NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(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. We currently have the following subsidiaries:
|
●
|
Better
Blocks International Limited, or (“BBI”), a New Zealand corporation;
|
|
|
|
|
●
|
Ermis
Labs, Inc., a Nevada Corporation;
|
|
|
|
|
●
|
ICTV
Brands Israel Limited., incorporated under the laws of Israel;
|
|
|
|
|
●
|
ICTV
Brands UK Limited., incorporated under the laws of the United Kingdom;
|
|
|
|
|
●
|
ICTV
Holdings, Inc., a Nevada Corporation (“ICTV Holdings”);
|
|
|
|
|
●
|
Radiancy
(HK) Limited, a private limited company limited by shares, incorporated under the laws of Hong Kong; and
|
|
|
|
|
●
|
LK
Technology Importaçăo E Exportaçăo LTDA, a private Sociedade limitada formed under the laws of Brazil
(“LK Technology”).
|
Although
our companies are incorporated in New Zealand, Nevada, Israel, United Kingdom, Hong Kong, and Brazil, our operations are currently
run from our Wayne, Pennsylvania office.
We
develop, market and sell 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, but not limited
to, 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 introduce our brands to the market through an omni-channel platform that includes, but is not limited
to, direct response television (“DRTV”), digital marketing, live home shopping, traditional retail, e-commerce marketplaces,
and international third party distributor networks. Our objective is to have our portfolio of products sold through these channels
to develop long lasting brands with strong returns on investments.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
1 - Organization, Business of the Company and Liquidity (continued)
PhotoMedex
Acquisition
On
October 4, 2016, we and our wholly-owned subsidiary, ICTV Holdings, entered into an asset purchase agreement, as amended by the
First Amendment to the Asset Purchase Agreement, dated January 23, 2017 (as so amended, the “PhotoMedex Purchase Agreement”)
with PhotoMedex, Inc., a Nevada corporation (“PhotoMedex”), and its wholly owned subsidiaries, Radiancy, Inc., a Delaware
corporation, PhotoTherapeutics Ltd, a private limited company limited by shares incorporated under the laws of England and Wales,
and Radiancy Israel Limited, a private corporation incorporated under the laws of the State of Israel, (collectively with PhotoMedex,
the “Sellers” and individually, a “Seller”), pursuant to which ICTV Holdings acquired substantially all
of the assets of the Sellers, including, but not limited to, all of the equity interests of the Seller’s subsidiaries Radiancy
(HK) Limited, a private limited company incorporated under the laws of Hong Kong, and LK Technology Importaçăo E Exportaçăo
LTDA, a private Sociedade limitada formed under the laws of Brazil, for a total purchase price of $9,500,000. Such acquisition
is referred to herein as the “PhotoMedex Acquisition.” The PhotoMedex Acquisition was completed on January 23, 2017.
(See Note 3 - Business and Asset Acquisitions).
The
PhotoMedex Acquisition included the acquisition of proprietary products and services that address skin diseases and conditions
or pain reduction using home-use devices for various indications including hair removal, acne treatment, skin rejuvenation, and
lower back pain; which products are sold and distributed to traditional retail, online and infomercial outlets for home-use products
and include, without limitation, the following: (a) no!no! ® Hair, (b) no!no! ® Skin, (c) no!no! ® Face Trainer, (d)
no!no! ® Glow, (e) Made Ya Look, (f) no!no ®! Smooth Skin Care, (g) Kyrobak®, and (h) ClearTouch ®.
Under
the PhotoMedex Purchase Agreement, we were required to pay to PhotoMedex and its subsidiaries a continuing monthly royalty on
net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates
from sales of the consumer products that we acquired from PhotoMedex. Such royalty payments commenced with net cash actually received
from and after January 23, 2017, and would continue until the total royalty paid to PhotoMedex and its subsidiaries totaled $4,500,000.
On
July 12, 2017, we and ICTV Holdings entered into a Termination and Release Agreement with the Sellers (the “Release Agreement”).
Under the terms of the Release Agreement, the PhotoMedex Purchase Agreement is terminated and of no further force and effect,
except for certain surviving rights, obligations and covenants described in the Release Agreement. Pursuant to the Release Agreement,
each of the Company and ICTV Holdings, on the one hand, and the Sellers on the other hand, fully release, forever discharge and
covenant not to sue any other party, from and with respect to any and all past and present claims arising out of, based upon or
relating to the PhotoMedex Purchase Agreement (other than the surviving covenants described in the Release Agreement) or the transactions
contemplated thereby. The Release Agreement required that the Company pay to PhotoMedex $2,000,000 on or before July 15, 2017
(the “Payment”), subject to which, neither the Company nor ICTV Holdings shall have any further royalty or other payment
obligations under the PhotoMedex Purchase Agreement.
As
partial consideration for the releases provided by ICTV Holdings to the Sellers, on July 12, 2017 the Sellers and ICTV Holdings
entered into a Bill of Sale and Assignment, which provides that each Seller sell, assign, transfer, convey and deliver to ICTV
Holdings, and ICTV Holdings purchase and accept from each Seller, all of the right, title and interest, legal or equitable, of
each such Seller in and to a deposit in the amount of $210,000 held by a supplier, Sigmatron International, Inc. (“Sigmatron”),
between the Sellers and Sigmatron.
On
July 15, 2017, to secure the Payment, we issued a 30-month secured promissory note (the “Note”), to LeoGroup Private
Investment Access, LLC (the “Holder”), a significant shareholder, in the principal amount of $2,000,000 with an effective
interest rate of 34% (see Note 7 – Long-term Debt). The Note provides that the Company shall make monthly principal and
interest payments of $100,000 to the Holder for 30 months beginning August 2017. The Note is secured by a first priority security
interest in all the assets of Company, except the Company’s accounts receivable. The Note contains customary covenants of
the Company and customary events of default. Subject to the terms and conditions of the Note, so long as any event of default,
as described in the Note, is continuing, without cure, for a period of five (5) business days after written notice from the Holder
to the Company or a longer period if set forth in in the notice from Holder or if agreed to by the parties, all obligations of
the Company under the Note shall be immediately due and payable, and the Holder may exercise any other remedies available at law
or in equity. The note may not be prepaid, in whole or in part, at any time and from time to time, unless expressly agreed to
in writing by the Holder.
The
change in the amount of the Company’s contingent consideration payable due to PhotoMedex, Inc. for the period up to the
date of the Release Agreement was as follows:
Balance
at January 23, 2017-initial measurement
|
|
$
|
4,198,043
|
|
Contingent
consideration earned but not paid
|
|
|
(570,248
|
)
|
Change
in fair value
|
|
|
(48,035
|
)
|
Balance
at July 12, 2017
|
|
$
|
3,579,760
|
|
The
following summarizes the amounts owed to PhotoMedex (PHMD) as of July 12, 2017 and the gain on settlement recorded during the
quarter ended September 30, 2017:
Contingent
consideration owed to PHMD (see above)
|
|
|
|
|
|
$
|
3,579,760
|
|
Other
payables (receivables)
|
|
|
|
|
|
|
|
|
Due
from PHMD
|
|
$
|
(837,708
|
)
|
|
|
|
|
Contingent
consideration earned but not paid
|
|
|
570,248
|
|
|
|
|
|
Other
payable amounts due to PHMD
|
|
|
446,945
|
|
|
|
179,485
|
|
Net
amount owed to PHMD
|
|
|
|
|
|
$
|
3,759,245
|
|
|
|
|
|
|
|
|
|
|
Settlement
amount
|
|
|
|
|
|
$
|
2,000,000
|
|
Assignment
of Sigmatron deposit to ICTV
|
|
|
|
|
|
|
(210,000
|
)
|
Net
settlement
|
|
|
|
|
|
|
1,790,000
|
|
|
|
|
|
|
|
|
|
|
Gain
on settlement
|
|
|
|
|
|
$
|
1,969,245
|
|
Ermis
Labs Asset Acquisition
On
October 4, 2016, we and our wholly-owned subsidiary, Ermis Labs, Inc., a Nevada corporation (the “Purchaser”), entered
into an asset purchase agreement (the “Ermis Labs Purchase Agreement”) with LeoGroup Private Debt Facility L.P. a
Delaware limited partnership (the “LeoGroup L.P.”), a significant shareholder, and Ermis Labs, Inc., a New Jersey
corporation (“Ermis Lab”), pursuant to which the Purchaser has agreed to acquire substantially all of the assets of
Ermis Labs (collectively, the “Ermis Labs Assets”), for a total purchase price of $1,982,000. Such acquisition is
referred to herein as the “Ermis Labs Asset Purchase.” (See Note 3 - Business and Asset Acquisitions).
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
1 - Organization, Business of the Company and Liquidity (continued)
Liquidity
We
had a net loss of approximately $2,195,000 for the nine months ended September 30, 2017 and working capital of approximately $6,070,000
as of September 30, 2017. Management believes that the current available resources, including cash and cash equivalents will provide
sufficient funds to enable us to meet our operating plan for at least the next twelve months from the date of this filing.
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, 2016. 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 nine months ended September
30, 2017 are not necessarily indicative of operating results that may be achieved over the course of the full year.
Principles
of consolidation
Our
accompanying condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries BBI, ICTV Holdings,
Ermis Labs, Inc., ICTV Brands UK Limited, ICTV Brands Israel Limited, Radiancy (HK) Limited and LK Technology. In October 2016,
ICTV Holdings and Ermis Labs, Inc. were formed as holding companies for the asset purchase agreements that were entered into with
PhotoMedex, Inc. and Ermis Lab, Inc. (See Note 3 - Business and Asset Acquisitions). All significant inter-company transactions
and balances have been eliminated in consolidation.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(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, allocation of purchase
price, valuation allowance on deferred tax assets, and share based compensation. Actual results could differ from these estimates.
Recently
Issued Accounting Pronouncements
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
No. 2017-01
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”). ASU2017-01
narrows the definition of a “business.” This standard provides guidance to assist entities with evaluating when a
set of transferred assets and activities is a business. This guidance is effective for interim and annual reporting periods beginning
after December 15, 2017. This guidance must be applied prospectively to transactions occurring within the period of adoption.
As a result of the recent PhotoMedex acquisition and Ermis asset purchase (See Note 3 - Business and Asset Acquisitions), we adopted
this standard on January 1, 2017.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments
(“ASU 2016-15”)
.
The updated accounting requirement is intended to reduce diversity in practice
in the classification of certain transactions in the statement of cash flows. Such transactions include but are not limited to
debt prepayment or debt extinguishment costs, settlement of zero coupon debt instruments, contingent consideration payments made
after a business combination and distributions received from equity method investments. ASU 2016-15 is required to be retrospectively
applied and is effective for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted.
As a result of the recent PhotoMedex acquisition (See Note 3 - Business and Asset Acquisitions), we adopted this standard on January
1, 2017.
In
June 2016, the 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. We are currently evaluating the impact of the new guidance on our consolidated financial
statements.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
In
February 2016, the FASB issued ASU No. 2016-02
Leases (Topic 842)
(“ASU 2016-02”). This standard requires lessees
to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding
leasing arrangements. The standard is effective for reporting periods beginning after December 15, 2018 and early adoption is
permitted. The standard must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company
expects to adopt this guidance in the first quarter of 2019 and we currently expect that the adoption of this guidance will likely
change the way we account for our operating leases and will likely result in recording the future benefits of those leases as
an asset and the related minimum lease payments as a liability on our consolidated balance sheets. The Company has not yet begun
to quantify the specific impacts of this guidance.
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. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period. The Company has not substantially or timely commenced its evaluation process
to implement controls and identify the impact to its consolidated financial statements of implementing ASU No. 2014-09.
Concentration
of credit risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, include cash and cash equivalents and trade
receivables. We maintain cash in bank accounts that, at times, may exceed federally insured limits. We have not experienced any
losses and believe we are not exposed to any significant risks on cash in bank accounts.
As
of September 30, 2017, 15% of the Company’s accounts receivable were due from various individual customers to whom our products
had been sold directly via DRTV. In addition, 12% was due from live home shopping, 49% was due from brick and mortar retailers,
9% was due from e-commerce accounts, 11% was due from duty free airline business, and the remaining amount from miscellaneous
accounts. Major customers are considered to be those who accounted for more than 10% of net sales. For the three and nine months
ended September 30, 2017, there were no major customers. For the three and nine months ended September 30, 2016, there were 10%
and 0%, respectively, of net sales made to one e-commerce customer.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2- Summary of significant accounting policies (continued)
Fair
value of financial instruments
Fair
value estimates, assumptions and methods used to estimate fair value of the Company’s financial instruments are made in
accordance with the requirements of Accounting Standards Codification (“ASC”) 825-10, “Disclosures about Fair
Value of Financial Instruments.” We have used available information to derive our estimates. However, because these estimates
are made as of a specific point in time, they are not necessarily indicative of amounts we 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, other
payable, and contingent consideration approximate their fair values due to the short settlement period for these instruments.
Cash
and cash equivalents
We
consider 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 and Comprehensive Loss.
Functional
currency translation
The
currency of the primary economic environment in which we operate our Company is conducted in the US dollar (“$” or
“dollars”). Thus, our functional currency (other than the foreign subsidiaries mentioned below) is the US dollar.
The operations of our foreign subsidiaries are conducted in the local currency of the subsidiary which is the Hong Kong Dollar
(HKD), Great Britain Pound (GBP), and Israeli New Shekel (NIS).
Assets
and liabilities of our international subsidiaries are translated on the basis of the exchange rates prevailing at the balance
sheet date and revenues and expenses are translated at the average exchange rates for the period. Net differences from currency
translation are included in other comprehensive income on the accompanying Condensed Consolidated Statements of Operations and
Comprehensive Loss.
Accounts
receivable
Accounts
receivable are recorded net of allowances for returns and doubtful accounts of approximately $439,000 at September 30, 2017 and
$123,000 at December 31, 2016. The allowances are estimated based on historical 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 $532,000 and $91,000
at September 30, 2017 and December 31, 2016, respectively.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Inventories
Inventories
consist primarily of finished products held for resale, and are valued at the lower of cost (first-in, first-out method) or net
realizable value. We adjust inventory for estimated obsolescence when necessary based upon demand and market conditions. The Company’s
reserve for obsolescence was approximately $454,000 and $74,000 at September 30, 2017 and December 31, 2016, respectively. Included
in inventory at September 30, 2017 and December 31, 2016 is approximately $60,000 and $67,000, 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.
Property
and equipment
Property
and equipment are carried at cost and depreciation is computed over the estimated useful lives of the individual assets ranging
from 3 to 7 years. Depreciation is computed using the straight-line method. The related cost and accumulated depreciation of assets
retired or otherwise disposed of are removed from the accounts and the resultant gain or loss is reflected in earnings. Maintenance
and repairs are expensed currently while major renewals and betterments are capitalized. Depreciation expense amounted to approximately
$51,000 and $129,000 and $2,000 and $6,000 for the three and nine months ended September 30, 2017 and 2016, respectively.
Property
and equipment consisted of the following at:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Computer
hardware and software
|
|
$
|
125,623
|
|
|
$
|
33,549
|
|
Furniture
and equipment
|
|
|
944,894
|
|
|
|
40,549
|
|
Leasehold
improvements
|
|
|
41,383
|
|
|
|
-
|
|
|
|
$
|
1,111,900
|
|
|
$
|
74,098
|
|
Accumulated
depreciation
|
|
|
(183,048
|
)
|
|
|
(58,099
|
)
|
Property
and equipment, net
|
|
$
|
928,852
|
|
|
$
|
15,999
|
|
Intangible
assets
Definite-lived
intangibles are amortized using the straight-line method
over
their estimated useful lives ranging from four to five years. Amortization expense was approximately $251,000 and $692,000 and
$73,000 and $218,000 for the three and nine months ended September 30, 2017 and 2016, respectively. We evaluate the recoverability
of the intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful
lives or that may indicate the asset may be impaired.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
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 undiscounted
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 nine months ended September 30, 2017 and 2016.
Revenue
recognition
We
recognize 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 and Comprehensive Loss are net of sales taxes.
Revenues from product sales are recorded net of provisions for estimated chargebacks, rebates, expected returns and cash discounts.
We
offer a 30-day risk-free trial as one of our 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 and
third party distributor customers is recorded at gross amounts with a corresponding charge to cost of sales upon shipment. Included
in deferred revenue – short-term are payments received prior to shipment on international sales of approximately $55,000
and $142,000 as of September 30, 2017 and December 31, 2016, respectively.
We
have a return policy whereby the customer can return any product received within 30 or 60 days of receipt for a full refund. We
provide 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 SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
We
sell warranties on our products 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 deferred service revenue related to
the warranties is presented in the following table:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Deferred
extended warranty revenue:
|
|
|
|
|
|
|
|
|
At
beginning of period
|
|
$
|
509,389
|
|
|
$
|
629,143
|
|
Revenue
deferred for new warranties, year to date
|
|
|
103,489
|
|
|
|
118,148
|
|
Revenue
recognized year to date
|
|
|
(194,785
|
)
|
|
|
(237,902
|
)
|
At
end of period
|
|
$
|
418,093
|
|
|
$
|
509,389
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
$
|
203,016
|
|
|
$
|
235,015
|
|
Non-current
portion
|
|
|
215,077
|
|
|
|
274,374
|
|
|
|
$
|
418,093
|
|
|
$
|
509,389
|
|
Shipping
and handling
The
amount billed to customers for shipping and handling is included in net sales. Shipping, handling and processing revenue approximated
$427,000 and $1,550,000 and $571,000 and $1,633,000 for the three and nine months ended September 30, 2017 and 2016, respectively.
Shipping and handling costs are included in cost of sales. Shipping and handling costs approximated $314,000 and $1,102,000 and
$232,000 and $659,000 for the three and nine months ended September 30, 2017 and 2016, respectively.
Research
and development
Research
and development costs are expensed as incurred and are included in selling and marketing expense in the accompanying condensed
consolidated financial statements. Research and development costs primarily consist of efforts to discover and develop new products,
including clinical trials, product safety testing, certifications for international regulations and standards, etc. Research and
development costs approximated $146,000 and $210,000 and $31,000 and $88,000 for the three and nine months ended September 30,
2017 and 2016, 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 financial statements. Production costs associated with the creation of new and updated video content and advertising
campaigns are expensed at the commencement of a campaign. We incurred approximately $1,355,000 and $1,444,000 in media costs for
airing infomercials, $66,000 and $7,000 in new production costs, and $1,243,000 and $299,000 in internet marketing costs for the
three months ended September 30, 2017 and 2016, respectively and approximately $4,192,000 and $4,011,000 in media costs for airing
infomercials, $260,000 and $210,000 in new production costs, and $3,332,000 and $899,000 in internet marketing costs for the nine
months ended September 30, 2017 and 2016, respectively.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(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 our employees,
officers and directors, and is intended to advance our best interests by providing personnel who have substantial responsibility
for our management and growth with additional incentive by increasing their proprietary interest in our success, thereby encouraging
them to remain our employee. The Plan is administered by our Board of Directors, 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 September 30, 2017, 50,000 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
our employees, officers, and directors, and is intended to advance our best interests by providing personnel who have substantial
responsibility for our management and growth with additional incentive by increasing their proprietary interest in our success,
thereby encouraging them to remain our employee. The 2011 Plan is administered by our Board of Directors, and authorizes the issuance
of stock options not to exceed a total of 6,000,000 shares. The terms of any awards under the 2011 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 September 30, 2017, 3,680,002 options are outstanding under the 2011 Plan.
We
account 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 stock-based compensation
to non-employees 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.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Stock
options (continued)
We
use ASC Topic 718, “Share-Based Payments” to account for stock-based compensation issued to employees and directors.
We recognize compensation expense in an amount equal to the grant date fair value of share-based payments such as stock options
granted to employees over the requisite vesting period of the awards.
The
following is a summary of stock options outstanding under the Plan and 2011 Plan (collectively “Stock Option Plans”)
for the nine months ended September 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
of Shares
|
|
|
Average
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Exercise
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2017
|
|
|
3,680,002
|
|
|
|
-
|
|
|
|
3,680,002
|
|
|
$
|
0.24
|
|
Granted
during the period
|
|
|
280,000
|
|
|
|
-
|
|
|
|
280,000
|
|
|
|
0.49
|
|
Exercised
during the period
|
|
|
(136,667
|
)
|
|
|
-
|
|
|
|
(136,667
|
)
|
|
|
0.15
|
|
Forfeited
during the period
|
|
|
(93,333
|
)
|
|
|
-
|
|
|
|
(93,333
|
)
|
|
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2017
|
|
|
3,730,002
|
|
|
|
-
|
|
|
|
3,730,002
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
of Shares
|
|
|
Average
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Exercise
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2016
|
|
|
4,036,669
|
|
|
|
-
|
|
|
|
4,036,669
|
|
|
$
|
0.21
|
|
Granted
during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
during the period
|
|
|
(350,000
|
)
|
|
|
-
|
|
|
|
(350,000
|
)
|
|
|
0.11
|
|
Expired
during the period
|
|
|
(431,667
|
)
|
|
|
-
|
|
|
|
(431,667
|
)
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2016
|
|
|
3,255,002
|
|
|
|
-
|
|
|
|
3,555,002
|
|
|
$
|
0.21
|
|
Of
the stock options outstanding, as of September 30, 2017 under the Stock Option Plans, 2,525,000 options are currently vested
and exercisable. The weighted average exercise price of these options was $0.23. These options expire through September 2027.
The aggregate intrinsic value for options outstanding and exercisable at September 30, 2017 and 2016 was approximately $618,000
and $12,000, respectively. The aggregate intrinsic value for options exercised during the nine months ended September 30, 2017
and 2016 was approximately $49,000 and $31,000, respectively.
For
the three and nine months ended September 30, 2017 and 2016, we recorded approximately $59,000 and $205,000 and $42,000 and $218,000,
respectively, in stock compensation expense under the Stock Option Plans which is included in general and administrative expense.
At September 30, 2017, there was approximately $291,000 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 share grants totaling 280,000 for the nine months ended September 30, 2017 to two employees. There were no grants inside
of the Plans for the nine months ended September 30, 2016. The following assumptions were used in the Black-Scholes option pricing
model for these grants issued during:
2017
|
|
|
|
Risk-free
interest rate
|
|
|
2.17
|
%
|
Expected
dividend yield
|
|
|
0.00
|
|
Expected
life
|
|
|
6
years
|
|
Expected
volatility
|
|
|
145
|
%
|
Weighted average
grant date fair value
|
|
$
|
0.46
|
|
Forfeiture
rate
|
|
|
5
|
%
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Stock
options (continued)
The
following is a summary of stock options outstanding outside of the Stock Option Plans for the nine months ended September 30,
2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
of Shares
|
|
|
Average
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Exercise
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2017
|
|
|
516,667
|
|
|
|
1,676,667
|
|
|
|
2,193,334
|
|
|
$
|
0.35
|
|
Granted
during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
during the period
|
|
|
(183,333
|
)
|
|
|
-
|
|
|
|
(183,333
|
)
|
|
|
0.27
|
|
Expired
during the period
|
|
|
-
|
|
|
|
(200,000
|
)
|
|
|
(200,000
|
)
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2017
|
|
|
333,334
|
|
|
|
1,476,667
|
|
|
|
1,810,001
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
of Shares
|
|
|
Average
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Exercise
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
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,
September 30, 2016
|
|
|
516,667
|
|
|
|
1,676,667
|
|
|
|
2,193,334
|
|
|
$
|
0.35
|
|
Of
the stock options, outstanding outside of the Stock Option Plans as of September 30, 2017, 1,751,667 options are currently vested
and exercisable. The weighted average exercise price of these options was $0.32. These options expire through January 2026. The
aggregate intrinsic value for options outstanding and exercisable at September 30, 2017 and 2016, was approximately $312,000 and
$7,000 respectively. The aggregate intrinsic value for stock options exercised during the nine months ended September 30, 2017
was approximately $40,000. There were no options exercised during the nine months ended September 30, 2016.
For
the three and nine months ended September 30, 2017 and 2016, we recorded approximately $5,000 and $18,000 and $13,000 and $41,000,
respectively, in stock compensation expense related to stock options outside of the Stock Option Plans which is included in
general and administrative expense. At September 30, 2017, there was approximately $8,000 of total unrecognized compensation
cost related to non-vested option grants that will be recognized over a remaining vesting period of 2 years.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Stock
options (continued)
There
were no grants outside of the Plan for the nine months ended September 30, 2017. The following assumptions were used in the Black-Scholes
option pricing model for one grant issued during the nine months ended September 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
|
%
|
The
following is a summary of all stock options outstanding and nonvested for the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
of Shares
|
|
|
Average
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Exercise
|
|
|
|
Employee
|
|
|
Employee
|
|
|
Totals
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2017 – nonvested
|
|
|
1,193,335
|
|
|
|
-
|
|
|
|
1,193,335
|
|
|
$
|
0.27
|
|
Granted
|
|
|
280,000
|
|
|
|
-
|
|
|
|
280,000
|
|
|
|
0.49
|
|
Vested
|
|
|
(116,666
|
)
|
|
|
-
|
|
|
|
(116,666
|
)
|
|
|
0.22
|
|
Forfeited
|
|
|
(93,333
|
)
|
|
|
-
|
|
|
|
(93,333
|
)
|
|
|
0.32
|
|
Balance
September 30, 2017 - nonvested
|
|
|
1,263,336
|
|
|
|
-
|
|
|
|
1,263,336
|
|
|
$
|
0.32
|
|
Note
3 - Business and Asset Acquisitions:
PhotoMedex
Acquisition
As
described in Note 1, the PhotoMedex Purchase Agreement was entered into on October 4, 2016 and was completed on January 23, 2017.
The total purchase price was $9,500,000.
The
purchase price paid by ICTV Holdings in the PhotoMedex Acquisition was paid as follows: (i) $3,000,000 of the purchase price which
was raised in a private placement (described below in more detail) was deposited on October 5, 2016 into an escrow account established
by counsel to the Company and ICTV Holdings, as escrow agent (the “Escrow Agent”), under an escrow agreement entered
into on October 4, 2016 among the Company, ICTV Holdings, the Sellers, the Escrow Agent, and certain investors in the Company’s
private placement (the “Escrow Agreement”), which escrow funds were paid to the Sellers on January 23, 2017, in accordance
with the Escrow Agreement and subject to the conditions thereof; (ii) $2,000,000 of the purchase price was to be paid on or before
the 90
th
day following January 23, 2017; and (iii) the remainder of the purchase price of $4,500,000 was payable in
the form of a continuing royalty as described in more detail below. On October 4, 2016, as required by the PhotoMedex Purchase
Agreement, we delivered to PhotoMedex a letter of credit from LeoGroup L.P. (a significant shareholder), a private equity fund
that secures our obligation to make the $2 million payment referred to in clause (ii) above. The letter of credit was valid until
the earlier of; (1) full payment on demand and presentation on or before January 23, 2017, or (2) 180 days from the date of letter
of credit. The Company paid $250,000 of the purchase price payable per clause (ii) above in March 2017 and the balance of $1,750,000
was paid on April 22, 2017.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
3 - Business and Asset Acquisitions (continued):
Under
the PhotoMedex Purchase Agreement, until the July 12, 2017 Release Agreement discussed in Note 1, we were required to pay to PhotoMedex
and its subsidiaries a continuing monthly royalty on net cash (invoiced amount less sales refunds, returns, rebates, allowances
and similar items) actually received by us or our affiliates from sales of the consumer products that we acquired from PhotoMedex.
Such royalty payments commenced with net cash actually received from and after January 23, 2017, and would continue until the
total royalty paid to PhotoMedex and its subsidiaries totals $4,500,000, calculated as follows: (i) 35% of net cash from the sale
of all acquired consumer products sold through live television promotions made through Home Shopping Network (HSN) in the United
States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, less (a) deductions for sales commissions actually
paid and on-air costs incurred for those amounts collected related to the sale of the acquired consumer products made through
HSN in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, and (b) the cost of goods sold
to generate such net cash; and (ii) 6% of net cash from the sale of all acquired consumer products other than the foregoing sales.
The fair value of the contingent consideration was determined using the present value of expected payments as of the date of acquisition
and totaled $4,198,043 using the assumption of a 9.7% discount rate over 18 months. On July 12, 2017, the Company entered into
a Termination and Release Agreement with the PhotoMedex Sellers and as of September 30, 2017, no further obligation remains. See
Note 1 – PhotoMedex Acquisition for additional information.
In
connection with the PhotoMedex Purchase Agreement, on October 4, 2016, ICTV Holdings entered into a transition services agreement
with the Sellers (the “Transition Services Agreement”), pursuant to which Sellers have agreed to make available to
ICTV Holdings certain services on a transitional basis and allow ICTV Holdings to occupy and use a portion of the Sellers’
premises and warehouses, in exchange for which ICTV Holdings shall (i) pay to the Sellers the documented costs and expenses incurred
by them in connection with the provision of those services; (ii) pay to the Sellers the documented lease costs including monthly
rental and any utility charges incurred under the applicable leases; (iii) reimburse the Sellers for the documented costs and
expenses incurred by them for the continued storage of inventory and raw materials at warehouse locations, and for services for
fulfilling and shipping orders for such inventory; and (iv) reimburse the Sellers for the payroll, employment-related taxes, benefit
costs and out of pocket expenses paid to or on behalf of employees. As of July 12, 2017, pursuant to the terms of the Transition
Services Agreement and the Release Agreement, ICTV Holdings has no further obligations under the Transition Services Agreement.
The
Company accounted for the PhotoMedex Acquisition as a business combination. Under this method of accounting, the total estimated
purchase consideration was allocated to the acquired tangible and intangible assets, based on their estimated fair values as of
the acquisition date. There was no excess price above fair value for this transaction.
The
following table summarizes the consideration paid in connection with the PhotoMedex Business Acquisition on January 23, 2017:
Cash
|
|
$
|
5,000,000
|
|
Fair
value of contingent consideration due to PhotoMedex
|
|
|
4,198,043
|
|
Total
consideration transferred
|
|
$
|
9,198,043
|
|
The
allocation of the purchase price based on the fair value of the PhotoMedex assets acquired as of January 23, 2017 is as follows:
Inventory
|
|
$
|
6,300,000
|
|
Property
and equipment
|
|
|
857,415
|
|
Patented/Unpatented
Technology
|
|
|
940,628
|
|
Trademarks/Tradenames
|
|
|
1,100,000
|
|
Total
assets acquired
|
|
$
|
9,198,043
|
|
We
evaluate assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate
level to classify them for each reporting period. This determination requires significant judgments to be made by the Company.
The
changes in the fair value of the Company’s contingent consideration payable due to PhotoMedex, Inc. for the period up to
the date of the Release Agreement was as follows:
Balance
at January 23, 2017-initial measurement
|
|
$
|
4,198,043
|
|
Contingent
consideration earned but not paid
|
|
|
(570,248
|
)
|
Change
in fair value
|
|
|
(48,035
|
)
|
Balance
at July 12, 2017
|
|
$
|
3,579,760
|
|
Pursuant
to the Release Agreement, as of July 12, 2017, the contingent consideration balance to PhotoMedex totaling $3,579,760 was extinguished.
Therefore, the balance at September 30, 2017 was zero (See Note 1 - PhotoMedex Acquisition).
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
3 - Business and Asset Acquisitions (continued):
The
following unaudited condensed pro forma financial information for the three and nine months ended September 30, 2017 and 2016
represent the combined results of the Company’s operations as if the PhotoMedex Acquisition had occurred on January 1, 2016.
Excluded from the pro forma net loss and net loss per share amounts for the nine months ended September 30, 2017 are one-time
acquisition costs of $49,312 attributable to the PhotoMedex Acquisition and the one time settlement gain of $1,969,245. These
pro forma results are not necessarily indicative of what historical performance would have been had this business combination
been effective as of the hypothetical acquisition date, nor should they be interpreted as expectations of future results.
|
|
For
the three months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net
sales
|
|
$
|
7,559,754
|
|
|
$
|
10,345,530
|
|
Net
loss
|
|
$
|
(2,356,103
|
)
|
|
$
|
(2,175,597
|
)
|
Net
loss per share – basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
Weighted average
number of common shares basic and diluted
|
|
|
52,321,825
|
|
|
|
48,790,982
|
|
|
|
For
the nine months ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net
sales
|
|
$
|
26,695,949
|
|
|
$
|
38,195,266
|
|
Net
loss
|
|
$
|
(3,858,089
|
)
|
|
$
|
(8,426,448
|
)
|
Net
loss per share – basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.17
|
)
|
Weighted
average number of common shares basic and diluted
|
|
|
49,518,478
|
|
|
|
48,772,827
|
|
The
results of operations for the PhotoMedex acquisition have been included in the consolidated financial statements from January
23, 2017, the effective date of the acquisition.
Ermis
Labs Asset Purchase
As
described in Note 1, the Ermis Labs asset purchase was entered into on October 4, 2016 and was completed on January 23, 2017.
Pursuant to the agreement, the aggregate purchase price will be paid as follows: (i) the issuance of 2,500,000 shares of our common
stock to the stockholders of Ermis Labs, which had a fair value on the date of acquisition of $850,000 and (ii) $1,750,000 payable
in the form of a continuing royalty as described in more detail below. The issuance of the common stock was made in reliance upon
an exemption from the registration requirements of the Securities Act provided under Section 4(a)(2) of the Securities Act.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
3 - Business and Asset Acquisitions (continued):
Under
the Ermis purchase agreement, we are required to pay to Ermis Labs a continuing monthly royalty of 5% of net cash (invoiced amount
less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of the
over-the-counter medicated skin care products acquired in the Ermis Labs Asset Acquisition, commencing with net cash actually
received by the Purchaser or its affiliates from and after January 23, 2017 and continuing until the total royalty paid to Ermis
Labs totals $1,750,000; provided, however, that we are required to pay a minimum annual royalty amount of $175,000 on or before
December 31 of each year commencing with calendar year ending December 31, 2017. The present value of the deferred consideration
of $1,750,000 was $1,131,822, based on the assumption of a discount rate of 10.7% over ten years.
The
changes in the Company’s deferred consideration payable due to Ermis Labs, Inc. during the nine months ended September 30,
2017 was as follows:
Balance
at January 23, 2017 – initial measurement
|
|
$
|
1,131,822
|
|
Consideration
payments
|
|
|
(14,583
|
)
|
Accretion
of interest
|
|
|
69,275
|
|
Balance
at September 30, 2017
|
|
$
|
1,186,514
|
|
|
|
|
|
|
Current
portion
|
|
$
|
160,417
|
|
Non-current
portion
|
|
|
1,026,097
|
|
|
|
$
|
1,186,514
|
|
The
Company accounted for the Ermis Labs purchases as an asset purchase. Under this method of accounting, the total estimated purchase
consideration was allocated to the specific acquired tangible and intangible assets based on their relative fair values.
The
following table summarizes the consideration paid in connection with the Ermis Labs Asset Acquisition on January 23, 2017:
ICTV
Brands shares
|
|
$
|
850,000
|
|
Deferred
consideration due to Ermis Labs
|
|
|
1,131,822
|
|
Total
consideration transferred
|
|
$
|
1,981,822
|
|
The
allocation of the purchase price based on the relative fair value of the Ermis Labs assets acquired as of January 23, 2017 is
as follows:
Inventory
|
|
$
|
469,379
|
|
Formulations
|
|
|
1,355,983
|
|
Trademark/Tradenames
|
|
|
156,460
|
|
Total
assets acquired
|
|
$
|
1,981,822
|
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
4 - Commitments and contingencies
Leases
In
February 2017, we entered into an amendment to our current lease for a new space in our current building from March 2017 through
February 2022. In August 2017, we entered into a second amendment to expand our space which increased monthly base rent payments.
Our London office lease became month to month beginning in September 2017 for a monthly cost of approximately $8,000. In March
2017, our Hong Kong office entered into a lease expiring in March 2018 for our current office space. Our Israel office lease is
for a one year term ending in April 2018. Rent expense incurred during the three and nine months ended September 30, 2017 and
2016 totaled approximately $83,000 and $224,000 and $14,000 and $41,000, respectively.
The
schedule below details the future financial obligations under the active leases.
|
|
Remaining
three months
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
Obligation
|
|
Wayne
- Corporate HQ
|
|
$
|
37,000
|
|
|
$
|
151,000
|
|
|
$
|
152,000
|
|
|
$
|
154,000
|
|
|
$
|
156,000
|
|
|
$
|
26,000
|
|
|
$
|
676,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel
Office
|
|
|
17,000
|
|
|
|
22,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong
Kong Office
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Lease Obligations
|
|
$
|
59,000
|
|
|
$
|
178,000
|
|
|
$
|
152,000
|
|
|
$
|
154,000
|
|
|
$
|
156,000
|
|
|
$
|
26,000
|
|
|
$
|
725,000
|
|
Other
matters
Product
Liability Insurance
For
certain products, we were (and are) listed as an additional insured party under the product manufacturers’ insurance policy.
We purchased our own liability insurance, which expires on April 20, 2018. We intend to renew this policy. At present, management
is not aware of any claims against the Company for any products sold.
Note
5 - Intangibles, net
:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Beginning
of period
|
|
$
|
1,163,816
|
|
|
$
|
-
|
|
Additions:
|
|
|
|
|
|
|
|
|
DermaWand
purchase
|
|
|
-
|
|
|
|
1,163,816
|
|
Formulations
|
|
|
1,355,983
|
|
|
|
-
|
|
Trademark
|
|
|
1,256,460
|
|
|
|
-
|
|
Patented/Unpatented
Technology
|
|
|
940,628
|
|
|
|
-
|
|
End of period
|
|
|
4,716,887
|
|
|
|
1,163,816
|
|
|
|
|
|
|
|
|
|
|
Accumulated
amortization
|
|
|
(982,908
|
)
|
|
|
(290,952
|
)
|
Intangibles,
net
|
|
$
|
3,733,979
|
|
|
$
|
872,864
|
|
Amortization
expense was approximately $251,000 and $692,000 and $73,000 and $219,000 for the three and nine months ended September 30, 2017
and 2016, respectively.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
5 - Intangibles, net (continued)
The
following table outlines the estimated future amortization expense related to the intangible assets held as of September 30, 2017.
2017
(remaining three months)
|
|
$
|
251,000
|
|
2018
|
|
|
1,001,000
|
|
2019
|
|
|
1,001,000
|
|
2020
|
|
|
711,000
|
|
2021
|
|
|
711,000
|
|
Thereafter
|
|
|
59,000
|
|
|
|
|
|
|
|
|
$
|
3,734,000
|
|
Note
6 - DermaWand Purchase Agreement
On
January 22, 2016, we 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 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, we recorded an offsetting intangible asset and other 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 we 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 intangible 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 September 30, 2017, the other liability balance was approximately $813,000 including the discount for imputed interest of approximately
$12,000, of which approximately $370,000 was current. For the three and nine months ended September 30, 2017, we amortized approximately
$3,000 and $9,000 of interest expense related to the discount for imputed interest. The related net intangible asset balance was
approximately $655,000 and $873,000 as of September 30, 2017 and December 31, 2016 with amortization expense of approximately
$73,000 and $218,000 being recorded in cost of sales for the three and nine months ended for both September 30, 2017 and 2016.
The accumulated amortization was approximately $545,000 and $291,000 as of September 30, 2017 and December 31, 2016, respectively.
Management evaluates the intangible asset for impairment when there is a triggering event and concluded there were no such events
as of September 30, 2017.
Note
7 – Long-term Debt due to Related Party
The
Company has a 30-month secured promissory note (the “Note”), to LeoGroup Private Investment Access, LLC (the “Holder”),
a significant shareholder, in the principal amount of $2,000,000 with an effective interest rate of 34%. The Note provides that
the Company shall make monthly principal and interest payments of $100,000 to the Holder for 30 months through January 2020. The
Note is secured by a first priority security interest in all the assets of Company, except the Company’s accounts receivable.
The Note contains customary covenants of the Company and customary events of default. Subject to the terms and conditions of the
Note, so long as any event of default, as described in the Note, is continuing, without cure, for a period of five (5) business
days after written notice from the Holder to the Company or a longer period if set forth in in the notice from Holder or if agreed
to by the parties, all obligations of the Company under the Note shall be immediately due and payable, and the Holder may exercise
any other remedies available at law or in equity. The note may not be prepaid, in whole or in part, at any time and from time
to time, unless expressly agreed to in writing by the Holder.
The
balance of the long-term debt at September 30, 2017 was as follows:
|
|
|
|
Total
debt
|
|
$
|
1,939,762
|
|
Less:
accrued interest
|
|
|
(27,203
|
)
|
Long-term
debt, less accrued interest
|
|
|
1,912,560
|
|
Less:
current portion
|
|
|
(641,399
|
)
|
Long-term
debt, net
|
|
$
|
1,271,161
|
|
Maturities
of long-term debt at September 30, 2017, are as follows:
2017
|
|
$
|
140,712
|
|
2018
|
|
|
697,707
|
|
2019
|
|
|
976,907
|
|
2020
|
|
|
97,234
|
|
|
|
$
|
1,912,560
|
|
Note
8 - Capital Transactions
On
January 23, 2017, pursuant to the terms of the securities purchase agreement, dated October 4, 2016, between our company and the
selling stockholders, we completed a private placement whereby the selling stockholders purchased 8,823,530 shares of common stock
at a price of $0.34 per share, for aggregate gross proceeds of $3,000,000. The issuance of the shares was exempt from registration
under Regulation D and Section 4(2) of the Securities Act of 1933.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
8 - Capital Transactions (continued):
On
February 1, 2017, pursuant to the terms of the securities purchase agreement, we completed a second and final private placement
whereby the selling stockholders purchased 11,764,713 shares of common stock at a price of $0.34 per share, for aggregate gross
proceeds of $4,000,000. The issuance of the shares was exempt from registration under Regulation D and Section 4(2) of the Securities
Act of 1933. We incurred approximately $17,000 of offering costs related to the private placements for the nine months ended September
30, 2017.
On
March 16, 2017, we issued 600,000 shares of fully vested common stock as part of a share bonus to three executive officers. The
stock price on date of issuance was $0.56 per share. The recipients of the shares of common stock are key employees of our Company,
and the issuance of the common stock is exempt from registration under Section 4(2) of the Securities Act of 1933. Total stock
based compensation related to this transaction for the nine months ended September 30, 2017 was $336,000 and is included in operating
expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.
On
March 31, 2017, a former employee exercised 35,000 options previously issued to her, at an exercise price of $0.22 per share.
The exercise was cashless, such that the exercise price was paid in shares of our common stock, resulting in a net issuance of
22,475 shares. The shares were issued as restricted stock, with a restrictive legend placed on the share certificate. The issuance
of the shares was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933.
On
June 26, 2017, a director exercised 250,000 options previously issued to him, at an exercise price approximately at an average
of $0.22. The exercise resulted in an issuance of 250,000 shares. The shares were issued as restricted stock, with a restrictive
legend placed on the share certificate. The issuance of the shares was exempt from registration under Regulation D and Section
4(2) of the Securities Act of 1933.
On
July 10, 2017, a former employee exercised 35,000 options previously issued to her, at an exercise price of $0.22 per share. The
exercise was cashless, such that the exercise price was paid in shares of our common stock, resulting in a net issuance of 20,307
shares. The shares were issued as restricted stock, with a restrictive legend placed on the share certificate. The issuance of
the shares was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933.
On
October 17, 2017, a former employee exercised 16,667 options previously issued to her, at an exercise price approximately at an
average of $0.22. The exercise resulted in an issuance of 16,667 shares. The shares were issued as restricted stock, with a restrictive
legend placed on the share certificate. The issuance of the shares was exempt from registration under Regulation D and Section
4(2) of the Securities Act of 1933.
Note
9 - Related party transactions
The
spouse and mother-in-law of one of our directors, Diana Pessin, participated in the private placement on January 23, 2017 and
purchased a total of 4,411,765 shares at a price of $0.34 per share for a total purchase price of $1,500,000. Kelvin Claney, our
Chief Executive Officer, participated in the private placement and purchased a total of 500,000 shares at a price of $0.34 per
share for a total purchase price of $170,000. LeoGroup Private Debt Facility L.P. became a major shareholder as part of the Ermis
Labs Asset Acquisition described in Notes 1 and 3. On July 15, 2017 they provided the Company the $2,000,000 30-month secured
promissory note to allow the buyout of the PhotoMedex royalty described in Note 1.
Note
10 - 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 (loss) per share is computed by dividing earnings (loss) 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 September 30, 2017, there were 5,540,002
stock options outstanding with 4,276,667 vested and exercisable at an average exercise price of $0.26.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
10 - Basic and diluted earnings per share (continued):
All
outstanding securities were anti-dilutive for the three and nine months ended September 30, 2017 and 2016 as a result of a net
losses for these periods. The following securities were not involved in the computation of diluted net loss per share as their
effect would have been anti-dilutive:
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
|
|
|
|
|
|
|
|
Options
to purchase common stock
|
|
|
5,540,002
|
|
|
|
5,448,336
|
|
The
computations for basic and fully diluted earnings per share are as follows:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
For
the three-months ended September 30, 2017:
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
to common shareholders
|
|
$
|
(386,858
|
)
|
|
|
52,321,826
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
For
the three-months ended September 30, 2016:
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
to common shareholders
|
|
$
|
(261,597
|
)
|
|
|
28,202,739
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
For
the nine-months ended September 30, 2017:
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
to common shareholders
|
|
$
|
(2,195,156
|
)
|
|
|
49,518,478
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
For
the nine-months ended September 30, 2016:
|
|
Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
to common shareholders
|
|
$
|
(951,448
|
)
|
|
|
28,184,584
|
|
|
$
|
(0.03
|
)
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
Note
11 - Income taxes
The
provision for income taxes is approximately $112,000 and $182,000 for the three and nine months ended September 30, 2017 and $0
for the three and nine months ended September 30, 2016. The provision reflects an estimated current tax liability associated with
earnings of a foreign subsidiary. The effective tax rate is (15%) and (10%) for the three and nine months ended September 30,
2017, and 0% for the three and nine months ended September 30, 2016. As of December 31, 2016, the Company had approximately $3,259,000
of gross federal net operating losses and $951,000 of gross state net operating losses available. The Company has provided a full
valuation allowance on its net deferred asset as the Company does not have sufficient history of federal, state and foreign 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
and Comprehensive Loss. The Company recorded $0 interest and penalties for the three and nine months ended September 30, 2017
and 2016.
Due
to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss
carry forwards may be subject to annual limitation against taxable income in future periods, which could substantially limit the
eventual utilization of such carry forwards. The Company has not updated its analysis through September 30, 2017, and has not
analyzed the potential impact of its recent equity financing on beneficial ownership and therefore no determination has been made
whether the net operating loss carry forward is subject to any Internal Revenue Code Section 382 limitation. To the extent there
is a limitation, there would be a reduction in the deferred tax asset with an offsetting reduction in the valuation allowance.
Note
12 - Segment reporting
We
operate in the Direct to Consumer segment, which is engaged in the selling of various consumer products primarily through a multi-channel
direct marketing channels, as well as through e-commerce and retail market places. In addition, we sell our products through our
international third party distributor segment and our airline and Hong Kong retail segment. We evaluate performance and allocate
resources based on several factors, of which the primary financial measure is operating income (loss) by the end customer, either
direct to consumer sales, wholesale international third party distributor sale or airline/other retail sales. Operating expenses
are primarily prorated based on the relationship between direct to consumer sales and international third party distributor sales.
Information
with respect to our operating income (loss) by segment is as follows:
|
|
For
the three months ended
September 30, 2017
|
|
|
|
|
|
For
the three months ended
September 30, 2016
|
|
|
|
Direct
to Consumer
|
|
|
International
Third Party
Distributor
|
|
|
Airline
and
Hong
Kong
Retail
|
|
|
Totals
|
|
|
Direct
to
Consumer
|
|
|
International
Third Party Distributor
|
|
|
Airline
and
Hong
Kong
Retail
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
6,778,661
|
|
|
$
|
380,755
|
|
|
$
|
400,338
|
|
|
$
|
7,559,754
|
|
|
$
|
3,338,816
|
|
|
$
|
864,714
|
|
|
$
|
-
|
|
|
$
|
4,203,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,683,194
|
|
|
|
199,835
|
|
|
|
166,960
|
|
|
|
3049,989
|
|
|
|
712,313
|
|
|
|
446,685
|
|
|
|
-
|
|
|
|
1,158,998
|
|
Gross
profit
|
|
|
4,095,467
|
|
|
|
180,920
|
|
|
|
233,378
|
|
|
|
4,509,765
|
|
|
|
2,626,503
|
|
|
|
418,029
|
|
|
|
-
|
|
|
|
3,044,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,384,609
|
|
|
|
67,252
|
|
|
|
36,515
|
|
|
|
2,488,376
|
|
|
|
913,917
|
|
|
|
121,835
|
|
|
|
-
|
|
|
|
1,035,752
|
|
Selling
and marketing
|
|
|
3,922,646
|
|
|
|
22,925
|
|
|
|
156,775
|
|
|
|
4,102,346
|
|
|
|
2,253,300
|
|
|
|
13,803
|
|
|
|
-
|
|
|
|
2,267,103
|
|
Total
operating expense
|
|
|
6,307,255
|
|
|
|
90,177
|
|
|
|
193,290
|
|
|
|
6,590,722
|
|
|
|
3,167,217
|
|
|
|
135,638
|
|
|
|
-
|
|
|
|
3,302,855
|
|
Operating
income (loss)
|
|
$
|
(2,211,788
|
)
|
|
$
|
90,743
|
|
|
$
|
40,088
|
|
|
$
|
(2,080,957
|
)
|
|
$
|
(540,714
|
)
|
|
$
|
282,391
|
|
|
$
|
-
|
|
|
$
|
(258,323
|
)
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2017 and 2016
(Unaudited)
|
|
For
the nine months ended
September 30, 2017
|
|
|
|
|
|
For
the nine months ended
September 30, 2016
|
|
|
|
Direct
to
Consumer
|
|
|
International
Third Party
Distributor
|
|
|
Airline
and
Hong
Kong
Retail
|
|
|
Totals
|
|
|
Direct
to
Consumer
|
|
|
International
Third Party Distributor
|
|
|
Airline
and
Hong
Kong
Retail
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
19,945,577
|
|
|
$
|
1,842,373
|
|
|
$
|
1,368,999
|
|
|
$
|
23,156,949
|
|
|
$
|
9,252,382
|
|
|
$
|
3,218,884
|
|
|
|
-
|
|
|
$
|
12,471,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
6,520,301
|
|
|
|
850,238
|
|
|
|
624,631
|
|
|
|
7,995,170
|
|
|
|
2,076,631
|
|
|
|
1,622,133
|
|
|
|
-
|
|
|
|
3,698,764
|
|
Gross
profit
|
|
|
13,425,276
|
|
|
|
992,135
|
|
|
|
744,368
|
|
|
|
15,161,779
|
|
|
|
7,175,751
|
|
|
|
1,596,751
|
|
|
|
-
|
|
|
|
8,772,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
7,299,102
|
|
|
|
245,966
|
|
|
|
98,849
|
|
|
|
7,643,917
|
|
|
|
2,832,132
|
|
|
|
244,357
|
|
|
|
-
|
|
|
|
3,076,489
|
|
Selling
and marketing
|
|
|
10,925,055
|
|
|
|
74,976
|
|
|
|
346,290
|
|
|
|
11,346,321
|
|
|
|
6,609,066
|
|
|
|
27,884
|
|
|
|
-
|
|
|
|
6,636,950
|
|
Total
operating expense
|
|
|
18,224,157
|
|
|
|
320,942
|
|
|
|
445,139
|
|
|
|
18,990,238
|
|
|
|
9,441,198
|
|
|
|
272,241
|
|
|
|
-
|
|
|
|
9,713,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
$
|
(4,798,881
|
)
|
|
$
|
671,193
|
|
|
$
|
299,229
|
|
|
$
|
(3,828,459
|
)
|
|
$
|
(2,265,447
|
)
|
|
$
|
1,324,510
|
|
|
|
-
|
|
|
$
|
(940,937
|
)
|
Selected
balance sheet information by segment is presented in the following table as of:
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
Direct
to Consumer
|
|
$
|
16,292,109
|
|
|
$
|
4,454,701
|
|
International
Third Party Distributor
|
|
|
21,075
|
|
|
|
84,713
|
|
Airline/Other
Retail
|
|
|
896,994
|
|
|
|
-
|
|
Total
Assets
|
|
$
|
17,210,178
|
|
|
$
|
4,539,414
|
|