 - Organization, Business of the Company and Liquidity
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.
Effective February 17, 2011, the Company acquired 100% of the equity interest in Better Blocks International Limited (“BBI”).
The Company and its Subsidiary 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 New Zealand, a substantial portion of our operations are currently run from the Wayne, Pennsylvania office.
Liquidity and Going Concern
The accompanying condensed 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 three month period ended March 31, 2013 of approximately $104,000, and, for the most part since inception, has experienced recurring losses from operations. The Company had a working capital of approximately $1,602,000 and an accumulated deficit of approximately $6,086,000 as of March 31, 2013.
The goal of our strategy 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.
Currently, this plan is being executed with the DermaWand
TM
and the DermaVital
TM
skincare line. The Company does not require any additional capital to grow the DermaWand
TM
and the DermaVital
TM
businesses. The Company is currently exploring other devices and consumable product lines.
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies
Basis of Presentation
The unaudited condensed 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 condensed consolidated financial statements have been prepared by management without audit and should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing in our Annual Report on Form 10-K for the year ended December 31, 2012. 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, 2013 are not necessarily indicative of operating results that may be achieved over the course of the full year.
Principles of consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary BBI for the three months ended March 31, 2013 and 2012. All significant inter-company transactions and balances have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. The most significant estimates used in these consolidated financial statements include the allowance for doubtful accounts, reserves for returns, inventory reserves, valuation allowance on deferred tax assets and share based compensation. Actual results could differ from these estimates.
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. 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, 2013 and December 31, 2012 79% and 90% of the Company’s accounts receivable were due from various individual customers to whom our products had been sold directly via Direct Response Television. Major customers are considered to be those who accounted for more than 10% of net sales. For the three months ended March 31, 2012, approximately 73% of the Company’s gross sales were made to two televised shopping network major customers. There were no major customers for the three months ended March 31, 2013.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
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 ASC 825-10, “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.
Cash held in escrow
Transfirst ePayment Services (“Transfirst”), ICTV’s credit card processing vendor for VISA, Mastercard, Discover and American Express transactions in the United States, maintains a reserve fund within our processing account to cover all fees, charges, and expenses due to 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, with a maximum of $150,000 and is considered “Cash held in escrow.” At March 31, 2013 and December 31, 2012 the amount of Transfirst reserves were approximately $150,000 and $150,000 respectively.
Foreign currency transactions
The Company enters into transactions denominated in currencies other than its functional currency (U.S. Dollar). Currency gains or losses are recorded in the Condensed Consolidated Statements of Operations.
Accounts receivable
Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $718,000 at March 31, 2013 and $623,000 at December 31, 2012. 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 has been sold to customers 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 Condensed Consolidated Balance Sheets were approximately
$153,000 at March 31, 2013, and $248,000 at December 31, 2012.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
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 at March 31, 2013 and December 31, 2012 is approximately $195,000 and $251,000, respectively, of consigned product 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 approximately $3,600 and $3,500 for the three months ended March 31, 2013 and 2012, respectively.
Impairment of long-lived assets
In accordance with Accounting Standards Codification (“ASC”) 360-10, “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 for the three months ended March 31, 2013 and 2012.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - 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 Condensed Consolidated 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.
Revenue related to our DermaVital
TM
continuity program is recognized monthly upon shipment to customers. Revenue related to international wholesale customers is recorded at gross amounts with a corresponding charge to cost of sales upon shipment.
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.
In 2012, the Company started selling warranties on the DermaWand
TM
for one-year, three-year and lifetime terms. In 2013, the Company started selling five-year warranties and discontinued lifetime warranties. One-year, three-year and five-year warranties are recognized ratably over the term. Lifetime warranties are recognized over the estimated term of 5 years. Any unearned warranty is included in deferred revenue on the accompanying consolidated balance sheet. Changes in the Company’s deferred service revenue related to the warranties is presented in the following table:
|
|
|
March 31, 2013
|
|
|
Deferred extended warranty revenue:
|
|
|
|
|
Balance at January 1, 2013
|
|
$
|
171,319
|
|
|
Revenue deferred for new warranties
|
|
|
128,541
|
|
|
Revenue recognized
|
|
|
(17,504
|
)
|
|
Balance at March 31, 2013
|
|
$
|
282,356
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
65,350
|
|
|
Non-current portion
|
|
|
217,006
|
|
|
|
|
$
|
282,356
|
|
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
Shipping and handling
The amount billed to customers for shipping and handling is included in net sales; shipping and handling revenue approximated $1,187,000 and $303,000 for the three months ended March 31, 2013 and 2012, respectively. Shipping and handling costs are included in cost of sales. Shipping and handling costs approximated $1,043,000 and $226,000 for the three months ended March 31, 2013 and 2012, respectively.
Research and development
Research and development costs are expensed as incurred and are included in selling and marketing expense in the accompanying condensed 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. Research and development costs approximated $19,000 and $1,000 for the three months ended March 31, 2013 and 2012, respectively.
Media and production costs
Media and production costs are expensed as incurred and are included in selling and marketing expense in the accompanying condensed consolidated financial statements. The Company incurred $3,435,000 and $860,000 in such costs for the three months ended March 31, 2013 and 2012, respectively.
Income taxes
In preparing our condensed 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 Condensed Consolidated Statements of Operations.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
Stock options
In June 2001, our shareholders approved our 2001 Stock Option Plan (the “Plan”). The Plan is designed for selected employees, officers and directors of the Company and its subsidiary, and is intended to advance the best interests of the Company by providing personnel who have substantial responsibility for the management and growth of the Company and its subsidiary with additional incentive by increasing their proprietary interest in the success of the Company, thereby encouraging them to remain in the employ of the Company or its subsidiary. The Plan is administered by the Board of Directors of the Company, and authorizes the issuance of stock options not to exceed a total of 3,000,000 shares. The terms of any awards under the Plan are determined by the Board of Directors, provided that no options may be granted at less than the fair market value of the stock as of the date of the grant. The Plan expired in February 2011. As of March 31, 2013, 933,334 options are outstanding under the Plan.
In December 2011, our shareholders approved our 2011 Stock Option Plan (the “2011 Plan”). The 2011 Plan is designed for selected employees, officers, and directors of the Company and its subsidiary, and is intended to advance the best interests of the Company by providing personnel who have substantial responsibility for the management and growth of the Company and its subsidiary with additional incentive by increasing their proprietary interest in the success of the Company, thereby encouraging them to remain in the employ of the Company or its subsidiary. The 2011 Plan is administered by the Board of Directors of the Company, and authorizes the issuance of stock options not to exceed a total of 3,000,000 shares. The terms of any awards under the Plan are determined by the Board of Directors, provided that no options may be granted at less than the fair market value of the stock as of the date of the grant. As of March 31, 2013, 1,371,668 options are outstanding under the 2011 Plan.
The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 505, subtopic 50, Equity-Based Payments to Non-Employees based upon the fair-value of the underlying instrument. The equity instruments, consisting of stock options granted to consultants, are valued using the Black-Scholes valuation model. The measurement of share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received.
The Company uses ASC Topic 718, “Share-Based Payments”, to account for share-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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
Stock options (continued)
The following is a summary of stock options outstanding under the Plan and 2011 Plan (collectively “Stock Option Plans”) for the three months ended March 31, 2013 and 2012:
|
|
|
Number of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2013
|
|
|
2,730,000
|
|
|
|
350,000
|
|
|
|
3,080,000
|
|
|
$
|
0.18
|
|
|
Granted during the period
|
|
|
125,000
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
0.55
|
|
|
Exercised during the period
|
|
|
(766,665
|
)
|
|
|
(133,333
|
)
|
|
|
(899,998
|
)
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2013
|
|
|
2,088,335
|
|
|
|
216,667
|
|
|
|
2,305,002
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2012
|
|
|
1,300,000
|
|
|
|
350,000
|
|
|
|
1,650,000
|
|
|
$
|
0.08
|
|
|
Granted during the period
|
|
|
910,000
|
|
|
|
-
|
|
|
|
910,000
|
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2012
|
|
|
2,210,000
|
|
|
|
350,000
|
|
|
|
2,560,000
|
|
|
$
|
0.10
|
|
Of the stock options outstanding as of March 31, 2013 under the Stock Option Plans, 460,000 options are currently vested and exercisable. The weighted average exercise price of these options was $0.09. These options expire between February 2021 and January 2022. The aggregate intrinsic value for options outstanding and exercisable at March 31, 2013 was approximately $77,000. The aggregate intrinsic value for options outstanding and exercisable at March 31, 2012 was immaterial. The aggregate intrinsic value for options exercised during the three months ended March 31, 2013 was approximately $90,000.
For the three months ended March 31, 2013 and 2012, the Company recorded approximately ($11,000) and $33,000 respectively in share compensation expense related to vesting of options previously granted under the Stock Option Plans. The Company recorded income for the three months ended March 31, 2013 related to revaluing the nonemployee stock options that require remeasurement over the service period until performance is complete since there was a decrease in stock price at March 31, 2013. Approximately $481,000 of total unrecognized compensation cost related to non-vested option grants will be recognized over the remaining vesting period of approximately 3 years.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
Stock options (continued)
The following assumptions are used in the Black-Scholes option pricing model for the three months ended March 31, 2013 to value the stock options under the Stock Option Plans granted during the period:
|
2013
|
|
2012
|
|
Risk-free interest rate
|
1.25%
|
|
Risk-free interest rate
|
1.41%
|
|
Expected dividend yield
|
0.00
|
|
Expected dividend yield
|
0.00
|
|
Expected life
|
6.00 years
|
|
Expected life
|
6.00 years
|
|
Expected volatility
|
318%
|
|
Expected volatility
|
305%
|
|
Weighted average grant date fair value
|
$0.60
|
|
Weighted average grant date fair value
|
$0.18
|
The following is a summary of stock options outstanding outside of the existing Stock Option Plans for the three months ended March 31, 2013 and 2012:
|
|
|
Number of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2013
|
|
|
150,000
|
|
|
|
1,650,000
|
|
|
|
1,800,000
|
|
|
$
|
0.20
|
|
|
Granted during the period
|
|
|
50,000
|
|
|
|
40,000
|
|
|
|
90,000
|
|
|
|
0.36
|
|
|
Exercised during the period
|
|
|
(33,333
|
)
|
|
|
-
|
|
|
|
(33,333
|
)
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2013
|
|
|
166,667
|
|
|
|
1,690,000
|
|
|
|
1,856,667
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2012
|
|
|
-
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
$
|
0.18
|
|
|
Granted during the period
|
|
|
-
|
|
|
|
850,000
|
|
|
|
850,000
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2012
|
|
|
-
|
|
|
|
1,100,000
|
|
|
|
1,100,000
|
|
|
$
|
0.14
|
|
Of the stock options outstanding as of March 31, 2013 outside of the plan, 765,000 options are currently vested and exercisable. The weighted average exercise price of these options was $0.16. These options expire between December 2013 and March 2023. The aggregate intrinsic value for options outstanding and exercisable at March 31, 2013 was approximately $90,000. The aggregate intrinsic value for options outstanding and exercisable at March 31, 2012 was immaterial. The aggregate intrinsic value for options exercised during the period was approximately $2,000.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 2 - Summary of significant accounting policies (continued)
Stock options (continued)
For the three months ended March 31, 2013 and 2012, the Company recorded approximately ($24,000) and $62,000 of expense, respectively, in share based compensation related to vesting of options previously granted outside of the Stock Option Plans. The Company recorded income for the three months ended March 31, 2013 related to revaluing the nonemployee stock options that require remeasurement over the service period until performance is complete since there was a decrease in stock price at March 31, 2013. Approximately $232,000 of total unrecognized compensation cost related to non-vested option grants outside the plan will be recognized over the remaining vesting period of approximately 3 years.
The following assumptions are used in the Black-Scholes option pricing model for the three months ended March 31, 2013 to value the stock options issued outside the plan:
|
2013
|
|
2012
|
|
Risk-free interest rate
|
1.92 – 2.07%
|
|
Risk-free interest rate
|
0.31 – 2.23%
|
|
Expected dividend yield
|
0.00
|
|
Expected dividend yield
|
0.00
|
|
Expected life
|
10.00 years
|
|
Expected life
|
3.00 – 10.00 years
|
|
Expected volatility
|
262 – 263%
|
|
Expected volatility
|
266 – 418%
|
|
Weighted average grant date fair value
|
$0.38
|
|
Weighted average grant date fair value
|
$0.20
|
The following is a summary of all stock options outstanding and nonvested for the three months ended March 31, 2013:
|
|
|
Number of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2013 – nonvested
|
|
|
2,463,333
|
|
|
|
1,383,333
|
|
|
|
3,846,666
|
|
|
$
|
0.21
|
|
|
|
|
|
175,000
|
|
|
|
40,000
|
|
|
|
215,000
|
|
|
|
0.47
|
|
|
|
|
|
(793,333
|
)
|
|
|
(331,666
|
)
|
|
|
(1,124,999
|
)
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2013 - nonvested
|
|
|
1,845,000
|
|
|
|
1,091,667
|
|
|
|
2,936,667
|
|
|
$
|
0.26
|
|
For the three months ended March 31, 2013 and 2012, the Company recognized approximately $71,000 and $26,000, respectively, in share based compensation expense related to employee stock options and approximately ($106,000) and $69,000, respectively related to share based compensation expense related to non-employee stock based awards.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 3- Commitments and contingencies
Leases
As of March 31, 2013, the Company had an active lease related to the office space in Wayne, Pennsylvania through April 2013. On February 6, 2013, the Company entered into an amended lease with the landlord of the Wayne office complex of its executive office. As of April 2013 the executive office moved into a larger space within the same complex. The amended lease is for three years, through April 1, 2016. The new office will be 2,516 square feet, compared to the current office space which is approximately 1,700 square feet. The monthly lease payment for the first year of the new lease will be approximately $4,036.
Total rent expense incurred during the three months ended March 31, 2013 and 2012 totaled approximately $9,600 and $11,700, respectively. The schedule below details the future financial obligations under the remaining lease.
|
|
|
Remaining
nine
months
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
TOTAL
OBLIGATION
|
|
|
Wayne - Corporate HQ
|
|
$
|
36,300
|
|
|
$
|
48,900
|
|
|
$
|
49,500
|
|
|
$
|
12,400
|
|
|
$
|
147,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease Obligations
|
|
$
|
36,300
|
|
|
$
|
48,900
|
|
|
$
|
49,500
|
|
|
$
|
12,400
|
|
|
$
|
147,100
|
|
DermaWand
TM
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. This agreement was amended and superseded on July 28, 2010. 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 payment of $250,000 in the initial 18 month term of the agreement and in each succeeding one-year period. If in any calendar year the payments made by the Company to Omega exceed the annual minimum of $250,000, then the amount in excess of the annual minimum or “rollover amount” will be credited towards the Company’s annual minimum for the immediately following calendar year only. 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 expense incurred for sales of the DermaWand
TM
were approximately $291,000 and $102,000 for the three months ended March 31, 2013 and 2012, respectively.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 3- Commitments and contingencies (continued)
Employment Agreement
Effective March 1, 2011, the Company entered into an employment agreement with the CEO of the Company. Under the terms of this agreement, the Company will pay an annual salary of $180,000, subject to review and, if appropriate, adjustment on an annual basis by the Company’s Board of Directors. Effective January 1, 2013, this annual salary was increased to $240,000 and approved by the Board of Directors. The CEO is also entitled to annual performance bonuses as determined appropriate by the Board of Directors, and is entitled to receive stock options and other employee benefits such as health insurance reimbursement; automobile allowance and other reimbursable expenses. The initial term of this employment agreement is five years and automatically renews for successive one year periods unless either party provides not less than 60 days prior written notice of their intent not to renew the agreement. If the employment agreement is terminated by the Company without cause, the employee will be entitled to a severance payment equal to one year’s salary and benefits.
On April 17, 2012, the Company entered into an employment agreement with the President and CFO of the Company. Under the terms of this agreement, the Company will pay an annual salary of $125,000, subject to review and, if appropriate, adjustment on an annual basis by the Company’s Board of Directors. Effective January 1, 2013, this annual salary was increased to $160,000 and approved by the Board of Directors. The President and CFO is also entitled to annual performance bonuses as determined appropriate by the Board of Directors, and is entitled to receive stock options and other employee benefits such as health insurance reimbursement; automobile allowance and other reimbursable expenses. The employment agreement will continue until terminated by either party in accordance with the terms of the agreement. If the employment agreement is terminated by the Company without cause, the employee will be entitled to a severance payment equal to one year’s salary and benefits.
The Company accrued approximately $106,000 in bonuses to the CEO and the President and CFO for the year ended December 31, 2012, included in accounts payable and accrued expenses in the accompanying consolidated financial statements. These bonuses were paid in February 2013. No accrual has been made for the quarter ended March 31, 2013.
Legal
In January 2013, the Company received a letter from a California law firm alleging certain violations of the California Consumer Legal Remedies Act in connection with the Company’s advertising and marketing of its DermaWand
TM
product. The law firm purported to represent a class of plaintiffs and invited us to contact them in order to amicably resolve the matter.
We have consulted with counsel and have presented to the California law firm the substantiation for our advertising and marketing claims. While they have acknowledged a good portion of our substantiation, the law firm continues to press for a settlement under threat of litigation. We believe we would prevail if the California law firm were to bring suit. (See Note 11).
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(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 had a scheduled expiration of April 20, 2013. The policy was renewed in April 2013 with a new scheduled expiration date of April 20, 2014.
Note 4 – Severance payable
In September 2010 the Company entered into a severance agreement with a former consultant. Under the severance agreement, the consultant will be paid $270,000 over a 27 month period in increments of $10,000 per month beginning in September 2010 and continuing through November 2012. The Company recorded the $270,000 as a General and Administrative expense in the three months ended September 30, 2010. In April 2011, the Company amended the aforementioned severance agreement. The amendment allows the Company to make monthly payments of $3,400 per month for a period of one year from April 2011 through March 2012. In March 2012, the Company amended the aforementioned severance agreement for a second time to continue the monthly payment amount of $3,400 through March 2016. The severance payable balance was approximately $118,400 at March 31, 2013 and $128,600 at December 31, 2012, of which $40,800 is current and $77,600 is long-term as of March 31, 2013.
Note 5 - Related party transactions
The Company received a short-term advance of $40,000 from a shareholder in April 2011. There were no advances for the three months ended March 31, 2013 and 2012. The advances are offset by repayments which amounted to approximately $0 and $7,500 for the three months ended March 31, 2013 and 2012, respectively. In April 2012, the Company received an additional $50,000 loan that accrued interest of 6% annually and was repaid in October 2012. Interest was paid along with the final payment in October 2012.
The Company has a note payable to a shareholder in the amount of $590,723. Prior to April 1, 2012, this loan was interest-free and had no specific terms of repayment. On April 1, 2012, the note payable was modified. The new terms include interest at the rate of four and three quarters percent (4.75%) per annum. Interest on the unpaid balance of the note is to be paid in arrears as of the end of each calendar quarter, with payment due on the first day of the month following the quarter as to which interest is being paid. The first payment of interest was due on January 1, 2013, for the three quarters beginning April 1, 2012 and ending on December 31, 2012. Interest on the loan for the three months ended March 31, 2013 and 2012, was approximately $6,600 and $0, respectively, and interest was paid on March 26, 2013.
The principal balance of this note shall be due and payable in three equal payments on each of April 1, 2015, April 1, 2016, and April 1, 2017. This note may be prepaid in whole or in part at any time without penalty, and any prepayment shall be applied against the next principal payment due. For the three months ended March 31, 2013 and 2012, $55,000 and $0, respectively, in principal prepayments were made on the note. At March 31, 2013 and December 31, 2012, the balance outstanding was $535,723 and $590,723, respectively. An additional payment of $15,000 was made in April 2013.
INTERNATIONAL COMMERCIALTELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 5 - Related party transactions (continued)
At April 1, 2012, when this note was modified, a conversion option was added that stated that all or any part of this note may be converted into shares of common stock of the Company at any time, and from time to time, prior to payment, at a conversion price of $0.50 per share. Conversion is at the option of lender. Any amount not converted will continue to be payable in accordance with the terms of the note. The Company considered this a modification of debt that was not substantive, thus no gain or loss was recorded upon modification.
Note 6 – Notes payable
In December 2011, the Company entered into an unsecured note payable with a Canadian lender in the amount of approximately $98,000 (C$100,000). This loan accrues interest of prime (3.25% at March 31, 2013 and December 31, 2011) plus 1%. Interest is paid monthly. Principal payments are to be paid in fifteen monthly installments of approximately $6,500 (C$6,667), beginning in March 2012 and ending May 2013. The loan permits payment in advance without penalty at any time.
On January 24, 2012, the Company entered into a note modification with the Canadian lender increasing the outstanding balance to approximately $137,000 (C$140,000) as additional borrowings were made by the Company. The principal payments on the additional borrowings of approximately $39,500 (C$40,000) are due in two installments of $20,000 (approximates C$) payable on April 15, 2012 and July 15, 2012, respectively. In addition, the interest rate on the note was modified to lender’s cost (prime), plus two-percent and the note became convertible into shares of the Company’s common stock at a fixed conversion rate of $0.196 (C$.20) per share. The Company considered this a modification of debt that was not substantive, thus no gain or loss was recorded upon modification. The amount of the beneficial conversion upon modification was deemed insignificant to the consolidated financial statements. The amount outstanding under the note at March 31, 2013 and December 31, 2012, was approximately $0 and $30,200 (C$30,000), respectively. Interest on the loan is paid monthly and was approximately $300 and $1,000 for the three months ended March 31, 2013 and 2012, respectively.
The lender of this note is also one of the two persons that receive royalty payments on the DermaWand
TM
sales as noted in Note 3.
INTERNATIONAL COMMERCIALTELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 7 - Capital transactions
On February 17, 2012, the Board authorized the issuance of up to 2,500,000 shares of common stock to be purchased at $0.15 per share through February 29, 2012. On February 29, 2012, the Board amended the resolution to authorize the issuance of up to 3,000,000 shares of common stock to be purchased at $0.15 per share through March 23, 2012. A total of 2,590,000 shares were purchased through March 23, 2012 for gross proceeds of $388,500. In addition, for every three shares of common stock purchased, the purchasers received one warrant to purchase common stock at $0.25 per share. A total of 863,333 warrants were issued. The warrants expire three years after their issuance date. The warrants have a weighted average fair value of $0.32. The fair value of the warrant has been estimated on the date of grant using a Black-Scholes Pricing Model with the following assumptions:
|
Risk-free interest rate
|
|
|
0.36 – 0.58
|
%
|
|
Expected dividend yield
|
|
|
0.00
|
|
|
Expected life
|
|
3.00 years
|
|
|
Expected volatility
|
|
|
410% – 418
|
%
|
|
Exercise price
|
|
$
|
0.25
|
|
The fair value of the warrants was approximately $274,000, recorded as an increase and corresponding decrease to additional paid-in capital for the three months ended March 31, 2012.
During the year ended December 31, 2011, the Company entered into a three year corporate public relations consulting agreement where the consultants received compensation in the form of 500,000 shares of stock, 500,000 warrants with an exercise price of $0.10 that expire 14 months from the date of the agreement, and 1,000,000 warrants with an exercise price of $0.50 that expire 24 months from the date of the agreement. On August 15, 2012, the Company entered into a settlement agreement with the consultants to terminate the consulting agreement. As part of the agreement, the consultants maintained the 500,000 shares of common stock previously issued and all warrants previously issued were terminated. In addition, the consultants received 250,000 new warrants with an exercise price of $0.10 that expire 3 years from the date of the agreement.
The 500,000 shares of common stock issued were originally valued at the fair market value of the stock on the date of grant. The total value of the stock was approximately $65,000 and the expense was being recognized over the consulting period. As noted in the previous paragraph, on August 15, 2012, the Company terminated the consulting agreement through a settlement agreement with these consultants and concurrently entered into a new consultant agreement with one of these consultants. Therefore, any unrecognized expense related to common stock and warrants issued was immediately recognized upon termination of services with the one consultant and expense related to the other consultant will be recognized over the remaining consulting term. The Company recognized approximately $5,000 and $0 of share based compensation expense for the three months ended March 31, 2013 and 2012, respectively related to the issuance of these shares, and the Company has remaining unrecognized expense of approximately $12,000, which will be recognized over the next 16 months.
INTERNATIONAL COMMERCIALTELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 7 - Capital transactions (continued)
For the three months ended March 31, 2013 and 2012, the Company recorded approximately $0 and $0, respectively, of share based compensation expense for the 500,000 warrants issued to the consultants. The warrants were fully expensed at settlement. As of March 31, 2013, there was no unrecognized compensation costs related to these warrant grants.
For the three months ended March 31, 2013 and 2012, the Company recorded approximately $0 and $0, respectively, of share based compensation expense for the 1,000,000 warrants issued to the consultants. The warrants were fully expensed at settlement. As of March 31, 2013, there was no unrecognized compensation costs related to these warrant grants.
For the three months ended March 31, 2013, the Company recorded approximately $4,600 of share based compensation expense for the 250,000 warrants issued to the consultants under the settlement agreement. The expense related to the consultant no longer performing services was recognized immediately during the year ended December 31, 2012. As of March 31, 2013, there was approximately $42,700 of total unrecognized compensation costs related to these warrant grants which will be recognized over the remaining 28.5 months. On October 24, 2012, 125,000 warrants issued to one of the consultants were exercised for total consideration of $12,500.
As previously stated, on August 15, 2012, the Company entered into a three year corporate public relations consulting agreement with one of the previous consultants. As part of the agreement, the consultant will receive a monthly consulting fee of $4,000, a commission of $7.50 for each DermaWand
TM
sold plus 5% of the net revenue from other products sold on a third party website, and 125,000 additional warrants with an exercise price of $0.30 that expires 36 months from the date of the agreement. For three months ended March 31, 2013, the Company recorded approximately $4,600 of share based compensation expense for the 125,000 warrants issued to the consultant under the new consulting agreement. As of March 31, 2013, there was approximately $42,700 of total unrecognized compensation costs related to these warrant grants which will be recognized over the remaining 28.5 months.
Due to the fact that any warrants issued to the consultant under the new consulting agreement are nonforfeitable, the 125,000 warrants with an exercise price of $0.10 and a fair value of $55,000, and the 125,000 warrants with an exercise price of $0.30 and a fair value of $55,000, which aggregated $110,000, were recorded in equity and were capitalized on the balance sheet in prepaid expenses and other current assets during 2012 and will be expensed over the consultant term. For the three months ended March 31, 2013, approximately $9,200 was expensed and included in share based compensation expense in our accompanying consolidated financial statements. Approximately $85,000 is capitalized at March 31, 2013 and approximately $36,000 and $49,000 is reflected as current and non-current assets, respectively, in our accompanying condensed consolidated balance sheet.
INTERNATIONAL COMMERCIALTELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 7 - Capital transactions (continued)
As of March 31, 2013, the following warrants were outstanding:
|
Holder
|
|
Warrants
Outstanding
|
|
|
Exercise
Price
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
Shareholders in 2007 placement (modified 2010)
|
|
|
390,084
|
|
|
$
0.10 - $3.00
|
|
December 2013
|
|
Shareholders in February 2012 private placement
|
|
|
863,333
|
|
|
$
0.25
|
|
February – March 2015
|
|
Consultant
|
|
|
125,000
|
|
|
$
0.10
|
|
August 2015
|
|
Consultant
|
|
|
125,000
|
|
|
$
0.30
|
|
August 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2013
|
|
|
1,503,417
|
|
|
$
0.10 - $3.00
|
|
|
Note 8 - Basic and diluted earnings per share
ASC 260, “Earnings Per Share” requires presentation of basic earnings per share and dilutive earnings per share.
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.
For the purposes of obtaining future capital to finance the Companies’ operations and to fund future expansion of the Companies’ Direct Response Television campaign certain shareholders are able to purchase additional stock with stock warrants attached to common stock issued. At March 31, 2013, there were 1,503,417 warrants outstanding and exercisable. The warrants are exercisable between $0.10 and $3.00 per share expiring through August 2015. At March 31, 2013 there were approximately 4,162,000 stock options outstanding and 1,225,000 were vested and exercisable at an average exercise price of $0.13.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 8 - Basic and diluted earnings per share (continued)
The following securities were not involved in the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:
|
|
|
March 31
|
|
|
|
|
2013
|
|
|
2012
|
|
Options to purchase common stock
|
|
|
965,000
|
|
|
|
3,660,000
|
|
Warrants to purchase common stock
|
|
|
515,084
|
|
|
|
2,753,417
|
|
Convertible note payable from shareholder
|
|
|
1,071,446
|
|
|
|
-
|
|
The number of shares of common stock used to calculate basic and diluted earnings per share for the three months ended March 31, 2013 and 2012 was determined as follows:
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
21,011,274
|
|
|
|
18,416,995
|
|
|
Dilutive effect of outstanding stock options
|
|
|
1,592,360
|
|
|
|
-
|
|
|
Dilutive effect of outstanding warrants
|
|
|
110,128
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive shares outstanding
|
|
|
22,713,762
|
|
|
|
18,416,995
|
|
The computations for basic and fully diluted earnings per share are as follows:
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
For the 3-months ended March 31, 2013:
|
|
Income
(
Numerator
)
|
|
|
Shares
(
Denominator
)
|
|
|
Per Share
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income to common shareholders
|
|
$
|
1,168,559
|
|
|
|
21,011,274
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income to common shareholders, excluding interest expense on convertible notes payable of $6,839
|
|
$
|
1,175,398
|
|
|
|
22,713,762
|
|
|
$
|
0.05
|
|
|
For the 3-months ended March 31, 2012:
|
|
Loss
(
Numerator
)
|
|
|
(
Denominator
)
|
|
|
Per Share
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss to common shareholders
|
|
$
|
(21,608
|
)
|
|
|
18,416,995
|
|
|
$
|
(0.00
|
)
|
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 9 - Income taxes
The income tax expense for the three months ended March 31, 2013 and 2012 consist of the following:
The provision for income tax is approximately $356,000 and $0 for the three months ended March 31, 2013 and 2012, respectively, or 24.19% and 0%, respectively, of pre-tax income. The effective tax rates for 2013 and 2012 reflect provisions for current federal and state income taxes. A full valuation allowance is provided against the deferred tax assets because it is not more likely than not that the assets will be realized. The effective rate differs from the statutory rate primarily due to the expected utilization of net operating losses for which no tax benefit has previously been provided. As of December 31, 2012 the Company had approximately $2,527,000 of gross federal net operating losses and approximately $420,000 of gross state net operating losses available, all of which are expected to be fully utilized in 2013.
Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss carry forwards may be subject to annual limitations against taxable income in future periods, which could substantially limit the eventual utilization of such carry forwards. The Company is currently analyzing the historical or potential impact of its equity financings on beneficial ownership; however, no determination has been made whether the net operating loss carry forward is subject to any Internal Revenue Code Section 382 limitation. To the extent there is a limitation, there would be a reduction in the amount of net operating losses permitted to be used to offset taxable income in 2013 causing the effective tax rate to increase.
During 2012, the Company filed income tax returns from inception, 1998, through 2011; therefore, the statute for all years remains open and any of these years could potentially be audited.
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, 2013 and 2012. At March 31, 2013 and December 31, 2012 the Company has approximately $270,000 accrued for various tax penalties.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 10 - 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 income (loss) by geographic area is as follows:
|
|
|
For the three months ended March 31, 201
3
|
|
|
For the three months ended March 31, 201
2
|
|
|
|
|
Domestic
|
|
|
International
|
|
|
Totals
|
|
|
Domestic
|
|
|
International
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
11,407,568
|
|
|
$
|
992,665
|
|
|
$
|
12,400,233
|
|
|
$
|
2,060,129
|
|
|
$
|
595,182
|
|
|
$
|
2,655,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
3,057,216
|
|
|
|
449,641
|
|
|
|
3,506,857
|
|
|
|
709,830
|
|
|
|
274,668
|
|
|
|
984,498
|
|
|
Gross profit
|
|
|
8,350,352
|
|
|
|
543,024
|
|
|
|
8,893,376
|
|
|
|
1,350,299
|
|
|
|
320,514
|
|
|
|
1,670,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,842,346
|
|
|
|
50,993
|
|
|
|
1,893,339
|
|
|
|
504,442
|
|
|
|
38,391
|
|
|
|
542,833
|
|
|
Selling and marketing
|
|
|
5,460,290
|
|
|
|
8,703
|
|
|
|
5,468,993
|
|
|
|
1,141,173
|
|
|
|
7,409
|
|
|
|
1,148,582
|
|
|
Total operating expense
|
|
|
7,302,636
|
|
|
|
59,696
|
|
|
|
7,362,332
|
|
|
|
1,645,615
|
|
|
|
45,800
|
|
|
|
1,691,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
1,047,716
|
|
|
$
|
483,328
|
|
|
$
|
1,531,044
|
|
|
$
|
(295,316
|
)
|
|
$
|
274,714
|
|
|
$
|
(20,602
|
)
|
Selected balance sheet information by segment is presented in the following table as of:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 and March 31, 2012
(Unaudited)
Note 11 – Subsequent events
On May 1, 2013, the Company reached a tentative settlement agreement with the plaintiff and their law firm as disclosed in Note 3 for less than the $325,000 the plaintiff was asking for to settle the suit. The final agreement and corresponding settlement payment is expected to be finalized on or before May 20, 2013.
On April 3, 2013, the Company entered into a licensing agreement entered into with DermaNew, Inc., in which the Company will obtain the exclusive worldwide rights to manufacture and distribute their latest patented anti-aging and re-surfacing scientific skincare system. As part of the agreement, the Company paid a non-refundable advance royalty of $25,000 to DermaNew and agreed to share in the cost of a new clinical trial. The Company will incur the cost of a new long form infomercial, which it hopes to test before the end of fiscal year 2013.
On April 23, 2013, the Company issued to three of its key employees options to purchase a total of 720,000 shares under the Company’s 2011 Incentive Stock Option Plan. The option exercise price is $.228 per share except for options granted to our Chief Executive Officer, whose options are exercisable at $.251 per share. The options vest over three years, provided the employee remains employed by the Company or a subsidiary of the Company at the time of vesting. The issuance of the options was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933.
On April 23, 2013, the Company issued statutory stock options to purchase 50,000 shares, at a price of $0.228 per share, each to its two non-employee directors. The options vest over three years, and expire if unexercised within 10 years. The issuance of the options was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933.
On April 23, 2013, the Company issued to a consultant an option to purchase 50,000 shares, at a price of $.25 per share, for services rendered to the Company. The option vested immediately and will expire if not exercised within 10 years. The issuance of the options was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933.