ICTV Brands Inc. (fka ICTV)

[CanadaGreece]

LOL! I relinquish my rights! Too slow this time around! I notice the bid is up.

http://ca.us.biz.yahoo.com/e/100630/ictl.pk10-q.html



Form 10-Q for INTERNATIONAL COMMERCIAL TELEVISION INC


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30-Jun-2010

Quarterly Report



ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for the historical information presented in this document, the matters discussed in this Form 10-Q, and specifically in the "Management's Discussion and Analysis or Plan of Operation", or otherwise incorporated by reference into this document contain "forward looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "intends", "should", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. You should not place undue reliance on forward-looking statements. Forward-looking statements involve risks and uncertainties. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this report on Form 10-Q and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business.

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Financial Statements and accompanying notes and the other financial information appearing elsewhere in this report.

Overview

Although we currently sell products through infomercials, the goal of our business plan is to use the brand awareness we create in our infomercials so that we can sell the products featured in our infomercials, along with related families of products, under distinct brand names in traditional retail stores. Our goal is to have these families of products sold in the traditional retail environment in shelf-space dedicated to the product category. We are developing the infrastructure to create these brands of products so that we can implement our business plan.

Fluctuations in our revenue are driven by changes in our product mix. Revenues may vary substantially from period to period depending on our product line-up. A product that generates revenue in one quarter may not necessarily generate revenues in each quarter of a fiscal year for a variety of reasons, including, seasonal factors, the product's stage in its life-cycle, the public's general acceptance of the infomercial and other outside factors, such as the general state of the economy.

Just as fluctuations in our revenues are driven by changes in our product mix, our gross margins from period to period depend on our product mix. Our gross margins vary according to whether the products we are selling are primarily our own products or third-party products. As a general rule, the gross margins for our own products are considerably higher based on proportionately smaller cost of sales. For third-party products, our general experience is that our gross margins are lower, because we record as cost of sales the proportionately higher cost of acquiring the product from the manufacturer. Within each category (i.e., our own products versus third-party products), gross margins still tend to vary based on factors such as market price sensitivity and cost of production.

Many of our expenses for our own products are incurred "up-front". Some of our up-front expenditures include infomercial production costs and purchases of media time. If our infomercials are successful, these "up-front" expenditures produce revenue on the back-end, as consumers purchase the products aired on the infomercials. We do not incur infomercial production costs and media time for our International third-party products, because we merely act as the distributor for pre-produced infomercials. It is the responsibility of the international infomercial operators to whom we sell the third-party products to take the pre-produced infomercial, adapt it to their local standards and pay for media time.


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In conjunction with its on-going business expansion, the Company opened its new operations headquarters office in Wayne, Pennsylvania on April 1, 2008. The office is managed by Richard Scheiner, who was named the Company's Chief Operating Officer on May 30, 2008.

Results of Operations

The following discussion compares operations for the quarter ended March 31, 2010 with the quarter ended March 31, 2009.

Revenues

Our revenues decreased to approximately $1,326,000 for the quarter ended March 31, 2010, down from approximately $2,893,000 recorded during the comparative quarter in 2009, a 54% decrease. The major reason for the decrease in revenue during the period relates to agreement the Company entered into with Allstar Marketing Group ("Allstar") in which Allstar received exclusive distribution rights for DermaWandTM for all U.S. distribution channels with the exception of televised home shopping and beauty salons. As a result, the Company terminated its DRTV campaign for the DermaWand in the U.S as of March 2009. For the quarter ended March 31, 2010, the Company has not had any DRTV revenue for the DermaWand from the Allstar agreement. All revenues recorded during the quarter ended March 31, 2010 were generated by our own products, as was the case during the comparative period in 2009.

Gross Margin

Gross margin percentage was approximately 41% for the quarter ended March 31, 2010, down from approximately 49% during the comparative quarter in 2009. The major reason for the decrease relates to the decline of our DRTV campaign for the DermaWand, which generated the highest selling price of all of our distribution channels. In addition, the selling price on the DermaWand on the Home Shopping Network has decreased over the last year from a high of $89.95 to a low of $59.95. During the quarter ended March 31, 2010, we generated gross margins of approximately $546,000, and in the quarter ended March 31, 2009, we received gross margins of $1,478,000.

Operating Expenses

Total operating expenses decreased to approximately $621,000 during the quarter ended March 31, 2010, from approximately $1,592,000 during the quarter ended March 31, 2009, down approximately $971,000, or 61%. This decrease is attributed primarily to four factors; $6,000 in media costs were incurred during the current period as compared to $537,000 during the quarter ended March 31, 2009, $49,000 in fulfillment charges were charged during the current period compared to $190,000 during the quarter ended March 31, 2009, bad debt expense was $11,000 for the period ending March 31, 2010 as compared to $75,000 during the quarter ended March 31, 2009, and finally $1,000 in answering service charges in relation to product sales were incurred during the current period as compared to $83,000 during the quarter ended March 31, 2009.

Net Income/Loss

The Company generated a net loss of approximately $75,000 for the quarter ended March 31, 2010, compared with a net loss of approximately $114,000 for the quarter ended March 31, 2009. Despite a decrease in revenue due to the reduction in our DRTV campaign for DermaWand, the related reduction in selling and marketing expenses was greater than the decrease in revenue, thus causing the net loss to decrease for the quarter end March 31, 2010 as compared to the quarter ended March 31, 2009.


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Liquidity and Capital Resources

At March 31, 2010, we had approximately $274,000 in cash on hand (including restricted cash), compared to approximately $376,000 at December 31, 2009. We generated negative cash flows from operations of approximately $101,000 in the first quarter of 2010 compared to a negative cash flow from operations of approximately $159,000 for the same period in 2009. The negative cash flow from operations during the current period was a result of a net loss of approximately $75,000, an increase in accounts receivable of approximately $92,000, a decrease in inventory of approximately $223,000, a decrease in prepaid expense and deposits of approximately $15,000, a decrease in accounts payable of approximately $122,000, a decrease in deferred revenue of approximately $54,000, and depreciation expense of approximately $4,000

We have a note payable to The Better Blocks Trust ("BB Trust") in the amount of approximately $591,000.

The Company has outstanding 817,000 stock options at a weighted average exercise price of $1.68 per share. All option grants vest over a five-year period. To date, a total of 74,000 stock options have been exercised, 34,000 options at $0.50 for proceeds of $17,000 and 40,000 options at $0.30 for proceeds of $12,000. If the optionees exercise the remainder of these options as they vest, we will receive $452,560 in capital.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company generated negative cash flows from operating activities during the quarter ended March 31, 2010, of approximately $102,000, and the Company, for the most part, has experienced recurring losses from operations. As of March 31, 2010, the Company had a negative working capital of approximately $411,000, compared to a negative working capital of approximately $339,000 at December 31, 2009, and an accumulated deficit of approximately $5,497,000 as of March 31, 2010.

As noted above under "Business," our goal is to use the brand awareness we create in our infomercials to sell the products featured in our infomercials, along with related families of products, under distinct brand names in traditional retail stores. We will need to raise additional capital to execute that business plan. There can be no assurance that the required capital will be available on commercially reasonable terms, if at all. If we are unable to raise additional capital, we will assess all available alternatives including a sale of our assets or a merger. If none of these alternatives are available, we will be unable to continue as a going concern.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Securities and Exchange Commission ("SEC") defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in Note 1 in the Notes to the Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.

Fair value of financial instruments

Fair value estimates, assumptions and methods used to estimate fair value of the Company's financial instruments are made in accordance with the requirements of ASC 825-10, "Disclosures about Fair Value of Financial Instruments." The Company has used available information to derive its estimates. However, because these estimates are made as of a specific point in time, they are not necessarily indicative of amounts the Company could realize currently. The use of different assumptions or estimating methods may have a material effect on the estimated fair value amounts. The carrying values of financial instruments such as cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short settlement period for these instruments. It is not practicable to estimate the fair value of the Note Payable to Shareholder due to its related party nature.


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Accounts receivable

Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $24,000 for the quarter ended March 31, 2010 and $3,000 for the year ended December 31, 2009. The allowances are calculated based on historical customer returns and bad debts.

In addition to reserves for returns on accounts receivable, an accrual is made against returns for product that have been sold to customer 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 consolidated Balance Sheets were approximately $11,000 at March 31, 2010 and $45,000 at December 31, 2009.

Inventories

Inventories consist primarily of products held for resale, and are valued at the lower of cost (first-in, first-out method) or market. The Company adjusts inventory for estimated obsolescence when necessary based upon demand and market conditions.

Impairment of Long-Lived Assets

In accordance with ASC 805, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets, are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value. No impairment losses were identified or recorded in the fiscal quarters ended March 31, 2010 and 2009.

Revenue recognition

For our domestic direct response television sales generated by our infomercials, product sales revenue is recognized when the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectability is reasonably assured. The Company's revenues in the Statement of Operations are net of sales taxes.

The Company offers a 30-day risk-free trial as one of its payment options. Revenue on the 30-day risk-free trial sales is not recognized until customer acceptance and collectability are assured which we determine to be when the trial period ends. If the risk-free trial expires without action by the customer, product is determined to be accepted by the customer and revenue is recorded. Revenue for items purchased without the 30-day free trial is recognized upon shipment of the product to the customer and collectability is assured.


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After the Company entered into the exclusive distribution agreement with Allstar in May 2010, the Company no longer had any sales with a 30-day free trial period with respect to Allstar revenue. As part of the agreement with Allstar the Company received non-refundable royalty advances which were booked as deferred revenue until Allstar sold DermaWands. Allstar is required to provide ICTV with monthly royalty statements per the contract within 30 days of the end of each month. The Company records revenue in the month goods were sold per the Allstar royalty report.

Revenue related to international wholesale customers is recorded at gross amounts with a corresponding charge to cost of sales.

The Company has a return policy whereby the customer can return any product received within 30 days of receipt for a full refund excluding shipping and handling. However, historically the Company has accepted returns past 30 days of receipt. The Company provides an allowance for returns based upon past experience. All significant returns for the years presented have been offset against gross sales.

Income taxes

In preparing our consolidated financial statements, we make estimates of our current tax exposure and temporary differences resulting from timing differences for reporting items for book and tax purposes. We recognize deferred taxes by the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for differences between the financial statement and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In consideration of our accumulated losses and lack of historical ability to generate taxable income to utilize our deferred tax assets, we have estimated that we will not be able to realize any benefit from our temporary differences and have recorded a full valuation allowance. If we become profitable in the future at levels which cause management to conclude that it is more likely than not that we will realize all or a portion of the net operating loss carry-forward, we would immediately record the estimated net realized value of the deferred tax asset at that time and would then provide for income taxes at a rate equal to our combined federal and state effective rates, which would be approximately 40% under current tax laws. Subsequent revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period.

The Company's policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations. The Company recorded no interest and penalties for the quarters ended March 31, 2010 and 2009, respectively.

New Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU No. 2009-13"). ASU No. 2009-13 amends guidance included within Accounting Standards Codification ("ASC") Topic 605-25 to require an entity to use an estimated selling price when vendor specific objective evidence or acceptable third party evidence does not exist for any products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU No. 2009-13 also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application are also permitted. We are currently evaluating the impact of adopting the provisions of ASU No. 2009-13.


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