NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
1 – Organization and Business of the Company and Liquidity
Organization
and Nature of Operations
ICTV
Brands Inc. (the “Company”, “we”, or “ICTV”), was organized under the laws of the State
of Nevada on September 25, 1998. As of June 30, 2018, we have the following subsidiaries:
|
|
●
|
Better
Blocks International Limited, or (“BBI”), a New Zealand corporation;
|
|
|
|
|
|
|
●
|
ICTV
Brands Israel Limited., incorporated under the laws of Israel;
|
|
|
|
|
|
|
●
|
ICTV
Brands UK Limited., incorporated under the laws of the United Kingdom;
|
|
|
|
|
|
|
●
|
ICTV
Brands HK Limited, a private limited company limited by shares, incorporated under the laws of Hong Kong (ICTV Brands HK Limited
was formally known as “Radiancy HK Limited” and was officially renamed to ICTV Brands HK Limited on July 31, 2017);
and
|
|
|
|
|
|
|
●
|
LK
Technology Importaçăo E Exportaçăo LTDA, a private Sociedade limitada formed under the laws of Brazil
(“LK Technology”).
|
On
January 23, 2017, ICTV Holdings, Inc., a Nevada corporation and the Company’s wholly-owned subsidiary (“ICTV Holdings”)
completed the purchase of substantially all the assets of PhotoMedex, Inc., a Nevada corporation and its wholly-owned subsidiaries,
Radiancy, Inc., PhotoTherapeutics Ltd., and Radiancy (Israel) Limited, (collectively, the “PHMD Sellers”), pursuant
to an asset purchase agreement, dated October 4, 2016, by and among the Company, ICTV Holdings and the PHMD Sellers, as amended
by the first amendment thereto dated January 23, 2017.
On
November 16, 2017, the Company adopted a Plan of Merger pursuant to which, effective November 16, 2017, ICTV Holdings was merged
with and into the Company, with the Company continuing as the surviving corporation, and each share of ICTV Holdings common stock
outstanding immediately prior to the effective date was cancelled and extinguished.
On
January 23, 2017 Ermis Labs, Inc., a Nevada corporation and the Company’s wholly-owned subsidiary (“Ermis Labs”)
completed the purchase of substantially all the assets of Ermis Labs, Inc., a New Jersey corporation (“ELNJ”), pursuant
to an asset purchase agreement, dated October 4, 2016, by and among the Company, Ermis Labs, ELNJ, and LeoGroup Private Debt Facility,
L.P., a significant shareholder (related party), as amended by the first amendment thereto dated January 23, 2017.
On
November 16, 2017, the Company adopted a Plan of Merger pursuant to which, effective November 16, 2017, Ermis Labs was merged
with and into the Company, with the Company continuing as the surviving corporation, and each share of Ermis Labs common stock
outstanding immediately prior to the effective date was cancelled and extinguished.
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.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
1 – Organization and Business of the Company and Liquidity (continued)
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 no!no!®,
a thermicon hair removal device, DermaWand®, 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, DermaBrilliance®, a skin care resurfacing
device that helps reduce visible signs of aging, and Jidue®, a facial massager device which helps alleviate stress. 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. We are 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 to consumer, live home shopping, traditional retail, e-commerce market places, Hong Kong airlines, 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.
On
March 6, 2018, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”), with Therma
Bright Inc., a British Columbia corporation (“Therma Bright”), pursuant to which Therma Bright agreed to acquire certain
assets (the “Purchased Assets”) relating to the Company’s ClearTouch® nail phototherapy device (the “Nail
Product”) and no!no!® skin phototherapy device (the “Skin Product and together with the Nail Product, the “Purchased
Products”), excluding, with some exception, any liabilities relating thereto, and excluding any rights to the trademark
or name “no!no!®” or “no!no!® skin,” (the “no!no!® Trademarks”), for a purchase
price of $2,250,000, subject to certain closing adjustments. The purchase price was to be payable in cash installments commencing
at closing, subject to certain adjustments, through December 31, 2020.
On
April 27, 2018, the Company delivered to Therma Bright written notice of termination of each of the Asset Purchase Agreement,
the Transition Services Agreement, the Patent and Trademark Pledge Agreement and the Sales Representative Agreement, in each case,
pursuant to the terms therein.
Liquidity
and Going Concern
Our
condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able
to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. We had a net
loss of approximately $718,000 for the six months ended June 30, 2018 and generated positive cash flows from operating activities
of approximately $704,000. In addition, we have an accumulated deficit of approximately $17,623,000 as of June 30, 2018.
Additional financing will be required for the Company to successfully implement its long-term growth strategy.
To
increase profitability throughout 2018 and 2019 and maintain sufficient cash flow and liquidity, we continue to analyze our processes
to determine where further cut backs can be made, and operations can be streamlined to further reduce expenditures. On April 1,
2018, our CEO took a $100,000 temporary reduction in his annual base pay. We have also eliminated the marketing department, as
well as inside legal counsel. The cost benefit of these reductions will be reflected in the third quarter of 2018. In addition, we
have reduced media expenses and eliminated several positions within the Company.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
1 – Organization and Business of the Company and Liquidity (continued)
The
ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining
the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come
due. The Company’s ability to raise additional capital through the future issuances of debt or equity is currently being
addressed. The ability to obtain additional financing, the successful development of the Company’s contemplated plan of
operations, or its ability to achieve profitable operations are necessary for the Company to continue operations. The ability
to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements of the Company do not include any adjustments that may result from the outcome
of these uncertainties.
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, 2017. 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, 2018 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 Brands
UK Limited, ICTV Brands Israel Limited, ICTV Brands HK Limited and LK Technology from their initial acquisition dates. 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). On November 16, 2017, ICTV Holdings
and Ermis Labs, Inc. were merged into ICTV Brands, Inc. All significant inter-company transactions and balances have been eliminated
in consolidation.
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 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, valuation of intangibles, and share based compensation. Actual results could differ from these estimates.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Concentration
of credit risk
Financial
instruments, which potentially subject us to concentrations of credit risk, include cash 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 our cash in bank accounts.
As
of June 30, 2018, 15% of our accounts receivable were due from various individual customers to whom our products had been sold
directly via Direct Response Television (“DRTV”). In addition, 49% was due from brick and mortar retailers, 10% was
due from e-commerce accounts, 15% was due from live shopping, 5% was due from duty free airline, and 6% was due from miscellaneous
customers
Major
customers are considered to be those who accounted for more than 10% of net sales. There were no major customers for the three
and six months ended June 30, 2018 and 2017.
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, accrued liabilities, and note
payable 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
we entered into in currencies other than our local currency, are recorded in our 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.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
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 Shekel (ILS).
Assets
and liabilities of our foreign subsidiaries are translated based on 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 $980,000 and $913,000 as of June
30, 2018 and December 31, 2017, respectively. The allowances are calculated based on historical analysis including customer returns
and bad debts.
In
addition to allowances for returns on accounts receivable, an accrual is made for the return of product that have been sold to
customers and had cash collections, while the customer still has the right to return the product. In addition, an accrual is made
for contract fees deducted by the customer. The amounts of these accruals included in accounts payable and accrued liabilities
in our Condensed Consolidated Balance Sheets were approximately $178,000 and $180,000 as of June 30, 2018 and December 31, 2017,
respectively.
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 $264,000 and $247,000 as of June 30, 2018 and December 31, 2017, respectively. Included
in inventory at June 30, 2018 and December 31, 2017 is approximately $64,000 and $51,000, 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 retailer distributors for sale.
Property
and equipment
Property
and equipment are carried at cost and depreciation and amortization is computed over the estimated useful lives of the individual
assets ranging from 3 to 7 years for computer hardware and software and furniture and fixtures. Depreciation and amortization
is computed using the straight-line method. Leasehold improvements are depreciated over the lesser of the estimated useful life
and lease term. 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 and amortization expense amounted to approximately $59,000 and $118,000 and $48,000
and $78,000 for the three and six months ended June 30, 2018 and 2017, respectively.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Property
and equipment consisted of the following at:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Computer
hardware and software
|
|
$
|
205,530
|
|
|
$
|
154,061
|
|
|
Furniture
and equipment
|
|
|
908,700
|
|
|
|
907,586
|
|
|
Leasehold
improvements
|
|
|
55,840
|
|
|
|
55,840
|
|
|
|
|
|
1,170,070
|
|
|
|
1,117,487
|
|
|
Accumulated
depreciation and amortization
|
|
|
(348,004
|
)
|
|
|
(230,394
|
)
|
|
Property
and equipment, net
|
|
$
|
822,066
|
|
|
$
|
887,093
|
|
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 $177,000 and $354,000 and
$251,000 and $442,000 for the three and six months ended June 30, 2018 and 2017, 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.
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 six months ended June 30, 2018 and 2017.
Revenue
recognition
On
January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with
Customers,
which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers that supersedes most current revenue recognition guidance. The updated guidance, and subsequent clarifications,
collectively referred to as ASC 606, require an entity to recognize revenue when it transfers control of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services.
There
was no significant impact to the statement of operations and comprehensive loss as the Company’s existing revenue policies
are in line with ASC 606.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
We
recognize revenue when control of the promised goods or services is transferred to its customers in an amount that reflects the
consideration expected to be entitled to in exchange for those goods or services. Our products are sold direct to consumers through
direct response television, live home shopping, and e-commerce market places, as well as to retailers. We distribute product to
international third-party distributors who purchase the products at wholesale pricing and sell it at an agreed upon price stipulated
in the contracts. We also sell product to consumers through consignment arrangements with certain airlines and retailers in Hong
Kong who sell products to consumers through in-flight magazines, duty-free carts, or sales counters.
We
recognize revenue when performance obligations identified under the terms of the contracts with its customers are satisfied, which
generally occurs upon transfer of control in accordance with the contractual terms and conditions of the sale. The majority of
our revenue is recognized when product is shipped to the customer. Revenue is measured as the amount of consideration we receive
upon shipment. Variable consideration includes various fees charged to us for cooperative advertising, marketing development,
chargebacks, other fees and returns. The Company separately offers extended warranties that are separate performance obligations
for which the associated revenue is recognized over-time based on the extended warranty period. The revenue recognition for each
of our segments are described below.
Direct
to consumer
Our
direct to consumer segment includes sales of product directly to end users via infomercials produced by ICTV classified as Direct
Response Television (“DRTV”). Revenue is recognized at the point of sale time which is upon shipment to the customer.
Also included are products sold to live home shopping networks. Products sold to live home shopping networks are recognized at
a point in time which is upon shipment to the live home shopping network, often with the right to return unsold products. Revenue
related to our DermaVital® continuity program is recognized monthly upon shipment to customers.
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
the control of goods has transferred to the customer 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.
Retail
We
generate revenue from products sold to retailers and are payable upon satisfaction of the performance obligation. Revenue is recognized
at a point in time. Certain retailers have the right to return unsold products. We generally extend credit terms to our retail
customers based on their creditworthiness. Revenue is recorded at the time of shipment.
International
third-party distributors
We
generate revenue through the sale of products to international third-party distributors who in-turn sell the products to the consumer.
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. Revenue is recognized at a point in time when product is shipped to the customer. International
third-party distributors are required to pay a deposit before shipment. As of June 30, 2018 and December 31, 2017, we recorded
deposits for international third-party distributors of approximately $239,000 and $404,000, respectively, in deferred revenue,
current portion.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Airlines
and Hong Kong Retail
We
sell products to consumers through consignment arrangements with certain airlines and retailers in Hong Kong to sell products
to consumers through in-flight magazines, duty-free carts, or in-store counters. We control the goods shipped to the consignees
until control of the goods has transferred to the customer. Control is considered transferred to a customer upon payment for goods
of which we set the price for this activity. We act as the consignor and the principal, and accordingly, we record consignment
sales on a gross basis, once the transfer of control of goods has been passed to the customer. Goods on consignment remain in
our inventory until the product has been sold and control of the goods has transferred.
Warranty
We
sell warranties on our products for various terms. Customers are offered the option to purchase an extended warranty separate
from the product sale for 1 to 5 years. Revenue is recognized ratably over the term, with the unearned warranty included in deferred
revenue on the accompanying condensed consolidated balance sheets.
Variable
consideration
The
amount of consideration we receive, and revenues recognized across our multi sales channels varies with changes in sales returns
and other accommodations and incentives we offer to our customers. When we give our customers the right to return products or
provide other accommodations such as chargebacks, promotional discounts, and rebates, we estimate the expected returns and claims
based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and
claims. We adjust our estimates of revenue at the earlier of when the most likely amount of consideration we expect to receive
changes or when the amount of consideration becomes fixed.
Judgments
We
have a return policy whereby the customer can return any product received within 30 days or 60 days of receipt for a full refund.
We accrue a reserve for product returns with respect to sales of product when a right of return exists. We accrue a reserve for
product returns and customer refunds at the time of sale based on our historical experience. We also accrue for contract fees
based on historical experience of our retail customers, as well as expected fees as documented in our retail contracts. The provision
for estimated returns as of June 30, 2018 and December 31, 2017 was approximately $724,000 and $747,000, respectively. The reserve
for customer refunds and contract fees payable was approximately $178,000 at June 30, 2018 and $180,000 at December 31, 2017 and
has been included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. The amount
of goods to be returned to inventory was determined to be immaterial.
For
the three and six months ended June 30, 2018 and 2017, we recorded sales returns of approximately $1,105,000 and $2,372,000 and
$1,657,000 and $3,305,000 respectively, as a reduction of net sales.
Sales
taxes
Sales
and similar taxes that are imposed on our sales and collected from customers are excluded from net sales.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
Shipping
and handling costs
Costs
for shipping and handling costs, including those activities that occur subsequent to transfer of control to the customer, are
recorded as cost of sales and expensed as incurred. We accrue costs for shipping and handling activities that occur after control
of the promised goods has transferred to the customer. Revenue from shipping and handling charges was approximately $230,000 and
$607,000 and $496,000 and $1,124,000 for the three and six months ended June 30, 2018 and 2017, respectively.
Remaining
Performance Obligations
As
part of our adoption of the new revenue standard, we have elected to use a practical expedient to exclude disclosure of transaction
prices allocated to remaining performance obligations, and when we expect to recognize such revenue, for all periods prior to
the date of initial application of the standard.
As
of June 30, 2018, approximately $341,000 is expected to be recognized from remaining performance obligations for warranty revenue.
We expect to recognize revenue for these remaining performance obligations during the next five years approximately as follows:
|
|
|
Remaining
Six Months 2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Deferred Warranty Revenue from remaining
|
|
$
|
92,000
|
|
|
$
|
121,000
|
|
|
$
|
66,000
|
|
|
$
|
42,000
|
|
|
$
|
19,000
|
|
|
$
|
1,000
|
|
Disaggregation
of revenue
The
following table shows the Company’s revenues disaggregated by reportable segment:
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Direct
to Consumer
|
|
$
|
3,915,091
|
|
|
$
|
5,729,838
|
|
|
$
|
8,922,145
|
|
|
$
|
12,381,253
|
|
|
International
Third Party Distributors
|
|
|
580,928
|
|
|
|
1,040,250
|
|
|
|
1,472,389
|
|
|
|
1,398,850
|
|
|
Retail
|
|
|
1,757,630
|
|
|
|
436,714
|
|
|
|
4,425,575
|
|
|
|
848,431
|
|
|
Airlines/Hong
Kong Retail
|
|
|
758,407
|
|
|
|
743,274
|
|
|
|
1,162,753
|
|
|
|
968,661
|
|
|
|
|
$
|
7,012,056
|
|
|
$
|
7,950,076
|
|
|
$
|
15,982,862
|
|
|
$
|
15,597,195
|
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
The
following table provides information about contract assets which includes accounts receivable, and contract liabilities which
includes deferred revenue and accrued returns and contract fees payable from contracts with customers:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Accounts
receivable, net of allowance for returns of $724,278 and $747,269, respectively, and doubtful accounts of $255,735 and $166,034,
respectively
|
|
$
|
2,243,253
|
|
|
$
|
3,576,376
|
|
|
Total
contract assets
|
|
$
|
2,243,253
|
|
|
$
|
3,576,376
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
579,623
|
|
|
$
|
598,378
|
|
|
Accrued returns
and contract fees payable
|
|
|
177,912
|
|
|
|
179,922
|
|
|
Total
contract liabilities
|
|
$
|
757,535
|
|
|
$
|
778,300
|
|
Research
and Development
Research
and development costs are expensed as incurred and are included in selling and marketing expense in the accompanying condensed
consolidated statements of operations and comprehensive loss. Research and development costs primarily consist of efforts to discover
and develop new products, including clinical trials, product safety testing, and certifications for international regulations
and standards. Research and development costs approximated $35,000 and $77,000 and $19,000 and $64,000 for the three and six months
ended June 30, 2018 and 2017, respectively.
Advertising
Advertising
costs, consisting of media, internet marketing and production costs, are expensed as incurred and are included in selling and
marketing expense in the accompanying condensed consolidated statements of operations and comprehensive loss. Production costs
associated with the creation of new and updated infomercials and advertising campaigns are expensed at the commencement of a campaign.
We incurred approximately $1,481,000 and $3,747,000 and $1,834,000 and $3,465,000 in media costs for airing of television and
print advertising, $851,000 and $1,890,000 and $1,243,000 and $2,090,000 in internet marketing costs, and $55,000 and $83,000
and $51,000 and $196,000 in productions costs for the three and six months ended June 30, 2018 and 2017, respectively.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(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 basis 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 realized
value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and
state effective rates. 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 June 30, 2018, 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. In December 2017, the 2011 Plan was amended to increase the number
of stock options that may be awarded to not exceed a total of 8,000,000 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 June 30, 2018, 4,198,335 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
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (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 using the Black-Scholes valuation model.
In
May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-09, which clarifies when
changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 will reduce
diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09,
an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions
and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will
be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim
periods within those annual periods, beginning after December 15, 2017. On January 1, 2018, we adopted the provisions of ASU 2017-09
prospectively which did not have a material impact on our condensed consolidated financial statements.
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, 2018 and 2017:
|
|
|
Number
of Shares
|
|
|
Weighted Average
|
|
|
|
|
Employee
|
|
|
Non-Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
Balance, January 1, 2018
|
|
|
3,993,335
|
|
|
|
-
|
|
|
|
3,993,335
|
|
|
$
|
0.27
|
|
|
Granted during the
year
|
|
|
1,555,000
|
|
|
|
|
|
|
|
1,555,000
|
|
|
|
0.26
|
|
|
Exercised during
the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Cancelled during
the year
|
|
|
(450,000
|
)
|
|
|
|
|
|
|
(450,000
|
)
|
|
|
0.33
|
|
|
Forfeited
during the year
|
|
|
(850,000
|
)
|
|
|
-
|
|
|
|
(850,000
|
)
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
4,248,335
|
|
|
|
|
|
|
|
4,248,335
|
|
|
$
|
0.22
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
Balance, January 1, 2017
|
|
|
3,680,002
|
|
|
|
-
|
|
|
|
3,680,002
|
|
|
$
|
0.24
|
|
|
Granted during the
year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised during
the year
|
|
|
(101,667
|
)
|
|
|
-
|
|
|
|
(101,667
|
)
|
|
|
0.13
|
|
|
Forfeited
during the year
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017
|
|
|
3,568,335
|
|
|
|
-
|
|
|
|
3,568,335
|
|
|
$
|
0.24
|
|
Of
the stock options outstanding as of June 30, 2018 under the Stock Option Plans, 3,433,335 options are currently vested and exercisable.
The weighted average exercise price of these options was $0.24. These options expire through January 2028.
The
aggregate intrinsic value for options outstanding and exercisable at June 30, 2018 and 2017 was approximately $1,000 and $779,000,
respectively. The aggregate intrinsic value for stock options exercised during the six months ended June 30, 2017 was approximately
$40,000.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
On
January 9, 2018, we issued options to purchase 1,050,000 shares of the Company’s common stock to six employees, at an exercise
price of $0.3318 per share. Three of those employees were terminated in the second quarter of 2018, resulting in the forfeiture
of their options to purchase, in the aggregate, 600,000 shares of common stock. On June 21, 2018, the remaining three employees
voluntarily surrendered their options to purchase, in the aggregate, 450,000 shares of common stock, in consideration of a future
stock grant. On June 21, 2018, we issued 400,000 shares of common stock to such remaining three employees, Kelvin Claney, CEO,
Douglas Crouthers, Interim President and VP of Sales, and Vincent Dargush, VP of Marketing and Operations, at a share price of
$0.10 per share, in consideration of the surrender of previously granted options and, in each case, as a share bonus, which was
immediately vested, for performance in the second quarter of 2018. Also, on June 21, 2018, we issued 300,000 shares of common
stock to Ernest P. Kollias, Jr., CFO, at a share price of $0.10 per share, also as a share bonus, in consideration for performance
during the second quarter of 2018, which was immediately vested. The shares issued on June 21, 2018 are restricted for a period
of six months from issuance. 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.
The
Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” which requires the measurement
and recognition of compensation expense for all share-based payment awards either modified or granted to employees and directors
based upon estimated fair values. The 600,000 options forfeited were not vested at the time of forfeiture and therefore resulted
in a reversal of previously recognized compensation expense in the amount of approximately $12,000. The result of the modification
of issuing 400,000 shares of common stock in replacement of 450,000 options surrendered, as noted above, was to immediately recognize
the fair value of the original options granted totaling approximately $124,000 and the incremental change in fair value of the
replacement awards, which was de minimis. The Company recorded the issuance of the 400,000 shares awarded at $0.10 per
share, totaling $40,000, the fair value on the date of issuance, and the remaining amount, totaling approximately $84,000, to
stock based compensation expense.
For
the three and six months ended June 30, 2018 and 2017, we recorded approximately $71,000 and $102,000, and $77,000
and $495,000, respectively, in stock compensation expense under the Stock Option Plans. At June 30, 2018, there was approximately
$155,000 of total unrecognized compensation cost related to non-vested option grants that will be recognized over the remaining
vesting period of 3 years.
The
following weighted average assumptions are used in the Black-Scholes option pricing model for the six months ended June
30, 2018 to value the stock options granted during the period:
|
2018
|
|
Risk-free interest rate
|
|
|
2.84
|
%
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
Expected life
|
|
|
6
years
|
|
|
Expected volatility
|
|
|
142.79
|
%
|
|
Weighted average grant date fair value
|
|
$
|
0.26
|
|
There
were no options granted for the six months ended June 30, 2017.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
The
following is a summary of stock options outstanding outside of the Stock Option Plans for the six months ended June 30, 2018 and
2017:
|
|
|
Number
of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non
- Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
|
333,333
|
|
|
|
1,476,667
|
|
|
|
1,810,000
|
|
|
$
|
0.31
|
|
|
Granted during the
year
|
|
|
-
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
0.11
|
|
|
Exercised during
the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Expired
during the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance, June 30, 2018
|
|
|
333,333
|
|
|
|
1,776,667
|
|
|
|
2,110,000
|
|
|
$
|
0.27
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
|
|
|
|
|
Employee
|
|
|
Non
- Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2017
|
|
|
516,667
|
|
|
|
1,676,667
|
|
|
|
2,193,334
|
|
|
$
|
0.35
|
|
|
Granted during the
year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised during
the year
|
|
|
(183,334
|
)
|
|
|
-
|
|
|
|
(183,334
|
)
|
|
|
0.27
|
|
|
Expired
during the period
|
|
|
-
|
|
|
|
(200,000
|
)
|
|
|
(200,000
|
)
|
|
|
0.80
|
|
|
Balance, June 30, 2017
|
|
|
333,333
|
|
|
|
1,476,667
|
|
|
|
1,810,000
|
|
|
$
|
0.31
|
|
Of
the stock options currently outstanding outside of the Stock Option Plans at June 30, 2018, 1,885,000 options are currently vested
and exercisable. The weighted average exercise price of these options was $0.30. These options expire through January 2026. The
aggregate intrinsic value for options outstanding and exercisable at June 30, 2018 and 2017 was approximately $0 and $411,000,
respectively. There were no options exercised during the six months ended June 30, 2018 and 2017.
For
the three and six months ended June 30, 2018 and 2017, we recorded approximately $8,000 and $8,000, and $5,000 and $13,000, respectively
in stock compensation expense related to stock options outside of the Stock Option Plans. At June 30, 2018, there is approximately,
$24,000 of remaining unrecognized compensation cost. Change in the fair value of the options issued to non-employees, as of June
30, 2018 was de minimis.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
2 - Summary of significant accounting policies (continued)
The
following weighted average assumptions are used in the Black-Scholes option pricing model for the six months ended June
30, 2018 to value the stock options granted during the period:
|
2018
|
|
Risk-free interest rate
|
|
|
2.77
|
%
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
Expected life
|
|
|
3
years
|
|
|
Expected volatility
|
|
|
143.03
|
%
|
|
Weighted average grant date fair value
|
|
$
|
0.11
|
|
There
were no options granted for the six months ended June 30, 2017.
The
following is a summary of all stock options outstanding and nonvested for the six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Employee
|
|
|
Non-
Employee
|
|
|
Totals
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
|
476,667
|
|
|
|
-
|
|
|
|
476,667
|
|
|
$
|
0.42
|
|
|
Granted during the
period
|
|
|
1,555,000
|
|
|
|
300,000
|
|
|
|
1,855,000
|
|
|
|
0.26
|
|
|
Vested during the
period
|
|
|
-
|
|
|
|
(75,000
|
)
|
|
|
(75,000
|
)
|
|
|
0.11
|
|
|
Cancelled during
the period
|
|
|
(450,000
|
)
|
|
|
-
|
|
|
|
(450,000
|
)
|
|
|
0.33
|
|
|
Forfeited
during the period
|
|
|
(766,667
|
)
|
|
|
-
|
|
|
|
(766,667
|
)
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
815,000
|
|
|
|
225,000
|
|
|
|
1,040,000
|
|
|
$
|
0.20
|
|
Recently
Issued Accounting Pronouncements
In
June 2018, the FASB issued ASU 2018-07
Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based
Payment Accounting.
This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making
the guidance consistent with the accounting for employee share-based compensation. It is effective for annual reporting periods,
and interim periods within those years, beginning after December 15, 2018. We are currently in the process of evaluating the impact
of the adoption of ASU 2018-07 on its condensed consolidated financial statements.
In
June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments
(ASU 2016-13), which requires measurement and recognition of expected credit losses for financial
assets held. The ASU is effective for interim and annual periods beginning December 15, 2019 and early adoption is permitted.
Entities are required to adopt ASU 2016-13 using a modified retrospective approach, subject to certain limited exceptions. We
are currently evaluating the impact of our pending adoption of ASU 2016-13 on our condensed consolidated financial statements.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(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. We expect
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. We are currently evaluating the impact
of our pending adoption of ASU 2016-13 on our condensed consolidated financial statements, and will begin in the third quarter
outlining the necessary steps to implement these changes in the first quarter of 2019.
Reclassifications
Certain
prior period amounts have been reclassified for consistency with the current period presentation of Retail as a reportable segment.
These reclassifications had no effect on the reported results of operations.
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 PHMD Sellers, the Escrow Agent, and certain investors in the Company’s
private placement (the “Escrow Agreement”), which escrow funds were paid to the PHMD 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 secured our obligation to make the $2,000,000 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
June
30, 2018 and 2017
(Unaudited)
Note
3 - Business and Asset Acquisitions (continued)
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 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 PHMD, whereby afterward no further
obligation remained.
In
connection with the PhotoMedex Purchase Agreement, on October 4, 2016, ICTV Holdings entered into a transition services agreement
with the PHMD Sellers (the “Transition Services Agreement”), pursuant to which PHMD Sellers had 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 PHMD Sellers’
premises and warehouses, in exchange for which ICTV Holdings was to (i) pay to the PHMD Sellers the documented costs and expenses
incurred by them in connection with the provision of those services; (ii) pay to the PHMD Sellers the documented lease costs including
monthly rental and any utility charges incurred under the applicable leases; (iii) reimburse the PHMD 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 PHMD 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.
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 both June 30, 2018 and December 31, 2017 was zero.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
3 - Business and Asset Acquisitions (continued)
The
following unaudited condensed pro forma financial information for the six months ended June 30, 2018 and 2017 represent the combined
results of the Company’s operations as if the PhotoMedex Acquisition had occurred on January 1, 2017. Excluded from the
pro forma net loss and net loss per share amounts for the six months ended June 30, 2017 are one-time acquisition costs of $49,312
attributable to the PhotoMedex Acquisition. 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 June 30,
|
|
|
For
the six months ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Net sales
|
|
$
|
7,012,056
|
|
|
$
|
7
,950,076
|
|
|
$
|
15,982,862
|
|
|
$
|
19,136,195
|
|
|
Net loss
|
|
$
|
(718,569
|
)
|
|
$
|
(1,440,680
|
)
|
|
$
|
(718,499
|
)
|
|
$
|
(1,501,986
|
)
|
|
Net loss per share – basic and
diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
Weighted average number of common shares basic and diluted
|
|
|
52,417,623
|
|
|
|
52,075,703
|
|
|
|
53,379,374
|
|
|
|
48,093,572
|
|
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 was to 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.
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 us or our 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. All of the assets acquired from Ermis Labs
were determined to be impaired and written off at December 31, 2017.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
3 - Business and Asset Acquisitions (continued)
The
changes in the Company’s deferred consideration payable due to Ermis Labs, Inc. during the six months ended June 30, 2018:
|
Balance at December 31, 2017
|
|
$
|
1,212,067
|
|
|
Consideration payments
|
|
|
(160,414
|
)
|
|
Accretion of interest
|
|
|
47,018
|
|
|
Balance at June 30, 2018-related
party
|
|
$
|
1,098,671
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
143,100
|
|
|
Non-current portion
|
|
|
955,571
|
|
|
|
|
$
|
1,098,671
|
|
For
the six months ended June 30, 2018, consideration payments represented the remaining minimum royalty for the calendar year ended
December 31, 2017. We did not incur any royalties for sales of products for both the six months ended June 30, 2018 and 2017.
Interest expense was approximately $24,000 and $47,000 for the three and six months ended June 30, 2018, respectively, and $0
for both the three months and six months ended June 30,2017.
Note
4 - Commitments and contingencies
We
entered a lease from March 2017 through February 2022 related to the office space in Wayne, Pennsylvania. In August 2017, we entered
an amendment to expand our space, which increased the monthly base payments. On January 1, 2018, we signed a new lease for our
UK office effective through February 2022. The total monthly cost for our UK office is approximately $2,900. In March 2017, our
Hong Kong office entered into a lease expiring in March 2018, which was then renewed until February 2022 for our current office
space, costing approximately $1,900 a month. Our Israel office lease is for a one-year term ending in April 2018, which was then
renewed until April 20, 2019 for approximately $1,900 a month. Rent expense incurred during the three and six months ended June
30, 2018 and 2017 totaled approximately $62,000 and $128,000 and $65,000 and $142,000 respectively.
The
schedule below details the future financial obligations under the active leases:
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne - Corporate HQ
|
|
$
|
75,538
|
|
|
$
|
152,492
|
|
|
$
|
154,190
|
|
|
$
|
155,887
|
|
|
$
|
26,028
|
|
|
$
|
564,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Israel Office
|
|
|
11,400
|
|
|
|
7,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Office
|
|
|
17,331
|
|
|
|
34,663
|
|
|
|
34,663
|
|
|
|
34,663
|
|
|
|
5,777
|
|
|
|
127,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong Office
|
|
|
11,137
|
|
|
|
22,275
|
|
|
|
22,275
|
|
|
|
22,275
|
|
|
|
3,713
|
|
|
|
81,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Lease Obligations
|
|
$
|
115,406
|
|
|
$
|
217,030
|
|
|
$
|
211,128
|
|
|
$
|
212,825
|
|
|
$
|
35,518
|
|
|
$
|
791,907
|
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
4 - Commitments and contingencies (continued)
Legal
Matters
By
letter dated March 23, 2018, the Company’s Board of Directors notified Richard Ransom, President of the Company, that his
employment would be terminated for cause in 30 days unless Mr. Ransom cured the causes for termination, as presented in the letter,
within such 30-day period.
On
April 12, 2018, Mr. Ransom filed a Complaint in the Court of Common Pleas of Philadelphia County, Pennsylvania, naming as defendants
the Company and our CEO, Kelvin Claney. The Complaint alleges that on March 20, 2018, Mr. Ransom was terminated without cause,
pursuant to the terms of Mr. Ransom’s employment agreement, as a result of certain changes to the Company’s organizational
chart and management duties instituted by the Company’s Chief Executive Officer, Kelvin Claney. The Complaint seeks to recover
Mr. Ransom’s severance compensation for a termination without cause, consisting of approximately $626,000 of base salary
thorough the remaining term of his employment agreement; benefits and any performance bonus prorated through the date of termination;
immediate vesting of 150,000 stock options; and 1,000,000 shares of the Company’s common stock. The Complaint also alleges
that the Company and Mr. Claney defamed Mr. Ransom and seeks damages in an unspecified amount in excess of $50,000.
On
April 18, 2018, the Board of Directors removed Richard Ransom as President of the Company for cause based upon breaches of Mr.
Ransom’s fiduciary duties to the Company.
The
Company and Kelvin Claney deny that any of their actions constituted a termination without cause under the terms of Richard Ransom’s
employment agreement, deny that Mr. Ransom was defamed, and maintain that Mr. Ransom was terminated for cause. Termination for
cause does not give rise to payment of severance compensation under the terms of Mr. Ransom’s employment agreement.
ICTV
denies any liability to Mr. Ransom and is vigorously defending this matter.
From
time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. Other than the legal proceeding described above, we are currently not aware of any such legal
proceedings or claims that we believe will have a material adverse effect on our business, financial condition, operating results
or cash flows.
Other
matters
Product
Liability Insurance
For
certain products, we were (and are) listed as an additional insured party under the product manufacturer’s insurance policy.
We purchase our own liability insurance which will expire May 20, 2019. At present, management is not aware of any claims against
us for any products sold.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
5 – Intangible Assets
Intangible
assets as of June 30, 2018 and December 31, 2017 consists of the following:
|
|
|
Useful
Life
|
|
Gross
Carrying
Cost
|
|
|
Accumulated
Amortization
|
|
|
Impairment
Loss
|
|
|
Net
Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DermaWand® Purchase
|
|
5 years
|
|
$
|
1,163,816
|
|
|
$
|
(727,451
|
)
|
|
$
|
-
|
|
|
$
|
436,365
|
|
|
PhotoMedex Patented/Unpatented Technology
|
|
5 years
|
|
|
940,628
|
|
|
|
(266,509
|
)
|
|
|
-
|
|
|
|
674,119
|
|
|
PhotoMedex Trademarks
|
|
5 years
|
|
|
1,100,000
|
|
|
|
(311,667
|
)
|
|
|
-
|
|
|
|
788,333
|
|
|
Total
|
|
|
|
$
|
3,204,444
|
|
|
$
|
(1,305,627
|
)
|
|
$
|
-
|
|
|
$
|
1,898,817
|
|
|
|
|
Useful
Life
|
|
Gross
Carrying Cost
|
|
|
Accumulated
Amortization
|
|
|
Impairment
Loss
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ermis Labs Formulations/
Trademarks
|
|
5 years
|
|
$
|
1,512,443
|
|
|
$
|
(277,281
|
)
|
|
$
|
(1,235,162
|
)
|
|
$
|
-
|
|
|
DermaWand® Purchase
|
|
5 years
|
|
|
1,163,816
|
|
|
|
(581,673
|
)
|
|
|
-
|
|
|
|
582,143
|
|
|
PhotoMedex Patented/Unpatented Technology
|
|
5 years
|
|
|
940,628
|
|
|
|
(172,447
|
)
|
|
|
-
|
|
|
|
768,181
|
|
|
PhotoMedex Trademarks
|
|
5 years
|
|
|
1,100,000
|
|
|
|
(201,667
|
)
|
|
|
-
|
|
|
|
893,333
|
|
|
Total
|
|
|
|
$
|
4,716,887
|
|
|
$
|
(1,233,068
|
)
|
|
$
|
(1,235,162
|
)
|
|
$
|
2,248,657
|
|
Amortization
expense was approximately $177,000 and $354,000 and $251,000 and $442,000 for the three and six months ended June 30, 2018 and
2017, respectively, of which approximately $75,000 of amortization expense is included in cost of sales for each of the three
and six months ended June 30, 2018 and 2017, and approximately $102,000 and $204,000 is included in general and administrative
expenses for the three and six months ended June 30, 2018, and $116,000 and $292,000 is included in general and administrative
expenses for the three and six months ended June 30, 2017, respectively. Management evaluates the intangible assets for impairment
when there is a triggering event.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
5 – Intangible Asset (continued)
The
following table outlines the estimated future amortization expense related to the intangible assets held as of June 30, 2018:
|
2018
(remaining six months)
|
|
$
|
359,000
|
|
|
2019
|
|
|
690,000
|
|
|
2020
|
|
|
408,000
|
|
|
2021
|
|
|
408,000
|
|
|
2022
|
|
|
34,000
|
|
|
Total
|
|
$
|
1,899,000
|
|
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 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, we are no longer obligated to make royalty payments on sales of
DermaWand®. There shall be no interest charged, and we may, in our sole discretion, at any time without permission or penalty
pre-pay some or all of the purchase price. Under our old licensing agreement, we 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 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 we recorded a discount for imputed interest of approximately $37,000, calculated based on
the applicable federal rates at January 22, 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 period of the agreement, which at this time is management’s best estimate of the remaining useful life.
As
of June 30, 2018, the other liability balance was approximately $595,000 net of the discount for imputed interest of approximately
$5,000. For the three and six months ended June 30, 2018 and 2017, we amortized approximately $2,000 and $4,000 and $3,000 and
$6,000, respectively, of interest expense related to the discount for imputed interest.
Management
evaluates the intangible asset for impairment when there is triggering event and concluded there was no such event at June 30,
2018.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
7 – Long-term Debt to Related Party
On
July 15, 2017, the Company entered a 30-month secured promissory note (the “Note”), to LeoGroup Private Investment
Access, LLC (the “Holder”), a significant shareholder and hence related party, 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 financial covenants of the
Company and customary events of default. The Company is currently in compliance with this Note. 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 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 total amount of related party interest expense during
the three and six months ended June 30, 2018 was approximately $131,000 and $276,000. There was no interest expense during the
three and six months ended June 30, 2017.
The
balance of the long-term debt as of June 30, 2018 and December 31, 2017 was as follows:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Total Debt
|
|
$
|
1,472,936
|
|
|
$
|
1,797,049
|
|
|
Less: current
portion
|
|
$
|
(846,243
|
)
|
|
$
|
(722,908
|
)
|
|
Long-term debt,
net
|
|
$
|
626,693
|
|
|
$
|
1,074,141
|
|
Maturities
of long-term debt at June 30, 2018, are as follows:
|
December 31,
|
|
|
|
|
|
2018
|
|
$
|
398,796
|
|
|
2019
|
|
|
976,906
|
|
|
2020
|
|
|
97,234
|
|
|
|
|
$
|
1,472,936
|
|
Note
8 – Note Payable
On
June 22, 2018, ICTV signed a formal 12-month loan agreement with Amazon Lending. The loan was given in the amount of $145,000
and carries an annual interest rate of 9.69%. For both the three and six months ended June 30, 2018, interest expense was de
minimis. The loan is paid in twelve equal payments of principal and interest of approximately $13,000. These payments
will be automatically deducted from any sales that ICTV generates from Amazon.com. If the sales generated do not sufficiently
cover the amount of the monthly payment due, Amazon.com is authorized to charge the Company’s credit card on file. There
is no early payoff fee for this loan agreement. In the event of a default by the Company, Amazon Lending has a first lien on any
and all assets that are at Amazon warehousing facilities.
Note
9 - Related party transactions
LeoGroup
Private Debt Facility L.P. (“LeoGroup”) became a major shareholder as part of the Ermis Labs Asset Acquisition described
in Notes 1 and 3. During the six months ended June 30, 2018, approximately $160,000 of payments were made to LeoGroup in connection
with the deferred consideration for the Ermis Labs Asset Acquisition.
On
July 15, 2017 LeoGroup provided the Company with the $2,000,000 30-month secured promissory note to allow the buyout of the PhotoMedex
royalty described in Notes 1 and 7. During the three and six months ended June 30, 2018, $300,000 and $600,000 of payments,
respectively, were made on the loan of which approximately $131,000 and $276,000, respectively, were interest expense.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
9 - Related party transactions (continued)
On
January 9, 2018, we issued options to purchase 1,050,000 shares of the Company’s common stock to six employees, at an exercise
price of $0.3318 per share. Three of those employees were terminated in the second quarter of 2018, resulting in the forfeiture
of their options to purchase, in the aggregate, 600,000 shares of common stock. On June 21, 2018, the remaining three employees
voluntarily surrendered their options to purchase, in the aggregate, 450,000 shares of common stock, in consideration of a future
stock grant. On June 21, 2018, we issued 400,000 shares of common stock to such remaining three employees, Kelvin Claney, CEO,
Douglas Crouthers, Interim President and VP of Sales, and Vincent Dargush, VP of Marketing and Operations, at a share price of
$0.10 per share, in consideration of the surrender of previously granted options and, in each case, as a share bonus, which was
immediately vested, for performance in the second quarter of 2018. Also, on June 21, 2018, we issued 300,000 shares of common
stock to Ernest P. Kollias, Jr., CFO, at a share price of $0.10 per share, also as a share bonus, in consideration for performance
during the second quarter of 2018. The shares issued on June 21, 2018 are restricted for a period of six months from issuance.
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.
On
May 2, 2018, the Company and Kelvin Claney, the Company’s Chief Executive Officer, entered into a subscription agreement
pursuant to which the Company issued to Mr. Claney 210,000 shares of series A preferred stock, par value $0.001 per share (the
“Series A Preferred Stock”), for cash consideration of $403,200, or $1.92 per share described in Note 2.
Note
10 –Series A Preferred Stock
On
May 1, 2018, the Board of Directors designated 210,000 shares of the Company’s Series A Preferred Stock and authorized the
sale of the Series A Preferred Stock to Kelvin Claney, the Company’s Chief Executive Officer. On May 2, 2018, the Board
of Directors of the Company filed the Certificate of Designation, Preferences, Rights and Limitations of the Series A Preferred
Stock with the Nevada Secretary of State.
The
Series A Preferred Stock has dividend rights per share equal to the dividend rights of the Company’s common stock and has
a liquidation preference in the amount of $1.92 per share. Each share of Series A Preferred Stock is entitled to 100 votes on
all matters to be voted upon by the Company’s shareholders. The Series A Preferred Stock is redeemable at the option of
the Company for a redemption price per share of $1.92, plus 8% per annum from the date of issuance until the date of redemption.
If any Series A Preferred Stock is not redeemed within three years from the date of issuance, the holder may convert the Series
A Preferred Stock into common stock at a ratio of eight shares of common stock for each share of Series A Preferred Stock. The
Series A Preferred Stock is a non-certificated security.
On
May 2, 2018, the Company and Kelvin Claney entered into a subscription agreement pursuant to which the Company issued to Mr. Claney
210,000 shares of Series A Preferred Stock for cash consideration of $403,200, or $1.92 per share. Issuance costs were de minimis.
The redemption value as of June 30, 2018 was approximately $409,000.
The
Company evaluated the Series A Preferred Stock issuance for liability or equity classification in accordance with the provisions
of ASC 480, “Distinguishing Liabilities from Equity”, and determined that equity treatment was appropriate because
the Series A Preferred did not meet the definition of the liability instruments defined thereunder for convertible instruments.
Specifically, the Series A Preferred are not mandatorily redeemable and do not embody an obligation to buy back the shares outside
of the Company’s control in a manner that could require the transfer of assets. Additionally, the Company determined that
the Series A Preferred would be recorded as permanent equity, not temporary equity, based on the guidance of ASC 480 given that
there is no scenario where the holders of equally and more subordinated equity of the entity would not be entitled to also receive
the same form of consideration upon the occurrence of the event that gives rise to the redemption.
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
11 - Basic and diluted earnings (loss) per share
Basic
earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares
outstanding during the period and is computed by dividing the earnings attributable to common stockholders by the weighted-average
number of common equivalent shares outstanding for the period, including any dilutive effect from outstanding stock options and
convertible preferred stock. Diluted net income per share does not assume conversion, exercise or contingent exercise of securities
that would have an anti-dilutive effect.
The
Company follows the two-class method when computing earnings (loss) per share in periods when issued shares that meet the definition
of participating securities are outstanding. The two-class method determines earnings (loss) per share for each class of common
and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.
The Company’s Series A Preferred Stock participates in any dividends declared by the Company on its common stock and are
therefore considered to be participating securities. The two-class method requires income available to common stockholders for
the period to be allocated between common and participating securities based upon their respective rights to receive dividends
as if all income for the period had been distributed. Accordingly, in periods in which the Company reports a net loss attributable
to common stockholders when participating securities are outstanding, losses are not allocated to the participating securities
because they have no contractual obligation to share in the losses of the Company. For purposes of calculating diluted earnings
per share attributable to common shareholders, stock options and convertible preferred stock are considered common stock equivalents.
As
described above, the Company computes basic and diluted loss per share using a methodology that gives effect to the impact of
outstanding participating securities (the “two-class method”). As the three and six months ended June 30, 2018 and
2017 resulted in net losses, there is no income allocation required under the two-class method or dilution attributed to weighted-average
shares outstanding in the calculation of diluted loss per share.
Of
the outstanding stock options, 5,318,335 were vested and exercisable at an average exercise price of $0.26. The following common
stock equivalents, presented on an as converted basis, were excluded from the calculation of net loss per share for the periods
presented, due to their anti-dilutive effect:
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Outstanding stock options
|
|
|
6,358,335
|
|
|
|
5,378,335
|
|
|
|
6,358,335
|
|
|
|
5,378,335
|
|
|
Convertible preferred
stock
|
|
|
1,680,000
|
|
|
|
-
|
|
|
|
1,680,000
|
|
|
|
-
|
|
|
|
|
|
8,038,335
|
|
|
|
5,378,335
|
|
|
|
8,038,335
|
|
|
|
5,378,335
|
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
12 - Income taxes
The
provision for income taxes is approximately $89,000 and $118,000 for the three and six months ended June 30, 2018 and $70,000
for both the three and six months ended June 30, 2017. The effective tax rate for the three and six months ended June 30, 2018
was (14%) and (20%), respectively. The effective tax rate is (5%) and (4%), respectively for the three and six months ended June
30, 2017. The provision reflects an estimated current tax liability associated with the earnings of our foreign subsidiaries.
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 Internal Revenue Code Section 382
analysis
through June 30, 2018 and has not analyzed the potential impact of its recent equity financing on beneficial
ownership.
Therefore,
no determination has been made whether the net operating loss carry forward of $3,239,000 available prior
to the equity financing is subject to the Internal Revenue Code Section 382 limitation.
Note
13 - Segment reporting
We
operate in the direct to consumer, retail, international third-party distributors, and airlines and Hong Kong retail segments
which are engaged in selling of various consumer products primarily through direct marketing channels as well as selling our products
through our international third-party distributor, and certain airlines. 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, retail, international third-party distributor sales, or airlines and Hong Kong retail sales. Operating expenses are primarily
prorated based on the relationship between segment sales to total sales.
Information
with respect to our operating income (loss) by segment is as follows:
|
|
|
For
the three months ended June 30, 2018
|
|
|
For
the three months ended June 30, 2017
|
|
|
|
|
Direct
to Consumer
|
|
|
Retail
|
|
|
International
Third-Party Distributor
|
|
|
Airlines
and Hong Kong Retail
|
|
|
Totals
|
|
|
Direct
to Consumer
|
|
|
Retail
|
|
|
International
Third-Party Distributor
|
|
|
Airlines
and Hong Kong Retail
|
|
|
Totals
|
|
|
Net
sales
|
|
$
|
3,915,091
|
|
|
$
|
1,757,629
|
|
|
$
|
580,929
|
|
|
$
|
758,407
|
|
|
$
|
7,012,056
|
|
|
$
|
5,729,838
|
|
|
$
|
436,714
|
|
|
$
|
1,040,250
|
|
|
$
|
743,274
|
|
|
$
|
7,950,076
|
|
|
Cost
of sales
|
|
|
894,837
|
|
|
|
597,594
|
|
|
|
290,464
|
|
|
|
436,422
|
|
|
|
2,219,317
|
|
|
|
1,761,105
|
|
|
|
148,483
|
|
|
|
488,941
|
|
|
|
393,072
|
|
|
|
2,791,601
|
|
|
Gross
profit
|
|
|
3,020,254
|
|
|
|
1,160,035
|
|
|
|
290,465
|
|
|
|
321,985
|
|
|
|
4,792,739
|
|
|
|
3,968,733
|
|
|
|
288,231
|
|
|
|
551,309
|
|
|
|
350,202
|
|
|
|
5,158,475
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,432,642
|
|
|
|
553,074
|
|
|
|
182,801
|
|
|
|
37,968
|
|
|
|
2,206,485
|
|
|
|
2,228,029
|
|
|
|
146,848
|
|
|
|
254,683
|
|
|
|
43,711
|
|
|
|
2,673,271
|
|
|
Selling
and marketing
|
|
|
2,106,170
|
|
|
|
763,379
|
|
|
|
8,342
|
|
|
|
167,606
|
|
|
|
3,045,497
|
|
|
|
3,541,378
|
|
|
|
211,710
|
|
|
|
14,755
|
|
|
|
86,188
|
|
|
|
3,854,031
|
|
|
Total
operating expense
|
|
|
3,538,812
|
|
|
|
1,316,453
|
|
|
|
191,143
|
|
|
|
205,574
|
|
|
|
5,251,982
|
|
|
|
5,769,407
|
|
|
|
358,558
|
|
|
|
269,438
|
|
|
|
129,899
|
|
|
|
6,527,302
|
|
|
Operating
income (loss)
|
|
$
|
(518,558
|
)
|
|
$
|
(156,418
|
)
|
|
$
|
99,322
|
|
|
$
|
116,411
|
|
|
$
|
(459,243
|
)
|
|
$
|
(1,800,674
|
)
|
|
$
|
(70,327
|
)
|
|
$
|
281,871
|
|
|
$
|
220,303
|
|
|
$
|
(1,368,827
|
)
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
13 - Segment reporting (continued)
|
|
|
For
the six months ended June 30, 2018
|
|
|
For
the six months ended June 30, 2017
|
|
|
|
|
Direct
to Consumer
|
|
|
Retail
|
|
|
International
Third-Party Distributor
|
|
|
Airlines
and Hong Kong Retail
|
|
|
Totals
|
|
|
Direct
to Consumer
|
|
|
Retail
|
|
|
International
Third-Party Distributor
|
|
|
Airlines
and Hong Kong Retail
|
|
|
Totals
|
|
|
Net
sales
|
|
$
|
8,922,145
|
|
|
$
|
4,425,575
|
|
|
$
|
1,472,389
|
|
|
$
|
1,162,753
|
|
|
$
|
15,982,862
|
|
|
$
|
12,259,372
|
|
|
$
|
848,431
|
|
|
$
|
1,520,731
|
|
|
$
|
968,661
|
|
|
$
|
15,597,195
|
|
|
Cost
of sales
|
|
|
1,682,327
|
|
|
|
1,504,696
|
|
|
|
736,194
|
|
|
|
701,439
|
|
|
|
4,624,656
|
|
|
|
3,171,811
|
|
|
|
559,964
|
|
|
|
755,735
|
|
|
|
457,671
|
|
|
|
4,945,181
|
|
|
Gross
profit
|
|
|
7,239,818
|
|
|
|
2,920,879
|
|
|
|
736,195
|
|
|
|
461,314
|
|
|
|
11,358,206
|
|
|
|
9,087,561
|
|
|
|
288,467
|
|
|
|
764,996
|
|
|
|
510,990
|
|
|
|
10,652,014
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,601,889
|
|
|
|
1,181,086
|
|
|
|
392,947
|
|
|
|
89,541
|
|
|
|
4,265,463
|
|
|
|
4,422,866
|
|
|
|
280,443
|
|
|
|
389,898
|
|
|
|
62,334
|
|
|
|
5,155,541
|
|
|
Selling
and marketing
|
|
|
4,950,924
|
|
|
|
2,034,294
|
|
|
|
16,556
|
|
|
|
345,034
|
|
|
|
7,346,808
|
|
|
|
6,612,476
|
|
|
|
394,046
|
|
|
|
47,938
|
|
|
|
189,515
|
|
|
|
7,243,975
|
|
|
Total
operating expense
|
|
|
7,552,813
|
|
|
|
3,215,381
|
|
|
|
409,503
|
|
|
|
434,574
|
|
|
|
11,612,271
|
|
|
|
11,035,342
|
|
|
|
674,489
|
|
|
|
437,836
|
|
|
|
251,849
|
|
|
|
12,399,516
|
|
|
Operating
income (loss)
|
|
$
|
(312,995
|
)
|
|
$
|
(294,502
|
)
|
|
|
326,692
|
|
|
$
|
26,740
|
|
|
$
|
(254,065
|
)
|
|
$
|
(1,947,781
|
)
|
|
$
|
(386,022
|
)
|
|
$
|
327,160
|
|
|
$
|
259,141
|
|
|
$
|
(1,747,502
|
)
|
Selected
balance sheet information by segment is presented in the following table as of:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Direct to Consumer
|
|
$
|
10,440,573
|
|
|
$
|
11,135,146
|
|
|
Retail
|
|
|
1,090,457
|
|
|
|
1,696,601
|
|
|
International Third-Party Distributors
|
|
|
239,019
|
|
|
|
75,854
|
|
|
Airlines and
Hong Kong Retail
|
|
|
1,090,722
|
|
|
|
862,656
|
|
|
|
|
$
|
12,860,771
|
|
|
$
|
13,770,257
|
|
Total
assets by geographical region as of:
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
United States
|
|
$
|
8,314,938
|
|
|
$
|
8,333,129
|
|
|
Hong Kong
|
|
|
653,621
|
|
|
|
862,656
|
|
|
United Kingdom
|
|
|
2,993,904
|
|
|
|
3,476,560
|
|
|
Israel
|
|
|
898,308
|
|
|
|
1,097,912
|
|
|
Total Assets
|
|
$
|
12,860,771
|
|
|
$
|
13,770,257
|
|
ICTV
BRANDS INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2018 and 2017
(Unaudited)
Note
13 - Segment reporting (continued)
Net
sales by geographical region for the three months ended:
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
United States
|
|
$
|
4,339,407
|
|
|
$
|
5,776,862
|
|
|
Hong Kong
|
|
|
758,407
|
|
|
|
639,439
|
|
|
United Kingdom
|
|
|
1,914,242
|
|
|
|
1,533,775
|
|
|
Israel
|
|
|
-
|
|
|
|
-
|
|
|
Total Net Sales
|
|
$
|
7,012,056
|
|
|
$
|
7,950,076
|
|
Net
sales by geographical region for the six months ended:
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
United States
|
|
$
|
10,233,552
|
|
|
$
|
13,094,759
|
|
|
Hong Kong
|
|
|
1,162,753
|
|
|
|
968,661
|
|
|
United Kingdom
|
|
|
4,586,557
|
|
|
|
1,533,775
|
|
|
Israel
|
|
|
-
|
|
|
|
-
|
|
|
Total Net Sales
|
|
$
|
15,982,862
|
|
|
$
|
15,597,195
|
|
Note
14 - Subsequent Events
On
July 6, 2018, the Company issued a promissory note to Stephen Jarvis, a member of the Board of Directors, for a 60-day interest
free loan of $100,000 from Mr. Jarvis. This loan is to be repaid to the lender within 60 days of receipt. If the loan is not paid
within 30 days of the due date, it will be considered in default and the note will bear an 18% interest rate until paid.
On
July 9, 2018, the Board of Directors authorized the issuance of Common Stock to Phillip Solomon for the replacement of surrendered
stock options. On November 30, 2017, Philip Solomon was granted 250,000 stock options. Mr. Solomon surrendered these options in
consideration of 50,000 shares of the Company’s Common Stock. The fair value of the shares was the closing price on July
9, 2018, which was $0.10. On July 9, 2018 the Board of Directors also approved a grant to Mr. Solomon of an additional 50,000
shares of the Company’s Common Stock at a share price of $0.10 per share as a share bonus in consideration for performance
during the third quarter of 2018.
On
July 12, 2018, the Company formed a wholly owned Canadian Entity under the Canada Business Corporations Act. ICTV’s Canadian
Entity is incorporated under the name of ICTV Brands Canada, Inc.
On
July 16, 2018, the Board of Directors authorized an amendment to the prior issuance of stock options granted to Tracey Kidd, consultant,
on June 21, 2018. The consulting agreement was revised to provide an increase in the total options from 300,000 to 400,000. The
additional 100,000 stock options will be issued at an exercise price equal to the average closing price of the Company’s
common stock over the ten trading days prior to the date of grant, which is deemed to be the fair market value of the Company’s
common stock as of the date of grant. 50,000 of the additional 100,000 stock options vest immediately upon grant. The remaining
50,000 stock options will vest one year after the date of grant.