The statement above for the nine month period ending December 31, 2013 combines the cash flows from discontinued operations with the cash flows from continuing operations. See Note 4 for further discussion of discontinued operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Description of Our Business, Liquidity and Going Concern, and Basis of Presentation
Description of Our Business
As Seen On TV, Inc. (ASTV, we, our or the Company) is a direct response marketing company and owner of AsSeenOnTV.com and eDiets.com. We identify, develop and market consumer products for global distribution via TV, Internet and retail channels. Following our February 2013 acquisition of eDiets.com, Inc. (eDiets), our business is organized along two segments. The As Seen On TV (ASTV) segment is a direct response marketing company that identifies and advises in the development and marketing of consumer products. The eDiets segment is a subscription-based nationwide weight-loss oriented digital subscription service and, until our discontinuance of the meal delivery component in September 2013, provided dietary and wellness oriented meal delivery services. See Note 4.
On February 28, 2013, we acquired 100% of the outstanding stock of eDiets pursuant to the terms and conditions of the Agreement and Plan of Merger by and among our Company, eDiets Acquisition Company, a Delaware corporation and wholly owned subsidiary of our Company, and eDiets, dated October 31, 2012. Following the closing, eDiets became a wholly owned subsidiary of our Company (See Note 3). Accordingly, the operating results of eDiets are included in the financial statements from the acquisition date.
ASTV, a Florida corporation, was organized in November 2006. Our executive offices are located in Clearwater, Florida.
ASTV
ASTV generates revenues primarily from three channels, including direct response sales of consumer products, sale of consumer products through a live-shop TV venue and ownership of the url AsSeenOnTV.com which operates as a web based outlet for our Company and other direct response businesses.
Inventors and entrepreneurs submit products or business concepts for our review. Once we identify a suitable product or concept, we negotiate to obtain global marketing and distribution rights. These marketing and distribution agreements typically provide for revenue sharing in the form of a royalty to the inventor or product owner. As of the date of this report, we have marketed several products with limited success.
Under the terms of an agreement dated November 20, 2013, Tru Hair, Inc., a wholly owned subsidiary of the Company, licensed certain trademarks to a third party in exchange for a cash payment of $25,000 and an undertaking by the third party to use reasonable best efforts to market, distribute and sell certain inventory held by Tru Hair, Inc.
eDiets
eDiets develops and markets Internet-based diet and fitness programs, primarily through the url eDiets.com. eDiets also offered through September 2013, a subscription-based nationwide weight-loss oriented meal delivery service. Digital diet plans are personalized according to an individuals weight goals, food and cooking preferences, and include the related shopping lists and recipes.
Liquidity and Going Concern
At December 31, 2013, we had a cash balance of approximately $190,000, a working capital deficit of approximately $2.9 million and an accumulated deficit of approximately $22.7 million. We have experienced losses from operations since our inception, and we have relied on a series of private placements and convertible debentures to fund our operations. The Company cannot predict how long it will continue to incur losses or whether it will ever become profitable.
See accompanying notes to condensed consolidated financial statements
6
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have undertaken, and will continue to implement, various measures to address our financial condition, including:
·
Significantly curtailing costs and consolidating operations, where feasible.
·
Seeking debt, equity and other forms of financing, including funding through strategic partnerships.
·
Reducing operations to conserve cash.
·
Deferring certain marketing activities.
·
Investigating and pursuing transactions with third parties, including strategic transactions and relationships.
There can be no assurance that we will be able to secure the additional funding we need. If our efforts to do so are unsuccessful, we will be required to further reduce or eliminate our operations and/or seek relief through a filing under the U.S. Bankruptcy Code. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.
Basis of Presentation
The condensed consolidated financial statements as of December 31, 2013 and for the three month and nine month periods ended December 31, 2013 and 2012 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position as of December 31, 2013, and the results of operations for the three month and nine month periods ended December 31, 2013 and 2012, the statement of shareholders' equity for the nine months ended December 31, 2013 and the statement of cash flows for the nine month periods ended December 31, 2013 and 2012. The results for the nine months ended December 31, 2013 are not necessarily indicative of the results to be expected for the entire year. The condensed consolidated balance sheet as of March 31, 2013 has been derived from audited financial statements for the fiscal year ended March 31, 2013. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, these condensed consolidated financial statements should be read in conjunction with audited consolidated financial statements and the footnotes thereto for the fiscal year ended March 31, 2013 as filed with the Securities and Exchange Commission with our Form 10-K on June 28, 2013 (the "Audited 2013 Financial Statements"). The audit report of EisnerAmper LLP, the Companys independent registered public accounting firm, dated June 28, 2013, included an explanatory paragraph about the existence of substantial doubt concerning the Companys ability to continue as a going concern.
Note 2.
Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reported periods. Our management believes the estimates utilized in preparing our consolidated financial statements are reasonable. Actual results could differ from these estimates.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Allowance for Doubtful Accounts:
The allowance for doubtful accounts which is based on an evaluation of our outstanding accounts receivable including the age of amounts due, the financial condition of our specific customers, knowledge of our industry unit and historical bad debt experience. This evaluation methodology has proved to provide a reasonable estimate of bad debt expense in the past and we intend to continue to employ this approach in our analysis of collectability.
7
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Allowance for Sales Returns
: In the direct response industry, purchased items are generally returnable for a certain period after purchase. We attempt to estimate returns and provide an allowance for sales returns where applicable. Our estimates are based on historical experience and knowledge of the products sold. The allowance for estimated sales returns totaled $0 and approximately $209,000 at December 31, 2013 and March 31, 2013, respectively.
Goodwill:
Goodwill is not amortized but is subject to periodic testing for impairment in accordance with Accounting Standards Codification (ASC) Topic 350 --
Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment
. The test for impairment was to be conducted annually or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. In connection with the Companys decision to divest the dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its investment in this component and therefore recorded a loss of $9,300,000 related to the associated goodwill, which was recorded in loss from discontinued operations.
The following provides a roll-forward of the Companys goodwill:
|
|
|
|
Balance as of March 31, 2013
|
$
|
9,300,000
|
)
|
Impairment
|
|
(9,300,000
|
)
|
Balance as of December 31, 2013
|
$
|
|
|
Intangible Assets:
Intangible assets include acquired customer relationships, urls and trademarks. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets of five years in accordance with ASC Topic 350 --
Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment
. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In connection with the Companys decision to divest the dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its finite-lived intangible assets in this component and therefore recorded a loss of $5,331,000 which represented the excess carrying value over the related fair value of these assets, which was recorded in loss from discontinued operations.
Income Taxes:
We use the asset and liability method to determine our income tax expense or benefit. Deferred tax assets and liabilities are computed based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that are expected to be in effect when the differences are expected to be recovered or settled. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized.
Restricted Cash
Restricted cash represents funds held by eDiets credit card processors.
Revenue Recognition
We recognize revenue from product sales in accordance with Financial Accounting Standards Board (FASB) ASC 605
Revenue Recognition
. Following agreements or orders from customers, we ship products to our customers often through a third party facilitator. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling price is fixed and collection is reasonably assured. Typically, these criteria are met when our customers order is received and we receive acknowledgment of receipt by a third party shipper and collection is reasonably assured.
We recognized deferred revenue for our dietary meal delivery program as payment is made in advance of the actual meal delivery. We also recognize deferred revenue related to our online dietary subscription services as payments are made in advance of the full subscription period. As of December 31, 2013 and March 31, 2013, we had recognized deferred revenue of approximately $78,000 and $174,000, respectively.
8
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has a return policy on its ASTV sales whereby the customer can return any product within 60-days of receipt for a full refund, excluding shipping and handling. However, historically the Company has accepted returns past 60-days of receipt. The Company provides an allowance for returns based upon specific product warranty agreements and past experience and industry knowledge. All significant returns for the periods presented have been offset against gross sales. The Company also provides a reserve for warranties, which is not significant and is included in accrued expense.
eDiets meal delivery revenue, through the divestiture date, was recognized upon delivery and transfer of title to the product. This occurred upon shipment from the Companys fulfillment center and delivery to the end-customer. eDiets digital revenue is generated by the Company offering membership subscriptions to the proprietary content contained in its websites. Subscriptions are paid in advance, mainly via credit/debit cards, and cash receipts are recognized as deferred revenue and are recorded as revenue on a straight-line basis over the period of the digital plan subscription.
Receivables
Accounts receivable consists of amounts due from the sale of our direct response, home shopping related products and dietary programs. Our allowance for doubtful accounts at December 31, 2013 and March 31, 2013, totaled $0 and $152,000, respectively. The allowances are estimated based on historical customer experience and industry knowledge.
Inventories and Advances on Inventory Purchases
Inventories are stated at the lower of cost or market. Cost is determined using a first-in, first-out, or FIFO, method. We review our inventory for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value.
Advances on inventory purchases represent payments made to our product suppliers in advance of delivery to the Company. It is common industry practice to require a substantial deposit against products ordered before commencement of manufacturing, particularly with off-shore suppliers. Additional advance payments may also be required upon achievement of certain agreed upon manufacturing or shipment benchmarks. Upon delivery and receipt by the Company of the items ordered, and the Company taking title to the goods, the balances are transferred to inventory.
Property and Equipment, net
We record property, equipment and leasehold improvements at historical cost. Expenditures for maintenance and repairs are recorded to expense; additions and improvements are capitalized. We provide for depreciation using the straight-line method at rates that approximate the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the remaining term of the lease.
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
Estimated
Useful Lives
|
|
December 31,
2013
|
|
March 31,
2013
|
|
Computers and software
|
|
3 Years
|
|
$
|
61,892
|
|
$
|
120,041
|
|
Office equipment and furniture
|
|
5-7 Years
|
|
|
67,693
|
|
|
94,248
|
|
Leasehold improvements
|
|
1-3 Years
|
|
|
62,610
|
|
|
62,610
|
|
|
|
|
|
|
192,195
|
|
|
276,899
|
|
Less: accumulated depreciation and amortization
|
|
|
|
|
(141,576
|
)
|
|
(132,098
|
)
|
|
|
|
|
$
|
50,619
|
|
$
|
144,801
|
|
Depreciation and amortization expense totaled approximately $9,000 and $52,000 for the three and nine month periods ended December 31, 2013, respectively, and $13,000 and $38,000 for the three and nine month periods ending December 31, 2012.
9
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intangible Assets
Intangible assets consisted of the following at December 31, 2013 and March 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
|
Amortization
Expense
for the
Nine Months
Ended
December 31,
2013
|
|
|
Impairment
|
|
|
Additions
|
|
|
December 31,
2013
|
|
Estimated
Useful Life
|
Customer relationships
|
|
$
|
6,000,000
|
|
|
$
|
|
|
|
$
|
(5,000,000
|
)
|
|
$
|
|
|
|
$
|
1,000,000
|
|
5 years
|
URLs
|
|
|
1,000,000
|
|
|
|
|
|
|
|
(660,000
|
)
|
|
|
98,956
|
|
|
|
438,956
|
|
5 years
|
Trademarks
|
|
|
859,439
|
|
|
|
|
|
|
|
(588,439
|
)
|
|
|
|
|
|
|
271,000
|
|
5 years
|
AsSeenOnTV.com
|
|
|
2,839,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,839,216
|
|
Indefinite
|
|
|
|
10,698,655
|
|
|
|
|
|
|
|
(6,248,439
|
)
|
|
|
98,956
|
|
|
|
4,549,172
|
|
|
Accumulated amortization
|
|
|
(131,000
|
)
|
|
|
(866,500
|
)
|
|
|
917,000
|
|
|
|
|
|
|
|
(80,550
|
)
|
|
|
|
$
|
10,567,655
|
|
|
$
|
(866,500
|
)
|
|
$
|
(5,331,439
|
)
|
|
$
|
98,956
|
|
|
$
|
4,468,622
|
|
|
Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
The straight-line method is being used to amortize the Companys finite lived intangible assets over their respective lives. Related amortization expense recognized was approximately $81,000 and $867,000 for the three and nine month periods ended December 31, 2013, respectively. Amortization expense for the next five succeeding fiscal years is estimated as follows:
|
|
March 31,
|
|
2014 remaining three months
|
$ 90,000
|
2015
|
$ 342,000
|
2016
|
$ 342,000
|
2017
|
$ 342,000
|
2018
|
$ 342,000
|
2019
|
$ 171,000
|
Earnings (Loss) Per Share
Basic earnings per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares, if any, that would be issued assuming conversion of all potentially dilutive securities outstanding.
The following securities were not included in the computation of diluted net earnings per share as their effective would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Stock options
|
|
|
7,992,963
|
|
|
|
1,606,359
|
|
|
|
7,992,963
|
|
|
|
1,231,136
|
|
Warrants
|
|
|
64,833,369
|
|
|
|
64,172,176
|
|
|
|
64,833,369
|
|
|
|
58,978,667
|
|
|
|
|
72,826,332
|
|
|
|
65,778,535
|
|
|
|
72,826,332
|
|
|
|
60,209,803
|
|
10
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concentration of Credit Risk
Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. Cash and cash equivalents are held with financial institutions in the United States and from time to time we may have balances that exceed the amount of insurance provided by the Federal Deposit Insurance Corporation on such deposits. Concentration of credit risk with respect to our trade accounts receivable to our customers is limited to $288,765 at December 31, 2013. Credit is extended to our customers, based on an evaluation of a customers financial condition and collateral is not required.
Advertising and Promotional Costs
Advertising and promotional costs are expensed when incurred and totaled approximately $4,000 and $16,000 for the three month periods ended December 31, 2013 and 2012, respectively, and approximately $34,000 and $70,000 for the nine month periods ended December 31, 2013 and 2012, respectively.
Fair Value Measurements
FASB ASC 820
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to us on December 31, 2013 and March 31, 2013, respectively. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.
FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value based on the short-term maturity of these instruments. The fair value of notes payable are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity. The estimated fair value of notes payable approximates the carrying value. Determination of fair value of related party payables is not practicable due to their related party nature.
11
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accounting Standards Updates
There have been no recent accounting pronouncements or changes in accounting pronouncements during the nine months ended December 31, 2013, as compared to the recent accounting pronouncements described in the Company's Audited 2013 Financial Statements that are of material significance, or have potential material significance to the Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All inter-company account balances and transactions have been eliminated in consolidation.
Note 3.
eDiets Acquisition and Sale of Meal Delivery Service
On February 28, 2013, the Company completed the purchase of 100% of the outstanding common stock of eDiets.com, Inc., a publicly held company organized under the laws of the State of Delaware (eDiets), offering subscription-based weight-loss oriented meal delivery service and individualized digital subscription-based weight-loss and wellness programs. Pursuant to the terms and conditions of the Agreement and Plan of Merger by and among our Company, eDiets Acquisition Company, a Delaware corporation and wholly owned subsidiary of our Company, and eDiets, dated October 31, 2012 we issued an aggregate of 19,077,686 shares of our common stock, at the ratio of 1.2667 shares of our common stock for each outstanding share of eDiets common stock, to the eDiets stockholders. Following the closing, eDiets became a wholly owned subsidiary of our Company.
At completion, we believed the acquisition of eDiets could create a more scalable business and facilitate our strategic objective of becoming one of the top providers of ecommerce products and solutions. In addition, while there were no assurances, it was anticipated that the acquisition would allow us to expand our product offerings, realize potential synergies in marketing and media purchases, realize potential cost savings in administrative expenses and the costs associated with public company compliance, and take advantage of product cross-selling opportunities.
The total purchase price for eDiets was approximately $15.1 million. The purchase price consisted of approximately (i) $2.4 million in cash, (ii) $11.1 million in the Companys common stock, valued based on the closing price of the stock on February 28, 2013, (iii) $0.9 million representing the fair value of the Companys options issued to eDiets employees and warrants issued to eDiets consultants, and (iv) assumed liability of $600,000 in principal and $92,057 of related accrued interest in eDiets notes payable to related parties, which converted into 988,654 shares of common stock at $0.70 per share and warrants to purchase 494,328 shares of common stock of the Company, all pursuant to the Agreement and Plan of Merger. In accordance with accounting standards of business combinations, we accounted for the acquisition of eDiets under the acquisition method. Under the acquisition method, the assets acquired and liabilities assumed at the date of acquisition were recorded in the consolidated financial statements at their respective fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill. eDiets results of operations are included in our consolidated financial statements from the date of acquisition.
12
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The determination of the estimated fair value of the acquired assets and liabilities assumed required management to make significant estimates and assumptions. We determined the fair value by applying established valuation techniques, based on information that management believed to be relevant to this determination. The following table summarizes the purchase price allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
241,344
|
|
Restricted cash
|
|
|
450,000
|
|
Accounts receivable
|
|
|
118,172
|
|
Inventory
|
|
|
75,522
|
|
Prepaid expenses and other assets
|
|
|
275,170
|
|
Property, plant and equipment
|
|
|
61,342
|
|
Intangibles
|
|
|
|
|
Customer relationships
|
|
|
6,000,000
|
|
URLs
|
|
|
1,000,000
|
|
Trademarks
|
|
|
859,439
|
|
Total assets acquired
|
|
|
9,080,989
|
|
|
|
|
|
|
Accounts payable
|
|
|
(2,318,986
|
)
|
Accrued expenses
|
|
|
(443,364
|
)
|
Notes payable
|
|
|
(463,672
|
)
|
Total liabilities assumed
|
|
|
(3,226,022
|
)
|
Net assets acquired
|
|
$
|
5,854,967
|
|
The purchase price exceeded the fair value of the net assets acquired by $9,300,000, which was recorded as goodwill. Acquisition costs, consisting of legal, consulting and other costs related to the acquisition aggregated approximately $278,000 and included $82,650 for an acquisition consulting fee payable in 142,500 shares of common stock which were issued in July 2013.
In connection with the Companys decision to divest the dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its investment in this component and therefore recorded a loss which is included in discontinued operations. See Note 4.
The accompanying condensed consolidated financial statements do not include any revenues or expenses related to the eDiets business on or prior to February 28, 2013, the closing date of the acquisition. The condensed consolidated statements of operations for the three month and nine month periods ended December 31, 2013 include a loss from discontinued operations of approximately $82,000 and $15,267,000, respectively, related to eDiets.
In connection with the acquisition, the Company acquired an aggregate of $463,672 of notes payable, consisting of $100,000 due to a former director of eDiets, $100,000 due to a former director of eDiets who is currently a director of the Company and $263,672 due to a former landlord of eDiets. The annual interest rate on the director and former director notes is 5%. The landlord note is interest free, absent default.
In addition, under the provisions of ASC 805
Business Combinations,
the Company recognized as stock-based compensation the difference in fair value between the eDiets options outstanding at the acquisition date and the replacement ASTV options granted. The fair value of the eDiets options replaced was recorded as consideration in the acquisition. The excess fair value of the ASTV replacement options over the fair value of the eDiets options, totaling approximately $694,000, was recognized as compensation cost in the fiscal year ended March 31, 2013.
At the time of acquisition, eDiets had approximately $61.2 million in net operating loss carryforwards. Those net operating loss carryforwards will be subject to the Internal Revenue Code 382 ownership change rules which will limit future use by eDiets, as a subsidiary of the Company, to approximately $0.50 million per year.
13
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4.
Discontinued Operations
On October 11, 2013, the Company completed the sale to Chefs Diet National Co., LLC (Chefs Diet), a subsidiary of Chefs Diet Corp., of certain assets (the Meal Delivery Assets) relating to the eDiets meal delivery business pursuant to an Asset Purchase and Revenue Sharing Agreement (the Agreement) dated August 23, 2013 between eDiets and Chefs Diet. The disposed assets consist primarily of a customer database of active and inactive eDiets customers. In addition, eDiets granted Chefs Diet a perpetual royalty-free license to content and certain other intellectual property used in connection with the eDiets meal delivery business. While the transaction was not completed until October 11, 2013, the transaction met the criteria of held-for-sale accounting as of September 30, 2013 and has been presented in accordance with the provisions of ASC 205-
20 Discontinued Operations
for all periods presented.
The base sales price of $1.1 million consisted of an initial cash payment of $200,000, of which $100,000 was collected prior to September 30, 2013, with the additional $100,000 collected during the three months ended December 31, 2013, plus deferred cash payments totaling $900,000 payable as follows: (i) eight quarterly payments beginning January 1, 2014 in an amount equal to the greater of $56,250 or seven percent of adjusted gross revenue for the immediately preceding period, and (ii) eight quarterly payments beginning January 1, 2016 in an amount equal to the greater of $56,250 or five percent of adjusted gross revenue for the immediately preceding period. In addition, Chefs Diet will make up to four quarterly bonus payments of up to $50,000 each if it meets certain customer acquisition and retention targets.
The Companys meal delivery operations were a component of our eDiets subsidiary which delivered fresh and frozen diet or wellness focused meals to our customers. Management believes this divestiture will allow the Company to streamline its operations and focus its limited recourses on ecommerce based platforms, which it believes is the future of the dietary and wellness industries.
In connection with the Agreement, the Company retained a perpetual, nonexclusive, worldwide, royalty free right and license to use the Meal Delivery Assets in its business provided that it shall not utilize such assets to promote any fresh, frozen or prepared meal program, as defined.
For the three month and nine month periods ending December 31, 2013, the Companys meal delivery component had operational losses of $82,000 and $1,735,000, respectively. As a result of this divestiture, the Company recognized a non-cash charge of $14,631,000, including a write down of goodwill of $9,300,000 and $5,331,000 in identifiable intangible assets, resulting from the Companys determination that it would not be able to recover the carrying value of its investment in this component and that it would not be able to recover the carrying value of its finite-lived intangible assets in this component and therefore recorded the related loss in discontinued operations. As a result of this impairment, the Company carries no remaining goodwill. No tangible assets or liabilities were transferred in the divestiture of the meal delivery component.
The results of operations for the meal delivery component has been reported as discontinued operations in the accompanying condensed consolidated financial statements for all periods presented. The following table summarizes the results of operations for the discontinued component:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
December 31,
2013
|
|
|
Nine Months
Ended
December 31,
2013
|
|
Net sales
|
|
$
|
23,692
|
|
|
$
|
1,975,673
|
|
Operating (loss)
|
|
|
(82,315
|
)
|
|
|
(1,735,457
|
)
|
Asset sale
|
|
|
|
|
|
|
1,100,000
|
|
Impairment charge related to goodwill and finite-lived intangibles
|
|
|
|
|
|
|
(14,631,439
|
)
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
$
|
(82,315
|
)
|
|
$
|
(15,266,896
|
)
|
14
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5.
Prepaid expenses and other current assets
Components of prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
|
March 31,
2013
|
|
|
|
|
|
|
|
|
Prepaid license fees
|
|
$
|
27,528
|
|
|
$
|
23,550
|
|
Prepaid insurance
|
|
|
312,244
|
|
|
|
388,690
|
|
Prepaid investor relations fees
|
|
|
|
|
|
|
8,475
|
|
Prepaid talent fees
|
|
|
110,414
|
|
|
|
204,167
|
|
Prepaid professional fees
|
|
|
|
|
|
|
57,055
|
|
Prepaid medical and related insurance
|
|
|
|
|
|
|
46,011
|
|
Prepaid expenses other
|
|
|
291
|
|
|
|
64,502
|
|
|
|
$
|
450,477
|
|
|
$
|
792,450
|
|
Note 6.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
|
March 31,
2013
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
132,333
|
|
|
$
|
137,505
|
|
Accrued warranty
|
|
|
10,836
|
|
|
|
52,000
|
|
Accrued sales returns
|
|
|
|
|
|
|
156,838
|
|
Accrued professional fees
|
|
|
69,500
|
|
|
|
159,000
|
|
Accrued rents
|
|
|
2,651
|
|
|
|
2,874
|
|
Accrued severance
|
|
|
59,773
|
|
|
|
179,318
|
|
Accrued other
|
|
|
16,772
|
|
|
|
40,195
|
|
|
|
$
|
291,865
|
|
|
$
|
727,730
|
|
Note 7.
Warrant Liabilities
Warrants issued in connection with several private placements contain provisions that protect holders from a decline in the issue price of our common stock (or down-round provisions) or that contain net settlement provisions. The Company accounts for these warrants as liabilities instead of equity. Down-round provisions reduce the exercise or conversion price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise or conversion price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price. Net settlement provisions allow the holder of the warrant to surrender shares underlying the warrant equal to the exercise price as payment of its exercise price, instead of physically exercising the warrant by paying cash. The Company evaluates whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective warrant agreements based on a variable that is not an input to the fair value of a fixed-for-fixed option.
The Company recognizes these warrants as liabilities at their fair value and remeasures them at fair value on each reporting date.
The assumptions used in connection with the valuation of warrants issued were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013
|
|
March 31,
2013
|
|
|
Number of shares underlying the warrants
|
|
47,726,100
|
|
|
47,726,100
|
|
|
|
Exercise price
|
|
$0.595 - $0.80
|
|
|
$0.595 - $0.80
|
|
|
|
Volatility
|
|
150
|
%
|
|
133
|
%
|
|
|
Risk-free interest rate
|
|
0.38%-1.27
|
%
|
|
0.36%-0.77
|
%
|
|
|
Expected dividend yield
|
|
0.00
|
%
|
|
0.00
|
%
|
|
|
Expected warrant life (years)
|
|
1.96 - 4.00
|
|
|
2.50 4.75
|
|
|
|
Stock price
|
|
$0.08
|
|
|
$0.35
|
|
|
|
15
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recurring Level 3 Activity and Reconciliation
The tables below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3). The table reflects gains and losses for the nine month period ended December 31, 2013, for all financial liabilities categorized as Level 3 as of December 31, 2013.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2013
|
|
|
Initial
Measurements
|
|
|
Increase
(Decrease)
in
Fair Value
|
|
|
Reclassed to
Equity
|
|
|
December 31,
2013
|
|
2011 Unit Offering
|
|
$
|
8,531,735
|
|
|
$
|
|
|
|
$
|
(7,111,367
|
)
|
|
$
|
|
|
|
$
|
1,420,368
|
|
2011 Unit Offering Placement Agent
|
|
|
1,073,855
|
|
|
|
|
|
|
|
(895,079
|
)
|
|
|
|
|
|
|
178,776
|
|
2012 Bridge Warrant
|
|
|
231,691
|
|
|
|
|
|
|
|
(206,020
|
)
|
|
|
|
|
|
|
25,671
|
|
2012 Bridge Warrant Placement Agent
|
|
|
46,338
|
|
|
|
|
|
|
|
(41,204
|
)
|
|
|
|
|
|
|
5,134
|
|
2012 Unit Offering
|
|
|
1,268,686
|
|
|
|
|
|
|
|
(1,129,571
|
)
|
|
|
|
|
|
|
139,115
|
|
2012 Unit Offering Placement Agent
|
|
|
432,735
|
|
|
|
|
|
|
|
(349,568
|
)
|
|
|
|
|
|
|
83,167
|
|
2013 Merger related notes converted
|
|
|
104,266
|
|
|
|
|
|
|
|
(91,535
|
)
|
|
|
|
|
|
|
12,731
|
|
|
|
$
|
11,689,306
|
|
|
$
|
|
|
|
$
|
(9,824,344
|
)
|
|
$
|
|
|
|
$
|
1,864,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2012
|
|
|
Initial
Measurements
|
|
|
Increase
(Decrease)
in
Fair Value
|
|
|
Reclassed to
Equity
|
|
|
December 31,
2012
|
|
2011 Bridge Warrant
|
|
$
|
6,604,706
|
|
|
$
|
|
|
|
$
|
(966,334
|
)
|
|
$
|
(5,638,372
|
)
|
|
$
|
|
|
2011 Bridge Warrant Placement Agent
|
|
|
876,119
|
|
|
|
|
|
|
|
(128,184
|
)
|
|
|
(747,935
|
)
|
|
|
|
|
2011 Unit Offering
|
|
|
15,816,980
|
|
|
|
|
|
|
|
8,819,955
|
|
|
|
|
|
|
|
24,636,935
|
|
2011 Unit Offering Placement Agent
|
|
|
2,499,810
|
|
|
|
|
|
|
|
601,142
|
|
|
|
|
|
|
|
3,100,952
|
|
2012 Bridge Warrant
|
|
|
|
|
|
|
716,760
|
|
|
|
62,430
|
|
|
|
|
|
|
|
779,190
|
|
2012 Bridge Warrant Placement Agent
|
|
|
|
|
|
|
143,352
|
|
|
|
12,485
|
|
|
|
|
|
|
|
155,837
|
|
2012 Unit Offering
|
|
|
|
|
|
|
4,075,834
|
|
|
|
296,021
|
|
|
|
|
|
|
|
4,371,855
|
|
2012 Unit Offering Placement Agent
|
|
|
|
|
|
|
1,094,936
|
|
|
|
92,997
|
|
|
|
|
|
|
|
1,187,933
|
|
|
|
$
|
25,797,615
|
|
|
$
|
6,030,882
|
|
|
$
|
8,790,512
|
|
|
$
|
(6,386,307
|
)
|
|
$
|
34,232,702
|
|
Number of Warrants Subject to Remeasurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Warrants
|
|
|
|
March 31,
|
|
|
Warrant
|
|
|
December 31,
|
|
|
|
2013
|
|
|
Additions
|
|
|
Reductions
|
|
|
2013
|
|
2011 Unit Offering
|
|
|
33,277,842
|
|
|
|
|
|
|
|
|
|
|
|
33,277,842
|
|
2011 Unit Offering Placement Agent
|
|
|
4,726,892
|
|
|
|
|
|
|
|
|
|
|
|
4,726,892
|
|
2012 Bridge Warrant
|
|
|
1,137,735
|
|
|
|
|
|
|
|
|
|
|
|
1,137,735
|
|
2012 Bridge Warrant Placement Agent
|
|
|
227,546
|
|
|
|
|
|
|
|
|
|
|
|
227,546
|
|
2012 Unit Offering
|
|
|
6,300,213
|
|
|
|
|
|
|
|
|
|
|
|
6,300,213
|
|
2012 Unit Offering Placement Agent
|
|
|
1,561,544
|
|
|
|
|
|
|
|
|
|
|
|
1,561,544
|
|
2013 Merger related notes converted
|
|
|
494,328
|
|
|
|
|
|
|
|
|
|
|
|
494,328
|
|
|
|
|
47,726,100
|
|
|
|
|
|
|
|
|
|
|
|
47,726,100
|
|
Note 8.
Related Party Transactions
Concurrent with the Companys acquisition of eDiets on February 28, 2013, the Company issued 988,654 shares of common stock and warrants to purchase 494,328 shares of common stock in settlement of $600,000 of related eDiets party debt and $92,057 in related interest to an eDiets director and one former director. In addition, during the second quarter, the Company repaid $50,000 in principal to our director, and the remaining $50,000 was repaid with related interest in the third quarter.
16
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the period April 1, 2013 through December, 31, 2013, the Company recognized related party interest expense of $6,298 with related accrued interest of $2,380 at December 31, 2013.
On December 23, 2013, the Company entered into a Note Purchase Agreement with Infusion Brands International, Inc. The Note Purchase Agreement was executed in connection with a possible merger between Infusion Brands and the Company. This agreement provided for a series of notes totaling up to $500,000 through April 15, 2014. As of December 31, 2013, the Company had borrowed $150,000 under this agreement. The notes bear interest at 12% per annum and, if no merger between the parties is completed, mature on June 30, 2014. At December 31, 2013, the Company had accrued $400 of related party interest under the initial note.
Note 9.
Notes Payable
In connection with the acquisition of eDiets on February 28, 2013, the Company assumed an aggregate of $463,672 of notes payable, consisting of (i) $100,000 owed to a former director of eDiets who is currently a director of the Company, which matured on June 30, 2013 (ii) $100,000 owed to a former director of eDiets, which matured on June 30, 2013, but has not been repaid and (iii) $263,672 owed to a former landlord of eDiets, which is payable in equal monthly installments, the last of which matures on October 1, 2015. All notes are unsecured and the director and former director notes carry an interest rate of 5% per annum. The landlord note is interest free, absent default.
At December 31, 2013 and March 31, 2013, the Company had notes payable current portion of $383,138 and $281,805, respectively. At December 31, 2013 and March 31, 2013, notes payable current portion included $102,060 due to the former landlord and $100,000 due to the former director of eDiets. In addition, the balances include amounts due under insurance related notes payable. Annual interest rates on these notes range from 5% to 8.4%.
Notes payable non-current includes $76,472 and $153,107, due to a former landlord at December 31, 2013 and March 31, 2013, respectively, and $30,000 and $40,000 due through fiscal 2016, respectively, due under our asset purchase agreement with Seen On TV.
Note 10.
Commitments and Contingencies
In connection with the eDiets acquisition, on September 10, 2012, the Company received notice of a complaint filed in Broward County, Florida by an eDiets stockholder against eDiets, members of the board of directors of eDiets and the Company, alleging that eDiets breached its fiduciary duty to its stockholders by entering into the transaction for inadequate consideration. Prior to the deadline for the defendants to answer the complaint, the plaintiff and the defendants in the case filed a stipulation with the court allowing the plaintiff to file an amended complaint. The Companys acquisition of eDiets was consummated on February 28, 2013. On November 19, 2013, the plaintiff voluntarily dismissed the case without prejudice.
17
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On May 2, 2013, effective May 1, 2013, we entered into an employment agreement with Mr. Ronald C. Pruett Jr. to serve as our chief executive officer. The term of the agreement is for one year and will be automatically renewed for successive one-year periods unless a notice of non-renewal is given by either party or the agreement is otherwise terminated sooner in accordance with its provisions. Pursuant to the agreement, Mr. Pruett will receive an annual base salary of $275,000, together with an additional salary of $275,000 during the first year of his employment with us. Mr. Pruetts base salary may be increased from time to time as determined by the compensation committee of the board of directors. Mr. Pruett voluntarily waived his right to receive payments on his additional salary of $275,000 beginning with the payroll period ending February 10, 2014 and continuing until Mr. Pruett otherwise notifies the Company. In addition to his base salary, Mr. Pruett will be entitled to receive an annual cash bonus calculated by reference to our actual performance during the immediately preceding fiscal year measured against a revenue and adjusted EBITDA (earnings before income taxes, depreciation and amortization) target to be established by Mr. Pruett and the compensation committee and approved by the board of directors. As of February 10, 2014, Mr. Pruett and the compensation committee had yet to establish a revenue and adjusted EBITDA target for our fiscal year ending March 31, 2014. Mr. Pruett also received an option grant to purchase 425,000 shares (the First Option Grant) of our common stock and a second option grant to purchase 2,625,000 shares (the Second Option Grant) of our common stock. The First Option Grant vested on the grant date, May 6, 2013, and has a per share exercise price equal to $0.35, the average of the high bid and low asked prices of our common stock on the OTC Bulletin Board on the trading day immediately preceding the grant date. The Second Option Grant has a per share exercise price equal to $0.70. The Second Option Grant vests in four equal tranches on May 6, 2013, May 1, 2014, November 1, 2014 and May 1, 2015. Provided that the agreement has not been terminated, on December 31, 2013, Mr. Pruett became entitled to receive subsequent grants of stock and options, at the compensation committees option, with an aggregate value of at least $918,750, vesting in four equal tranches on the grant date, May 1, 2014, November 1, 2014 and May 1, 2015. As of February 10, 2014, Mr. Pruett was not granted any additional stock options.
If Mr. Pruetts employment is terminated due to death, his estate will receive (i) six months base salary at his then current rate in a lump sum payment and (ii) one year of continued coverage under the Companys employee benefit plans. If Mr. Pruetts employment is terminated due to disability, he will receive (i) six months base salary at his then current rate, (ii) one year of continued coverage under the Companys employee benefit plans and (iii) any earned but unpaid bonuses, provided that the Company may credit against such amounts any proceeds paid to Mr. Pruett with respect to any disability policy maintained for his benefit. If Mr. Pruetts employment is terminated by the Company without cause or following a change in control or by Mr. Pruett for good reason or following a change in control, Mr. Pruett will receive (i) 12 months base salary at his then current rate, (ii) continued provision during such 12-month period of benefits under the Companys employee benefit plans, (iii) immediate vesting of all granted but unvested stock options and (iv) a prorated payment of any bonus or other payments earned in connection with any bonus plan in which Mr. Pruett participated at the time of termination. The amount of each payment under (i) shall be reduced by one dollar for each three dollars otherwise payable, until the aggregate amount of all such reductions, together with the aggregate amount of bonus reductions described above, equals $275,000. Mr. Pruett will not be entitled to any compensation if his employment is terminated by the Company for cause or by Mr. Pruett in the absence of good reason.
On June 13, 2013, TV Goods, Inc. (TV Goods), the Companys wholly owned subsidiary, entered into a termination agreement (the Termination Agreement) with Presser Direct, LLC (Presser Direct) under which it terminated a Purchasing and Marketing Agreement (the P & M Agreement) between TV Goods and Presser Direct dated March 7, 2012, relating to the manufacture, marketing, sale and distribution of the SeasonAire heater and related product lines. Under the Termination Agreement, TV Goods agreed to pay approximately $309,000 related to previously purchased inventory and approximately $146,000 attributable to royalty payments under the P & M Agreement, of which $65,000 was to be held in escrow pending delivery of replacements for damaged or defective SeasonAire heaters and related products previously sold by TV Goods. TV Goods also agreed to transfer title to certain assets relating to the products, including infomercials and intellectual property, to Presser Direct. Presser Direct agreed to pay TV Goods $50,000 for existing SeasonAire inventory, to assume obligations to make all royalty payments relating to SeasonAire sales after July 31, 2013 and to assume all liabilities relating to the SeasonAire products after June 13, 2013, except for certain warranty obligations relating to SeasonAire products sold prior to that date. TV Goods and Presser Direct released each other from all obligations under the P & M Agreement, so that the only surviving obligations were those arising under the Termination Agreement.
18
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leases
On February 1, 2012, the Company entered into a new 36-month lease agreement on our existing headquarters facility. Terms of the lease provide for a base rent payments of $7,875 per month for the first twelve months, increasing 3% per year thereafter. The lease contains no provisions for a change in the base rent based on future events or contingent occurrences. In accordance with the provisions ASC 840-
Leases
, the Company is recognizing lease expenses on a straight-line basis, which total $8,114 per month over the lease term. In connection with the entering into the new leases, the Company recognized income of approximately $71,000 attributable to the recovery of the deferred rent obligation under the previous lease and wrote-off to lease expense $12,420 in security deposits attributable to the prior lease.
During September 2012, eDiets entered into a one year lease for office space in Pompano Beach, Florida. The lease covered approximately 8,800 square feet at a monthly base rent of $9,800 per month. The Company did not renew this lease upon expiration and no longer occupies this facility.
The following is a schedule by year of future minimum rental payments required under our lease agreement on December 31, 2013:
|
|
|
|
|
|
|
Operating Lease
|
|
Year 1
|
|
$
|
91,900
|
|
Year 2
|
|
|
|
|
Year 3
|
|
|
|
|
Year 4
|
|
|
|
|
Year 5
|
|
|
|
|
|
|
$
|
91,900
|
|
Base rent expense recognized by the Company, attributable to its headquarters facility and eDiets facility was approximately $24,000 and $132,000 for the three month and nine month periods ending December 31, 2013, respectively, and $24,000 and $73,000 for the three month and nine month periods ending December 31, 2012.
Registration Rights
Under the terms of a 2010 private placement, the Company provided that it would use its best reasonable efforts to cause the related registration statement to become effective within 180 days of the termination date, July 26, 2010, of the offering. We have failed to comply with this registration rights provision and are obligated to make pro rata payments to the subscribers under the 2010 private placement in an amount equal to 1% per month of the aggregate amount invested by the subscribers up to a maximum of 6% of the aggregate amount invested by the subscribers. The maximum amount of penalty to which the Company may be subject is $156,000. The Company has a related accrued liability of $156,000 at both December 31, 2013 and March 31, 2013.
Note 11.
Stockholders Equity
Capital Stock
Preferred Stock
We are authorized to issue up to 10,000,000 shares of preferred stock, $.0001 par value per share. Our board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the state of Florida, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. No shares of preferred stock were issued or outstanding at December 31, 2013 and March 31, 2013, respectively.
19
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Stock
At December 31, 2013 and March 31, 2013, we were authorized to issue up to 750,000,000 shares of common stock, $.0001 par value per share.
At December 31, 2013 and March 31, 2013, the Company had 71,741,250 and 71,282,066 shares issued and outstanding, respectively. Holders are entitled to one vote for each share of common stock (or its equivalent).
Share Issuances
Common Stock and Warrants
On July 19, 2013, the Company issued 142,500 shares of common stock to National Securities Corporation in consideration for consulting and advisory services provided by National Securities Corporation under an advisory services agreement dated August 14, 2012 in connection with the eDiets merger. The $82,650 was recorded as an expense and additional paid-in capital during fiscal year ended March 31, 2013.
On July 19, 2013, the Company issued an aggregate of 316,268 shares of common stock to the seller of Seen On TV, LLC, in accordance with the anti-dilution protection provisions contained in the June 28, 2012 Seen On TV, LLC asset purchase agreement.
On November 19, 2012, the Company entered into a licensing and endorsement agreement with Eight Entertainment, LLC furnishing celebrity endorsement services. The agreement is for a 24-month term and provides for the celebrity eDiets endorsements, advertising and promotion programs. In consideration the Company agreed to a one-time payment of $250,000 and the issuance of warrants to purchase up to 6,500,000 shares of common stock as follows:
|
|
|
|
|
|
|
Issuance
|
|
Number of Shares
|
|
Exercise Price
|
|
Date of Issuance
|
1
|
|
1,500,000
|
|
$0.01
|
|
Within 10 days of effectiveness
|
2
|
|
1,250,000
|
|
$0.25
|
|
3 months from agreement
|
3
|
|
750,000
|
|
$0.50
|
|
12 months from agreement
|
4
|
|
1,000,000
|
|
$0.75
|
|
16 months from agreement
|
5
|
|
1,000,000
|
|
$1.00
|
|
20 months from agreement
|
6
|
|
1,000,000
|
|
$2.00
|
|
24 months from agreement
|
|
|
6,500,000
|
|
|
|
|
The actual number of warrants to be granted under the agreement was subject to adjustment downward up to 50%, based upon certain performance goals being achieved relating to weight-loss. These provisions constitute a performance commitment within the meaning of ASC 505
Equity
. In accordance with ASC 505
Equity
, when equity instruments are issued to non-employees in exchange for the receipt of goods or services the equity instruments are measured at fair value at the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or the date at which the counterpartys performance is complete. The agreement does not contain a sufficiently large disincentive for nonperformance as forfeiture of the equity instrument is the sole remedy in the event of nonperformance. Therefore, a final measurement date will not be established until performance is complete and ASC 505
Equity
requires the recognition of expense from the transaction be measured at the then-current lowest aggregate fair value at each reporting period with changes in those lowest aggregate fair values between the reporting periods recognized in earnings. The first of two performance goals was met during March 2013 reducing the potential adjustment downward to 25%. On May 15, 2013, the second performance goal was not achieved and warrants to purchase 1,625,000 shares of common stock exercisable at prices from $0.01 to $2.00 per share were forfeited.
20
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The related campaign talent costs are being recorded in selling and marketing expenses over the performance period of 24 months. The assumptions used at the initial valuation date, November 19, 2012, and December 31, 2013, were as follows:
|
|
|
|
|
|
|
Lowest Aggregate Fair Value
|
|
|
Initial Valuation
|
|
December 31, 2013
|
|
|
|
|
|
Number of shares underlying warrants
|
|
3,250,000
|
|
4,875,000
|
Exercise prices
|
|
$0.01 - $2.00
|
|
$0.01 - $2.00
|
Volatility
|
|
174.0%
|
|
149.7%
|
Risk-free interest rate
|
|
0.33%
|
|
0.38%
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
Expected warrant life (years)
|
|
3.00
|
|
1.90
|
For the three month and nine month periods ending December 31, 2013, the Company recognized marketing expense or expense (reduction) of approximately $(120,000) and $(114,000), respectively, attributable to warrants issued and approximately $31,000 and $94,000, respectively, attributable to the $250,000 cash component paid.
The Company recognized marketing expense under this agreement of approximately $150,000, including approximately $136,000 attributable to the warrants issued and approximately $14,000 attributable to the cash component for the three and nine month periods ending December 31, 2012.
A summary of warrants outstanding at December 31, 2013, is as follows:
Summary of Warrants Outstanding
|
|
|
|
|
|
|
Warrant Description
|
|
Number of
Warrants
(A)
|
|
Exercise
Prices
|
|
Expiration Dates
|
|
|
|
|
|
|
|
2010 Other Placements
|
|
975,000
|
|
$3.00-$10.00
|
|
January 13, 2014 - January 24, 2014
|
2011 Convertible Notes
|
|
431,251
|
|
$3.00-$10.00
|
|
April 11, 2014
|
2011 Private Placement
|
|
672,750
|
|
$3.00-$10.00
|
|
May 27, 2014 - June 15, 2014
|
2011 Bridge Warrant
|
|
8,789,064
|
|
$0.64
|
|
August 29, 2014
|
2011 Bridge Warrant Placement Agent
|
|
1,165,875
|
|
$0.64
|
|
August 29, 2014
|
2011 Unit Offering
|
|
33,277,837
|
(B)
|
$0.59
|
|
October 28, 2016
|
2011 Unit Offering Placement Agent
|
|
4,726,891
|
(B)
|
$0.59
|
|
October 28, 2016
|
2010 Other Placements
|
|
412,500
|
|
$0.64-$3.15
|
|
June 1, 2014 - June 22, 2015
|
2012 Bridge Warrant
|
|
1,137,735
|
(B)
|
$0.77
|
|
September 7, 2015 - September 20, 2015
|
2012 Bridge Warrant Placement Agent
|
|
227,546
|
(B)
|
$0.77
|
|
September 7, 2015
|
2012 Unit Offering
|
|
6,300,213
|
(B)
|
$0.80
|
|
November 14, 2015
|
2012 Unit Offering Placement Agent
|
|
1,561,544
|
(B)
|
$0.70-$0.80
|
|
November 14, 2017
|
2012 Talent Compensation
|
|
4,875,000
|
|
$0.01-$2.00
|
|
November 19, 2015
|
2013 Merger related notes converted
|
|
494,328
|
(B)
|
$0.80
|
|
November 14, 2015
|
2013 eDiets Warrants
|
|
910,835
|
|
$1.40-$4.74
|
|
February 7, 2014 - September 11, 2019
|
|
|
65,958,369
|
|
|
|
|
(A)
All warrants reflect post anti-dilution and repricing provisions applied.
(B)
Subject to potential further ant-dilution and repricing adjustment (See Note 7).
Equity Compensation Plans
In May 2010, the Company adopted its 2010 Executive Equity Incentive Plan and 2010 Non Executive Equity Incentive Plan (collectively, the 2010 Plans) and granted 600,000 options and 450,000 options, respectively.
The fair value of each option is estimated on the date of grant using the Black Scholes options pricing model using the assumptions established at that time.
21
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On June 4, 2012, the Company issued 30,000 options to a direct response consultant. The fair value of the options granted was estimated on the date of grant using the Black Scholes options pricing model using the assumptions established at that time. The following table includes the assumptions used in valuing this grant:
|
|
|
|
|
Number of shares underlying the options
|
|
|
30,000
|
|
Exercise price
|
|
|
$0.87
|
|
Volatility
|
|
|
185
|
%
|
Risk-free interest rate
|
|
|
0.68
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected option life (years)
|
|
|
5
|
|
As the options vested upon grant, the entire fair value of $25,100 was charged to stock-based compensation immediately and is included in general and administrative expenses.
On September 24, 2012, the Companys board of directors adopted the 2013 Equity Compensation Plan (the 2013 Plan and, together with the 2010 Plans, the Plans) with terms similar to the previously adopted 2010 Plans. The 2013 Plan authorized the issuance of up to 3,000,000 options to purchase common stock. The 2013 Plan was modified in March 2013 authorizing the issuance of up to 6,000,000 options. On May 6, 2013, the 2013 Plan was further modified, increasing the shares of common stock reserved for issuance under such plan to 9,000,000 shares.
On December 15, 2012, the compensation committee granted 2,075,000 options from the remaining available options under the Plans. The options were granted to 17 employees and directors of the Company. The options granted vest at 20% per year over a five-year period and expire ten years from grant date. The fair value of the options granted was estimated on the grant date using the Black Scholes options pricing model using the assumptions established at that time. The following table includes the assumptions used in valuing this grant:
|
|
|
|
|
Number of shares underlying the options
|
|
|
2,075,000
|
|
Exercise price
|
|
|
$0.68
|
|
Volatility
|
|
|
177
|
%
|
Risk-free interest rate
|
|
|
1.18
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected option life (years)
|
|
|
7
|
|
On May 2, 2013, effective May 1, 2013, we entered into an employment agreement with Mr. Ronald C. Pruett Jr. to serve as our chief executive officer. As a component of his compensation package the board of directors approved an option grant to purchase 425,000 shares (the First Option Grant) of our common stock and a second option grant to purchase 2,625,000 shares (the Second Option Grant) of our common stock. The First Option Grant vested on the grant date, May 6, 2013, and has a per share exercise price equal to $0.35, the average of the high bid and low asked prices of our common stock on the OTC Bulletin Board on the trading day immediately preceding the grant date. The Second Option Grant has a per share exercise price equal to $0.70. The Second Option Grant vests in four equal tranches on May 6, 2013, May 1, 2014, November 1, 2014 and May 1, 2015. Provided that the agreement has not been terminated, on December 31, 2013, Mr. Pruett became entitled to receive subsequent grants of stock and options, at the compensation committees discretion, with an aggregate value of at least $918,750, vesting in four equal tranches on the grant date, May 1, 2014, November 1, 2014 and May 1, 2015. As of February 10, 2014, Mr. Pruett was not granted any additional stock options. If Mr. Pruetts employment is terminated for any reason, other than by the Company for cause or by Mr. Pruett in the absence of good reason, he shall be entitled to certain compensation and benefits as provided under the agreement. The following table includes the assumptions used in valuing this grant:
|
|
|
|
|
|
Number of shares underlying the option
|
425,000
|
|
|
2,625,000
|
|
Exercise price
|
$0.35
|
|
|
$0.70
|
|
Volatility
|
137
|
%
|
|
137
|
%
|
Risk-free interest rate
|
1.19
|
%
|
|
1.19
|
%
|
Expected dividend yield
|
0.00
|
%
|
|
0.00
|
%
|
Expected option life (years)
|
7
|
|
|
7
|
|
22
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On August 1, 2013, the Company issued 500,000 stock options to Henrik Sandell to serve as the Companys chief operating officer. The fair value of the options granted was estimated on the date of grant using the Black Scholes option pricing model using the assumptions established at that time. The following table includes the assumptions used in valuing this grant:
|
|
|
|
|
Number of shares underlying the options
|
|
|
500,000
|
|
Exercise price
|
|
|
$0.70
|
|
Volatility
|
|
|
159.03
|
%
|
Risk-free interest rate
|
|
|
2.15
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Expected option life (years)
|
|
|
7
|
|
The grant provided that 125,000 options vested upon grant according, $22,250, the fair value of the vested component, was charged to stock based compensation immediately and is included in general and administrative expense.
Mr. Sandells options vest under the following schedule:
|
|
|
|
Percent of Grant
|
|
Vesting Date
|
|
|
|
25%
|
|
August 1, 2013
|
25%
|
|
May 1, 2014
|
25%
|
|
November 1, 2014
|
25%
|
|
May 1, 2015
|
Stock based compensation for the three month and nine month periods ending December 31, 2013 was approximately $186,000 and $803,000, respectively. Stock based compensation for the three month and nine month periods ending December 31, 2012 was approximately $175,000 and $310,000, respectively. Stock based compensation for all periods presented are included in general and administration expenses, in the accompanying condensed consolidated statements of operations.
Information related to options granted under our option plans at December 31, 2013 and, 2012 and activity for each of the nine months then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at April 1, 2013
|
|
|
5,933,708
|
(A)
|
$
|
2.32
|
|
|
6.55
|
|
$
|
44,475
|
|
Granted
|
|
|
3,550,000
|
|
|
0.66
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,461,357
|
)
|
|
5.97
|
|
|
|
|
|
|
|
Expired
|
|
|
(29,388
|
)
|
|
0.83
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
7,992,963
|
|
$
|
1.39
|
|
|
7.35
|
|
$
|
|
|
Exercisable at December 31, 2013
|
|
|
4,756,713
|
|
$
|
2.52
|
|
|
6.03
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Life
(Years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at April 1, 2012
|
|
|
1,025,000
|
|
$
|
1.31
|
|
|
|
|
$
|
|
|
Granted
|
|
|
2,105,000
|
|
|
0.68
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,500
|
)
|
|
0.96
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
3,117,500
|
|
$
|
0.89
|
|
|
7.67
|
|
$
|
|
|
Exercisable at December 31, 2012
|
|
|
880,000
|
|
$
|
1.37
|
|
|
3.02
|
|
$
|
|
|
(A)
Includes 2,816,208 eDiets acquisition adjusted replacement options.
23
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted average grant date fair value of unvested options at December 31, 2013, was approximately $1,256,000 and will be expensed over a weighted average period of 6.33 years.
As of December 31, 2013, there were 4,822,500 options available for further issuance under the Plans.
In addition, under the provisions of ASC 805Business Combinations, the Company recognized as stock-based compensation the difference in fair value between the eDiets options outstanding at the acquisition date and the replacement ASTV options granted. The fair value of the eDiets options replaced of $604,218 was recorded as consideration transferred in the acquisition. The excess fair value of the ASTV replacement options over the fair value of the eDiets options was recognized as compensation cost in the year ended March 31, 2013 since substantially all of the options were fully vested. Accordingly, the Company recorded $694,000 in stock-based compensation in March 2013.
No tax benefits are attributable to our share based compensation expense recorded in the accompanying financial statements because we are in a net operating loss position and a full valuation allowance is maintained for all net deferred tax assets. For stock options, the amount of the tax deductions is generally the excess of the fair market value of our shares of common stock over the exercise price of the stock options at the date of exercise.
In the event of any stock split of our outstanding shares of common stock, the board of directors in its discretion may elect to maintain the stated amount of shares reserved under the Plans without giving effect to such stock split. Subject to the limitation on the aggregate number of shares issuable under the Plans, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Grants under the Plans may either be (i) ISOs, (ii) NSOs (iii) awards of our common stock or (iv) rights to make direct purchases of our common stock which may be subject to certain restrictions. Any option granted under the Plans must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The Plans further provide that with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year cannot exceed $100,000. The term of each plan option and the manner in which it may be exercised is determined by the board of directors or the compensation committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant.
At the effective time of the merger with eDiets, each eDiets option that remained outstanding and unexercised following the effective time was deemed amended and is now exercisable for shares of our common stock. The terms and conditions of the options remained the same, except that the number of shares covered by the option, and the exercise price was adjusted to reflect the exchange ratio of 1.2667. The exercise price per share is now equal to the exercise price prior to the effective time, divided by the exchange ratio. The above discussion reflects options and shares adjusted for the exchange ratio.
Note 12.
Segment Reporting
Commencing February 28, 2013, effective with the Companys acquisition of eDiets, the Company organized its business into two operating segments to better align its organization based upon the Companys management structure, products and services offered, markets served and types of customers. The ASTV segment derives its revenues from the marketing and sale of consumer direct response products, including Internet and TV live shop venues. The eDiets segment is a subscription-based nationwide weight-loss oriented digital subscription service and, until our discontinuance of the meal delivery component in September 2013, provided dietary and wellness oriented meal delivery services. See Note 4. Management reviews financial information presented on an operating segment basis for the purpose of making certain operating decisions and assessing financial performance.
Corporate and other expenses include costs that are not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses. Corporate and other assets include cash and cash equivalents, prepaid expenses and deposits.
24
AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables reflect results of operations from our business segments for the three month and six month periods ending December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2013
|
|
|
|
ASTV
|
|
|
eDiets
|
|
|
Corporate
and other
|
|
|
Total
|
|
Revenues
|
|
$
|
373,901
|
|
|
$
|
128,606
|
|
|
$
|
|
|
|
$
|
502,507
|
|
Costs of revenues
|
|
|
414,739
|
|
|
|
42,464
|
|
|
|
|
|
|
|
457,203
|
|
Gross profit (loss)
|
|
|
(40,838
|
)
|
|
|
86,142
|
|
|
|
|
|
|
|
45,304
|
|
Gross profit (loss) %
|
|
|
(11%
|
)
|
|
|
67%
|
|
|
|
0%
|
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expense
|
|
|
43,981
|
|
|
|
(101,909
|
)
|
|
|
|
|
|
|
(57,928
|
)
|
General and administrative expenses
|
|
|
559,726
|
|
|
|
95,299
|
|
|
|
560,369
|
|
|
|
1,215,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(644,545
|
)
|
|
|
92,752
|
|
|
|
(560,369)
|
|
|
|
(1,112,162
|
)
|
Revaluation of warrants and interest
|
|
|
(815
|
)
|
|
|
(4,534
|
)
|
|
|
3,463,483
|
|
|
|
3,458,132
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(82,315
|
)
|
|
|
|
|
|
|
(82,315
|
)
|
Net income (loss) before taxes
|
|
$
|
(645,360
|
)
|
|
$
|
5,903
|
|
|
$
|
2,903,112
|
|
|
$
|
2,263,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2013
|
|
|
|
ASTV
|
|
|
eDiets
|
|
|
Corporate
and other
|
|
|
Total
|
|
Revenues
|
|
$
|
1,233,092
|
|
|
$
|
656,901
|
|
|
$
|
|
|
|
$
|
1,889,993
|
|
Costs of revenues
|
|
|
1,141,667
|
|
|
|
73,514
|
|
|
|
|
|
|
|
1,215,181
|
|
Gross profit
|
|
|
91,425
|
|
|
|
583,387
|
|
|
|
|
|
|
|
674,812
|
|
Gross profit %
|
|
|
7%
|
|
|
|
89%
|
|
|
|
|
|
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expense
|
|
|
126,915
|
|
|
|
(60,933
|
)
|
|
|
|
|
|
|
65,982
|
|
General and administrative expenses
|
|
|
2,324,192
|
|
|
|
196,119
|
|
|
|
1,770,007
|
|
|
|
4,290,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,359,682
|
)
|
|
|
448,201
|
|
|
|
(1,770,007
|
)
|
|
|
(3,681,488
|
)
|
Revaluation of warrants and interest
|
|
|
1,186
|
|
|
|
1,558
|
|
|
|
9,824,307
|
|
|
|
9,828,051
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(15,266,896
|
)
|
|
|
|
|
|
|
(15,266,896
|
)
|
Net income (loss) before taxes
|
|
$
|
(2,358,496
|
)
|
|
$
|
(14,817,137
|
)
|
|
$
|
8,055,300
|
|
|
$
|
(9,120,333
|
)
|
Note 13.
Subsequent Events
Ronald C. Pruett, Jr., the Companys chief executive officer, voluntarily waived his right to receive Additional Compensation, as defined in Section 3(a) of his employment agreement with the Company, beginning with the payroll period ending February 10, 2014 and continuing until Mr. Pruett otherwise notifies the Company. See Note 10.
25
ITEM 2.