NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2016 and 2015
(Unaudited)
Note
1 - Organization, Business of the Company and Liquidity
Organization
and Nature of Operations
ICTV
Brands Inc., (the “Company” or “ICTV”), was organized under the laws of the State of Nevada on September
25, 1998. The Company together with its wholly-owned subsidiary, Better Blocks International Limited (“BBI”), sells
various health, wellness and beauty products as well as miscellaneous consumer products through a number of sales channels throughout
the United States and internationally. Although our companies are incorporated in Nevada and New Zealand, our operations are currently
run from the Wayne, Pennsylvania office.
The
Company develops, markets and sells products through a multi-channel distribution strategy, including direct response television,
digital marketing campaigns, live home shopping, traditional retail and e-commerce market places, and our international third
party distributor network. We offer primarily health, beauty and wellness products as well as various consumer products, including
DermaWand
TM
, a skin care device that reduces the appearance of fine lines and wrinkles, and helps improve skin tone
and texture, DermaVital
®
, a professional quality skin care line that effects superior hydration, the CoralActives
®
brand of acne treatment and skin cleansing products, Derma Brilliance
®
, a skin care resurfacing device that
helps reduce visible signs of aging, Jidue
TM
, a facial massager device which helps alleviate stress, and Good Planet
Super Solution
TM
, a multi-use cleaning agent. We acquire the rights to our products that we market primarily via licensing
agreements, acquisition and in-house development and sell both domestically and internationally. The Company is presently exploring
other devices and consumable product lines currently under licensing agreements.
The
goal of our strategy is to use the brand awareness we create in our marketing campaigns so that we can sell the products, along
with related families of products, under distinct brand names through multiple sales channels including direct response television
(“DRTV”), digital marketing channels, live home shopping, traditional retail and e-commerce marketplaces, and our
third party international distributor network.
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 condensed consolidated financial statements, including
the notes thereto, appearing in our Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of management,
all adjustments necessary for a fair presentation of the condensed consolidated financial position, consolidated results of operations
and consolidated cash flows, for the periods indicated, have been made. The results of operations for the six months ended June
30, 2016 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.
All significant inter-company transactions and balances have been eliminated.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. Management believes that the estimates utilized in preparing its condensed
consolidated financial statements are reasonable and prudent. The most significant estimates used in these condensed 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.
Recently
Issued Accounting Pronouncements
In
June 2016, FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which sets forth the current expected
credit loss model, a new forward-looking impairment model for certain financial instruments based on expected losses rather than
incurred losses. The ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption of
the standard is permitted. Entities are required to adopt ASU No. 2016-13 using a modified retrospective approach, subject to
certain limited exceptions. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
No. 2016-02 “Leases (Topic 842)”, (“ASU 2016-02”). This standard requires entities that lease assets to
recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The standard
is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2018. The guidance
is required to be applied by the modified retrospective transition approach. Early adoption is permitted. The Company is currently
evaluating the impact of the new guidance to the consolidated financial statements.
In
November 2015, FASB issued ASU No. 2015-17 Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,
which
simplifies current guidance and requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance
sheet. ASU 2015-17 can be applied either prospectively or retrospectively and is effective for periods beginning after December
15, 2016, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on its
consolidated financial statements and related disclosures.
In
July 2015, the FASB issued ASU No. 2015-11- Inventory (Topic 330) - Simplifying the Measurement of Inventory, which provides that
an entity should measure inventory within the scope of this update at the lower of cost and net realizable value. Net realizable
value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal,
and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The
amendments in this update are effective for the annual periods beginning after December 15, 2016, and for interim periods within
those fiscal years. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial
statements.
In
May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, on revenue recognition. The new standard provides
for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement
disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating
to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach
to implement the standard. Accounting Standards Update No. 2014-09 is effective for annual reporting periods beginning after December
15, 2017, including interim periods within that reporting period. Early adoption is permitted, but not before the original effective
date of the standard. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.
In
August 2014, the FASB issued ASU No. 2014-15 - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern. The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether
there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.
The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim
periods thereafter. The Company adopted this guidance effective January 1, 2016 and it does not have a material impact to the
consolidated financial statements.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
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 June 30, 2016, 82% of the Company’s accounts receivable were due from various individual customers to whom our products
had been sold directly via Direct Response Television. In addition, 8% of the Company’s accounts receivable was cash due
from retail and e-commerce customers and 3% of the Company’s accounts receivable was cash due from the Company’s credit
card processors as of June 30, 2016. Major customers are considered to be those who accounted for more than 10% of net sales.
For the three and six months ended June 30, 2016, there were 13% and 11%, respectively, of net sales made to one major international
third party distributor as compared to no major customers for the three and six months ended June 30, 2015.
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 Accounting Standards Codification (“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 and cash equivalents, accounts receivable, accounts payable, and accrued liabilities
approximate their fair values due to the short settlement period for these instruments.
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.
Foreign
currency transactions
Transactions
entered into by the Company in currencies other than its local currency, are recorded in its local currency and any changes in
currency exchange rates that occur from the initiation of a transaction until settled are recorded as foreign currency gains or
losses in the Condensed Consolidated Statements of Operations.
Accounts
receivable
Accounts
receivable are recorded net of allowances for returns and doubtful accounts of approximately $140,000 at June 30, 2016 and $119,000
at December 31, 2015. The allowances are estimated based on customer returns and bad debts. In addition to reserves for returns
on accounts receivable, an accrual is made for the return of 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 $95,000 and $80,000 at June 30, 2016 and December
31, 2015, respectively.
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. The Company’s
reserve for obsolescence was approximately $104,000 and $123,000 at June 30, 2016 and December 31, 2015, respectively. Included
in inventory at June 30, 2016 and December 31, 2015 is approximately $87,000 and $42,000, 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 as well as consigned products that are held at a retailer distributor for sale.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
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 5 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 $1,900 and $3,700 and $2,100 and $4,200 for the three and six months ended June 30, 2016 and
2015, respectively.
Impairment
of long-lived assets
In
accordance with 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 and six months ended June 30, 2016 and 2015.
Related
party transactions
During
the six months ended June, 2016, the Company had one sale of approximately $14,000 with an international third party distributor
affiliated with one of our Board of Director members. The pricing and terms of the sale are similar to other international third
party sales and the Company considers the sale an arm’s length transaction.
Revenue
recognition
The
Company recognizes revenues from product sales when the following four criteria have been met: (i) persuasive evidence of an arrangement
exists; (ii) delivery has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.
The Company’s revenues in the Condensed Consolidated Statements of Operations are net of sales taxes. Revenues from product
sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.
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 reasonably assured.
Revenue
related to our DermaVital
TM
continuity program is recognized monthly upon shipment to customers. Revenue from our live
home shopping and retail customers is recorded upon sale to the final customer. Revenue related to international wholesale customers
is recorded at gross amounts with a corresponding charge to cost of sales upon shipment.
The
Company had international third party distributor sales and retail sales of approximately $327,000 and $221,000 as of June 30,
2016 and December 31, 2015, respectively, included in deferred revenue – short-term on the accompanying condensed consolidated
balance sheets for payments received prior to shipment.
The
Company has a return policy whereby the customer can return any product received within 30 days of receipt for a full refund.
The Company provides a provision for product returns based on the experience with historical sales returns, in accordance with
ASC Topic 605-15 with respect to sales of product when a right of return exists. Returns for the periods presented have been offset
against gross sales. Such allowance for sales returns is included in accounts payable and accrued liabilities.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
The
Company sells warranties on the DermaWand
TM
for various terms. Revenue is recognized ratably over the term, with the
unearned warranty included in deferred revenue on the accompanying condensed consolidated balance sheets. Changes in the Company’s
deferred service revenue related to the warranties is presented in the following table:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Deferred
extended warranty revenue:
|
|
|
|
|
|
|
|
|
At
beginning of period
|
|
$
|
629,143
|
|
|
$
|
670,075
|
|
Revenue
deferred for new warranties, year to date
|
|
|
59,221
|
|
|
|
174,852
|
|
Revenue
recognized year to date
|
|
|
(115,652
|
)
|
|
|
(215,784
|
)
|
At
end of period
|
|
$
|
572,712
|
|
|
$
|
629,143
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
$
|
235,046
|
|
|
$
|
223,397
|
|
Non-current
portion
|
|
|
337,666
|
|
|
|
405,746
|
|
|
|
$
|
572,712
|
|
|
$
|
629,143
|
|
Shipping
and handling
The
amount billed to customers for shipping and handling is included in revenue. Shipping, handling and processing revenue approximated
$647,000 and $1,062,000 and $883,000 and $2,103,000 for the three and six months ended June 30, 2016 and 2015, respectively. Shipping
and handling costs are included in cost of sales. Shipping and handling costs approximated $230,000 and $427,000 and $561,000
and $1,192,000 for the three and six months ended June 30, 2016 and 2015, 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 statement of operations. Research and development costs primarily consist of efforts to discover and develop new
products, including clinical trials, product safety testing, certifications for international regulations and standards, etc.
Product testing and development costs approximated $28,000 and $56,000 and $37,000 and $60,000 for the three and six months ended
June 30, 2016 and 2015, respectively.
Media
and production costs
Media
and internet marketing costs are expensed as incurred and are included in selling and marketing expense in the accompanying condensed
consolidated statement of operations. Production costs associated with the creation of new and updated infomercials and advertising
campaigns are expensed at the commencement of a campaign. The Company incurred approximately $1,723,000 and $2,065,000 in media
costs for airing its infomercials, $196,000 and $115,000 in new production costs, and $252,000 and $102,000 in internet marketing
costs for the three months ended June 30, 2016 and 2015, respectively and approximately $2,566,000 and $5,313,000 in media costs
for airing its infomercials, $203,000 and $208,000 in new production costs, and $600,000 and $315,000 in internet marketing costs
for the six months ended June 30, 2016 and 2015, respectively.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
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 limited 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 sustain profitability 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 record the estimated net realizable 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. 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.
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 June 30, 2016, 116,667 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 6,000,000 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. Generally, the options granted vest over three years with one-third vesting on each anniversary date
of the grant. As of June 30, 2016, 3,438,335 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. Nonvested stock options granted to non-employees are remeasured at each reporting period.
The
Company uses ASC Topic 718, “Share-Based Payments” to account for share-based compensation issued to employees and
directors. 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.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(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 six months ended June 30, 2016 and 2015:
|
|
Number
of Shares
|
|
|
Weighted
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Average
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2016
|
|
|
4,036,669
|
|
|
|
-
|
|
|
|
4,036,669
|
|
|
$
|
0.21
|
|
Exercised
during the period
|
|
|
(350,000
|
)
|
|
|
-
|
|
|
|
(350,000
|
)
|
|
|
0.11
|
|
Forfeited
during the period
|
|
|
(131,667
|
)
|
|
|
-
|
|
|
|
(131,667
|
)
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2016
|
|
|
3,555,002
|
|
|
|
-
|
|
|
|
3,555,002
|
|
|
$
|
0.21
|
|
|
|
Number
of Shares
|
|
|
Weighted
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Average
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2015
|
|
|
4,220,002
|
|
|
|
350,000
|
|
|
|
4,570,002
|
|
|
$
|
0.40
|
|
Exercised
during the period
|
|
|
(309,279
|
)
|
|
|
(350,000
|
)
|
|
|
(659,279
|
)
|
|
|
0.14
|
|
Forfeited
during the period
|
|
|
(15,000
|
)
|
|
|
-
|
|
|
|
(15,000
|
)
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2015
|
|
|
3,895,723
|
|
|
|
-
|
|
|
|
3,895,723
|
|
|
$
|
0.38
|
|
Of
the stock options outstanding as of June 30, 2016 under the Stock Option Plans, 2,268,334 options are currently vested and exercisable.
The weighted average exercise price of these options was $0.21. These options expire through December 2025. The aggregate intrinsic
value for options outstanding and exercisable at June 30, 2016 and 2015 was approximately $180,000 and $503,000, respectively.
The aggregate intrinsic value for options exercised during the six months ended June 30, 2016 was approximately $31,000.
For
the three and six months ended June 30, 2016 and 2015, the Company recorded approximately $67,000 and $176,000 and $139,000 and
$278,000, respectively in share based compensation expense related to vesting of options previously granted under the Stock Option
Plans. At June 30, 2016, there was approximately $529,000 of total unrecognized compensation cost related to non-vested option
grants that will be recognized over the remaining vesting period of 3 years.
There
were no grants for the six months ended June 30, 2016 and 2015.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Stock
options (continued)
The
following is a summary of stock options outstanding outside of the existing Stock Option Plans for the six months ended June 30,
2016 and 2015:
|
|
Number
of Shares
|
|
|
Weighted
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Average
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2016
|
|
|
466,667
|
|
|
|
1,976,667
|
|
|
|
2,443,334
|
|
|
$
|
0.32
|
|
Granted
during the period
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
0.21
|
|
Expired
during the period
|
|
|
-
|
|
|
|
(300,000
|
)
|
|
|
(300,000
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2016
|
|
|
516,667
|
|
|
|
1,676,667
|
|
|
|
2,193,334
|
|
|
$
|
0.35
|
|
|
|
Number
of Shares
|
|
|
Weighted
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Average
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2015
|
|
|
466,667
|
|
|
|
2,016,667
|
|
|
|
2,483,334
|
|
|
$
|
0.36
|
|
Granted
during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
during the period
|
|
|
-
|
|
|
|
(40,000
|
)
|
|
|
(40,000
|
)
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2015
|
|
|
466,667
|
|
|
|
1,976,667
|
|
|
|
2,443,334
|
|
|
$
|
0.36
|
|
Of
the stock options outstanding as of June 30, 2016 outside of the existing Stock Option Plans, 2,051,667 options are currently
vested and exercisable. The weighted average exercise price of these options was $0.36. These options expire through January 2026.
The aggregate intrinsic value for options outstanding and exercisable at June 30, 2016 and 2015 outside of the existing stock
option plans was approximately $122,000 and $582,000, respectively. There were no options exercised during the six months ended
June 30, 2016.
For
the three and six months ended June 30, 2016 and 2015, the Company recorded approximately $14,000 and $28,000 and $18,000 and
$270,000 of expense, respectively, in share based compensation related to vesting of options previously granted outside of the
Stock Option Plans. At June 30, 2016, there was approximately $52,000 of total unrecognized compensation cost related to non-vested
option grants outside the Stock Options Plans which will be recognized over the remaining vesting period of approximately 3 years.
There
were no grants for the six months ended June 30, 2015. The following assumptions were used in the Black-Scholes option pricing
model for one grant issued in the six months ended June 30, 2016.
2016
|
|
|
|
Risk-free
interest rate
|
|
|
1.94
|
%
|
Expected
dividend yield
|
|
|
0.00
|
|
Expected
life
|
|
|
6
years
|
|
Expected
volatility
|
|
|
156
|
%
|
Weighted average
grant date fair value
|
|
$
|
0.21
|
|
Forfeiture
rate
|
|
|
5
|
%
|
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Stock
options (continued)
The
following is a summary of all stock options outstanding and nonvested for the six months ended June 30, 2016:
|
|
|
Number
of Shares
|
|
|
Weighted
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Average
|
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2016 – nonvested
|
|
|
|
1,843,355
|
|
|
|
-
|
|
|
|
1,843,355
|
|
|
$
|
0.22
|
|
Granted
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
0.21
|
|
Vested
|
|
|
|
(465,000
|
)
|
|
|
-
|
|
|
|
(465,000
|
)
|
|
|
0.23
|
|
Balance
June 30, 2016 - nonvested
|
|
|
|
1,428,335
|
|
|
|
-
|
|
|
|
1,428,335
|
|
|
$
|
0.22
|
|
Note
3 - Commitments and contingencies
Leases
As
of June 30, 2016, the Company had an active lease through March 2017 related to the office space rented in Wayne, Pennsylvania.
Rent expense incurred during the three and six months ended June 30, 2016 and 2015 totaled approximately $14,000 and $27,000 and
$15,000 and $28,000, respectively. The schedule below details the future financial obligations under the lease.
|
|
Remaining
six months
2016
|
|
|
2017
|
|
|
TOTAL
OBLIGATION
|
|
Wayne
- Corporate HQ
|
|
$
|
26,600
|
|
|
$
|
13,300
|
|
|
$
|
39,900
|
|
Product
Liability Insurance
For
certain products, the Company was (and is) listed as an additional insured party under the product manufacturers’ insurance
policy. The current policy has a scheduled expiration of April 20, 2017. At present, management is not aware of any claims against
the Company for any products sold.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
4 - Severance payable
In
September 2010, the Company entered into a severance agreement with a former consultant. Under the severance agreement, the consultant
was to 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. In April 2011, the Company amended the aforementioned severance agreement to monthly payments of $3,400 per month
through March 2016. In December 2015, the Company recorded additional severance payable of $40,000 for termination benefits provided
to three former employees after employment due to restructuring. These benefits include salary and medical continuation coverage
and was paid out by April 30, 2016. The current severance payable balance approximately $46,000 at December 31, 2015.
Note
5 - Other assets and liabilities
On
January 22, 2016, the Company entered into a Purchase Agreement with Omega 5 Technologies, Inc. to acquire the worldwide ownership
of the DermaWand patent and all related trademarks and intellectual property for the sum of $1,200,000 to be paid out as follows:
$300,000 per year for calendar years 2016 through 2019, payable in uniform quarterly installments on or before the last day of
each calendar quarter. As a result, effective January 1, 2016, the Company is no longer obligated to make royalty payments on
sales of DermaWand
TM
. There shall be no interest charged, and ICTV may, in its sole discretion, at any time without
permission or penalty pre-pay some or all of the purchase price. Under our old licensing agreement, ICTV had been assigned the
patents, related trademarks, and exclusive commercial rights to DermaWand based upon a $2.50 per unit fee and maintaining annual
minimum royalty requirements.
As
a result of the agreement, the Company recorded an offsetting asset and liability at January 1, 2016 in the amount of $1,200,000
for the asset from the intellectual property acquired and a corresponding liability per the payment schedule. As there is no interest
charged with the purchase agreement the Company recorded a discount for imputed interest of approximately $37,000, calculated
based on the applicable federal rates at January 2016 of 1.45%, which will be amortized over the term of the agreement using the
effective interest method. The other asset balance for the patent and trademark will be amortized using the straight-line method
over the four-year period of the agreement, which at this time is management’s best estimate of the remaining useful life.
As
of June 30, 2016, the other liability balance was approximately $1,022,000, including the discount for imputed interest of approximately
$28,000, of which approximately $287,000 was current. For the three and six months ended June 30, 2016, we amortized approximately
$4,000 and $8,000 of interest expense related to the discount for imputed interest. The other asset balance was approximately
$1,018,000 as of June 30, 2016 with amortization of approximately $73,000 and $145,000 being recorded in cost of sales for the
three and six months ended June 30, 2016. The accumulated amortization was approximately $145,000 as of June 30, 2016. There was
approximately $224,000 and $327,000 in royalty expense for DermaWand for the three and six months ended June 30, 2015. Management
evaluates the other asset for impairment when there is a triggering event and concluded there was no such event as of June 30,
2016.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
6 - Notes payable
On
July 2, 2014, the Company entered into a $500,000, one-year Credit Facility with JPMorgan Chase Bank, N.A with an expiration date
of July 2, 2015. Interest on the Credit Facility was calculated using the Adjusted One Month LIBOR Rate plus 2.50%. The facility
was collateralized by a lien on the Company’s assets and requires the Company to maintain prescribed levels of liquidity
and EBITDA. Effective November 7, 2014, the Credit Facility was amended to remove the EBITDA covenant and hold $500,000 as cash
collateral for the amount of the line of credit. The Company did not utilize the Credit Facility. Effective February 18, 2015,
the Company terminated the Credit Facility and the $500,000 collateral held in escrow was released.
Note
7 - 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. At June 30, 2016, there were no warrants outstanding and exercisable.
At June 30, 2016, there were 5,748,336 stock options outstanding and 4,320,001 were vested and exercisable at an average exercise
price of $0.28.
All
outstanding securities were anti-dilutive for the three and six months ended June 30, 2016 as a result of a net loss for both
periods. The following securities were not involved in the computation of diluted net loss per share as their effect would have
been anti-dilutive:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2016
|
|
|
June
30, 2015
|
|
|
June
30, 2016
|
|
|
June
30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
to purchase common stock
|
|
|
5,748,336
|
|
|
|
2,263,333
|
|
|
|
5,748,336
|
|
|
|
2,263,333
|
|
The
number of shares of common stock used to calculate basic and diluted earnings per share for the three and six months ended June
30, 2016 and 2015 was determined as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2016
|
|
|
June
30, 2015
|
|
|
June
30, 2016
|
|
|
June
30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
28,202,739
|
|
|
|
24,340,451
|
|
|
|
28,175,406
|
|
|
|
24,130,481
|
|
Dilutive
effect of outstanding stock options
|
|
|
-
|
|
|
|
2,220,878
|
|
|
|
-
|
|
|
|
2,239,940
|
|
Weighted
average dilutive shares outstanding
|
|
|
28,202,739
|
|
|
|
26,561,329
|
|
|
|
28,175,406
|
|
|
|
26,370,421
|
|
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
7 - Basic and diluted earnings per share (continued)
The
computations for basic and fully diluted earnings per share are as follows:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
For
the three-months ended June 30, 2016:
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
to common shareholders
|
|
$
|
(601,172
|
)
|
|
|
28,202,739
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
For
the three-months ended June, 2015:
|
|
|
Income
(Numerator)
|
|
|
|
Shares
(Denominator)
|
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
to common shareholders
|
|
$
|
286,630
|
|
|
|
24,340,451
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
to common shareholders
|
|
$
|
286,630
|
|
|
|
26,561,329
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
For
the six-months ended June 30, 2016:
|
|
|
Loss
(Numerator)
|
|
|
|
Shares
(Denominator)
|
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
to common shareholders
|
|
$
|
(689,851
|
)
|
|
|
28,175,
406
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
For
the six-months ended June 30, 2015:
|
|
|
Income
(Numerator)
|
|
|
|
Shares
(Denominator)
|
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
to common shareholders
|
|
$
|
16,445
|
|
|
|
24,130,481
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
to common shareholders
|
|
$
|
16,445
|
|
|
|
26,370,421
|
|
|
$
|
0.00
|
|
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
8 - Income taxes
The
provision for income taxes is $0 for both the three and six months ended June 30, 2016 and 2015. The effective tax rates reflect
provisions for current federal and state income taxes. As of December 31, 2015, the Company had approximately $2,431,000 of gross
federal net operating losses and $695,000 of gross state net operating losses available. The Company has completed an IRC Section
382 study and concluded that the availability of the Company’s net operating loss carry forwards will not be subject to
annual limitations against taxable income in future periods due to change in ownership rules as of June 30, 2016. The Company
has provided a full valuation allowance on its net deferred asset as the Company does not have sufficient history of taxable income.
The Company does not believe it has any material uncertain tax positions. 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.
The Company recorded zero interest and penalties for the three and six months ended June 30, 2016 and 2015.
Note
9 - Segment reporting
The
Company operates in one industry segment and is engaged in the selling of various consumer products primarily through direct marketing
channels. The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure
is operating income (loss) by the end customer, either direct to consumer DRTV sales or wholesale international third party distributor
sales. Operating expenses are primarily prorated based on the relationship between DRTV consumer sales and international third
party distributor sales.
ICTV
BRANDS INC. AND SUBSIDIARY
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2016 and 2015
(Unaudited)
Note
9 - Segment reporting (continued)
Information
with respect to the Company’s operating income (loss) by segment is as follows:
|
|
For
the three months ended June 30, 2016
|
|
For
the three months ended June 30, 2015
|
|
|
|
DRTV
Consumer
|
|
|
International
Third Party Distributor
|
|
|
Totals
|
|
|
DRTV
Consumer
|
|
|
International
Third Party Distributor
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$
|
3,421,711
|
|
|
$
|
1,122,381
|
|
|
$
|
4,544,092
|
|
|
$
|
5,675,010
|
|
|
$
|
1,585,006
|
|
|
$
|
7,260,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
794,963
|
|
|
|
548,106
|
|
|
|
1,343,069
|
|
|
|
1,521,886
|
|
|
|
838,080
|
|
|
|
2,359,966
|
|
Gross
profit
|
|
|
2,626,748
|
|
|
|
574,275
|
|
|
|
3,201,023
|
|
|
|
4,153,124
|
|
|
|
746,926
|
|
|
|
4,900,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
958,044
|
|
|
|
123,375
|
|
|
|
1,081,419
|
|
|
|
1,250,457
|
|
|
|
162,660
|
|
|
|
1,413,117
|
|
Selling
and marketing
|
|
|
2,674,690
|
|
|
|
42,631
|
|
|
|
2,717,321
|
|
|
|
3,166,134
|
|
|
|
34,282
|
|
|
|
3,200,416
|
|
Total
operating expense
|
|
|
3,632,734
|
|
|
|
166,006
|
|
|
|
3,798,740
|
|
|
|
4,416,591
|
|
|
|
196,942
|
|
|
|
4,613,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
(1,005,986
|
)
|
|
$
|
408,269
|
|
|
$
|
(597,717
|
)
|
|
$
|
(263,467
|
)
|
|
$
|
549,984
|
|
|
$
|
286,517
|
|
|
|
For
the six months ended June 30, 2016
|
|
For
the six months ended June 30, 2015
|
|
|
|
DRTV
Consumer
|
|
|
International
Third Party Distributor
|
|
|
Totals
|
|
|
DRTV
Consumer
|
|
|
International
Third Party Distributor
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$
|
5,913,566
|
|
|
$
|
2,354,170
|
|
|
$
|
8,267,736
|
|
|
$
|
12,736,751
|
|
|
$
|
3,387,181
|
|
|
$
|
16,123,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
1,364,317
|
|
|
|
1,175,448
|
|
|
|
2,539,765
|
|
|
|
3,268,800
|
|
|
|
1,744,298
|
|
|
|
5,013,098
|
|
Gross
profit
|
|
|
4,549,249
|
|
|
|
1,178,722
|
|
|
|
5,727,971
|
|
|
|
9,467,951
|
|
|
|
1,642,883
|
|
|
|
11,110,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,794,840
|
|
|
|
245,897
|
|
|
|
2,040,737
|
|
|
|
2,703,076
|
|
|
|
367,234
|
|
|
|
3,070,310
|
|
Selling
and marketing
|
|
|
4,313,136
|
|
|
|
56,712
|
|
|
|
4,369,848
|
|
|
|
7,967,553
|
|
|
|
56,723
|
|
|
|
8,024,276
|
|
Total
operating expense
|
|
|
6,107,976
|
|
|
|
302,609
|
|
|
|
6,410,585
|
|
|
|
10,670,629
|
|
|
|
423,957
|
|
|
|
11,094,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
(1,558,727
|
)
|
|
$
|
876,113
|
|
|
$
|
(682,614
|
)
|
|
$
|
(1,202,678
|
)
|
|
$
|
1,218,926
|
|
|
$
|
16,248
|
|
Selected
balance sheet information by segment is presented in the following table as of:
|
|
June
30, 2016
|
|
|
December
31, 2015
|
|
Domestic
|
|
$
|
4,685,993
|
|
|
$
|
4,242,502
|
|
International
|
|
|
44,313
|
|
|
|
37,825
|
|
Total
Assets
|
|
$
|
4,730,306
|
|
|
$
|
4,280,327
|
|