Attached files
| file | filename |
|---|---|
| EX-32 - EX 32 - ICTV Brands Inc. | ex32.htm |
| EX-31.2 - EX 31.2 - ICTV Brands Inc. | ex31_2.htm |
| EX-31.1 - EX 31.1 - ICTV Brands Inc. | ex31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________
Commission file number: 0-49638
INTERNATIONAL COMMERCIAL TELEVISION INC.
(Exact name of small business issuer as specified in its charter)
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Nevada
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76-0621102
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State or other jurisdiction of incorporation or organization
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(IRS Employer Identification No.)
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299 Madison Avenue N. Suite C Bainbridge Island, WA 98110
(Address of principal executive offices)
(206) 780-8203
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check-mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,” accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non - accelerated filer o (Do not check if smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 12, 2010, the Issuer had 14,505,912 shares of common stock, par value $0.001 per share, issued and outstanding.
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PART I - FINANCIAL INFORMATION
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ITEM 1.
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4 | |
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ITEM 2.
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19 | |
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ITEM 3.
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22 | |
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ITEM 4.
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22 | |
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PART II - OTHER INFORMATION
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ITEM 1.
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23 | |
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ITEM 1A.
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23 | |
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ITEM 2.
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23 | |
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ITEM 3.
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23 | |
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ITEM 4.
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23 | |
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ITEM 5.
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23 | |
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ITEM 6.
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24 | |
| 25 | ||
PART I - FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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4
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5
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6
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7-18
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF
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September 30, 2010
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December 31, 2009
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(Unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$ | 128,374 | $ | 373,503 | ||||
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Restricted cash
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2,007 | 2,992 | ||||||
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Accounts receivable, net of doubtful account reserves of $3,454 and $586 respectively
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118,704 | 92,548 | ||||||
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Inventories, net
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568,793 | 1,014,909 | ||||||
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Prepaid expenses and deposits
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55,684 | 49,577 | ||||||
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Total current assets
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873,562 | 1,533,529 | ||||||
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Furniture and equipment
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183,117 | 183,117 | ||||||
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Less accumulated depreciation
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145,191 | 134,437 | ||||||
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Furniture and equipment, net
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37,926 | 48,680 | ||||||
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Total assets
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$ | 911,488 | $ | 1,582,209 | ||||
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LIABILITIES AND SHAREHOLDERS’ DEFICIT
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CURRENT LIABILITIES:
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Accounts payable and accrued liabilities
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$ | 609,045 | $ | 865,294 | ||||
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Accounts payable - related parties
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30,859 | 31,567 | ||||||
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Deferred revenue
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46,670 | 135,400 | ||||||
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Severance payable
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122,080 | - | ||||||
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Tax penalties payable
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250,000 | 250,000 | ||||||
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Note payable to shareholder
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590,723 | 590,723 | ||||||
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Total current liabilities
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1,649,377 | 1,872,984 | ||||||
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Long-term severance payable
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140,000 | - | ||||||
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Total liabilities
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1,789,377 | 1,872,984 | ||||||
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COMMITMENTS AND CONTINGENCIES
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SHAREHOLDERS’ DEFICIT:
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Preferred stock 20,000,000 shares authorized, no shares issued and outstanding
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- | - | ||||||
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Common stock, $0.001 par value, 100,000,000 shares authorized,14,505,912 shares issued and outstanding as of September 30, 2010 and December 31, 2009
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4,407 | 4,407 | ||||||
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Additional paid-in-capital
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5,126,763 | 5,126,763 | ||||||
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Accumulated deficit
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(6,009,059 | ) | (5,421,945 | ) | ||||
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Total shareholders’ deficit
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(877,889 | ) | (290,775 | ) | ||||
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Total liabilities and shareholders’ deficit
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$ | 911,488 | $ | 1,582,209 | ||||
See accompanying notes to consolidated financial statements.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
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For the three months ended
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For the nine months ended
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September 30, 2010
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September 30, 2009
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September 30, 2010
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September 30, 2009
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NET SALES
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$ | 881,459 | $ | 744,248 | $ | 3,103,824 | $ | 4,838,422 | ||||||||
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COST OF SALES
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305,061 | 411,910 | 1,609,660 | 2,278,853 | ||||||||||||
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GROSS PROFIT
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576,398 | 332,338 | 1,494,164 | 2,559,569 | ||||||||||||
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OPERATING EXPENSES:
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General and administrative
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684,194 | 442,039 | 1,747,312 | 1,519,462 | ||||||||||||
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Selling and marketing
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86,991 | 27,616 | 334,326 | 1,199,052 | ||||||||||||
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Total operating expenses
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771,185 | 469,655 | 2,081,638 | 2,718,514 | ||||||||||||
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OPERATING LOSS
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(194,787 | ) | (137,317 | ) | (587,474 | ) | (158,945 | ) | ||||||||
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INTEREST INCOME
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101 | 108 | 359 | 463 | ||||||||||||
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NET LOSS
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(194,686 | ) | (137,209 | ) | (587,115 | ) | (158,482 | ) | ||||||||
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BASIC AND DILUTED NET LOSS PER SHARE
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(0.01 | ) | (0.01 | ) | (0.04 | ) | (0.01 | ) | ||||||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
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2010
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2009
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$ | (587,115 | ) | $ | ( 158,482 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation
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10,755 | 11,156 | ||||||
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Change in assets and liabilities
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Accounts receivable
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(26,156 | ) | 426,331 | |||||
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Inventory
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446,115 | 1,281,826 | ||||||
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Prepaid expenses and deposits
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(6,107 | ) | 117,170 | |||||
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Accounts payable and accrued liabilities
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(256,248 | ) | (1,872,864 | ) | ||||
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Severance payable
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262,080 | - | ||||||
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Deferred revenue
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(88,730 | ) | 73,756 | |||||
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Net cash used in operating activities
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(245,406 | ) | (121,107 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Additions to property and equipment
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- | (1,112 | ) | |||||
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Net cash used in investing activities
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- | (1,112 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Advances from related parties
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- | 3,381 | ||||||
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Payments to related parties
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(708 | ) | (5,480 | ) | ||||
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Net cash used in financing activities
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(708 | ) | (2,099 | ) | ||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS
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(246,114 | ) | (124,318 | ) | ||||
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CASH AND CASH EQUIVALENTS, beginning of the period
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376,495 | 391,828 | ||||||
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CASH AND CASH EQUIVALENTS, end of the period
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$ | 130,381 | $ | 267,510 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
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Interest expense
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$ | - | $ | 108 | ||||
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Income taxes paid
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$ | - | $ | - | ||||
See accompanying notes to consolidated financial statements.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies
Organization and Nature of Operations
International Commercial Television Inc., (the “Company” or “ICTV”) was organized under the laws of the State of Nevada on June 25, 1998.
Strategic Media Marketing Corp. (“SMM”) was incorporated in the Province of British Columbia on February 11, 2003.
The Company sells various consumer products. The products are primarily marketed and sold throughout the United States and internationally via infomercials. Although our companies are incorporated in Nevada and British Columbia, operations are currently run from Washington State, Pennsylvania, and British Columbia.
Liquidity and Going Concern
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 in the nine month period ended September 30, 2010 of approximately $245,000, and the Company, for the most part, has experienced recurring losses from operations. The Company had a negative working capital of approximately $776,000 and an accumulated deficit of approximately $6,009,000 as of September 30, 2010.
Although we currently sell our products primarily through infomercials, the goal of our business plan is to use the brand awareness we create in our infomercials to sell our products (along with additional line extensions) under distinct brand names in traditional retail stores. Our objective is to have these families of products sold in the traditional retail environment in shelf-space dedicated to the product category.
There is no guarantee that the Company will be successful in bringing our products into the traditional retail environment. If the Company is unsuccessful in achieving this goal, the Company will be required to raise additional capital to meet its working capital needs. If the Company is unsuccessful in completing additional financings, it will not be able to meet its working capital needs or execute its business plan. In such case the Company will assess all available alternatives including a sale of its assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result should the Company be unable to continue as a going concern.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Basis of Presentation
The unaudited 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 consolidated financial statements have been prepared by management without audit and should be read in conjunction with our consolidated financial statements, including the notes thereto, appearing in our Annual Report on Form 10-K for the year ended December 31, 2009. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position, consolidated results of operations and consolidated cash flows, for the periods indicated, have been made. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of operating results that may be achieved over the course of the full year.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary SMM. All significant inter-company transactions and balances have been eliminated.
Concentration of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, include cash and trade receivables. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. As of September 30, 2010, the Company did not exceed the federally insured limit in its investment savings. The Company has not experienced any losses and believes it is not exposed to any significant risks on its cash in bank accounts. As of September 30, 2010 and September 30, 2009, 2% and 0% of the Company’s accounts receivable were due from various individual customers to whom our products had been sold directly via Direct Response Television; the remaining 98% and 100% of the Company’s accounts receivable were due from wholesale infomercial operators and televised shopping networks. At September 30, 2010, approximately 92% of the Company’s accounts receivable balance was due from one international wholesale operator.
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 820-10, “Fair Value of Measurements and Disclosures.” 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.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Cash and cash equivalents
The Company considers all unrestricted highly liquid investments with an original maturity of three months or less to be cash equivalents.
Restricted Cash
Transfirst ePayment Services (“Transfirst”), ICTV’s credit card processing vendor for VISA and MasterCard transactions in the United States, maintains a reserve fund within our processing account to cover all fees, charges, and expenses due them, including those estimated for possible customer charge backs. These reserves are updated periodically by Transfirst and maintained for a rolling 180 days of activity. Based upon established levels of risk, this normally represents approximately 2% of transaction volume for the period, and is considered as “Restricted Cash”. At September 30, 2010 the amount of Transfirst reserve was $2,007 and at December 31, 2009 the reserve balance was $2,992.
Accounts receivable
Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $6,500 as of September 30, 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 for returns of 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 $5,300 at September 30, 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.
Furniture and equipment
Furniture and equipment are carried at cost and depreciation is computed over the estimated useful lives of the individual assets ranging from 3 to 7 years. Depreciation is computed using the straight-line method. The related cost and accumulated depreciation of assets retired or otherwise disposed of are removed from the accounts and the resultant gain or loss is reflected in earnings. Maintenance and repairs are expensed currently while major renewals and betterments are capitalized.
Depreciation expense amounted to $3,585 and $3,719 and $10,755 and $11,156 for the three and nine months ended September 30, 2010 and 2009, respectively.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Impairment of Long-Lived Assets
In accordance with ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net 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 nine months ended September 30, 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.
The Company entered into the exclusive distribution agreement with Allstar Marketing Group (“Allstar”) in May 2009. 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.
In March 2010, the Allstar agreement was terminated and the Company retained the exclusive distribution rights for the DermaWand. Upon termination of the contract, the Company recognized the remaining non-refundable royalty advances that were previously booked in deferred revenue. The Company recognized approximately $0 and $24,000 and $56,000 and $24,000 in revenue related to the Allstar agreement in the three and nine month periods ended September 30, 2010 and 2009, respectively.
Revenue related to international wholesale customers is recorded at gross amounts with a charge to cost of sales for the cost of items sold.
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 periods presented have been offset against gross sales.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Shipping and handling
Amounts billed to a customer for shipping and handling are included in revenue; shipping and handling revenue approximated $3,500 and $6,000 and $7,700 and $222,000 for the three and nine months ended September 30, 2010 and 2009, respectively. Shipping and handling costs are included in cost of sales. Shipping and handling costs approximated $39,000 and $3,000 and $132,000 and $219,000 for the three and nine months ended September 30, 2010 and 2009, respectively.
Research and development
Research and development costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements. Research and development costs primarily consist of efforts to discover and develop new products and the testing and development of direct-response advertising related to these products.
Media and production costs
Media and production costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements. The Company incurred $18,000 and $(5,000) and $40,000 and $621,000 in such costs for the three and nine months ended September 30, 2010 and 2009, respectively.
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.
Page 11
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
Stock options
The Company adopted a stock option plan (“Plan”). The purpose of this Plan is to provide additional incentives to key employees, officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best available personnel for positions of responsibility and otherwise promoting the success of the business activities. It is intended that options issued under this Plan constitute nonqualified stock options. The general terms of awards under the option plan are that 10% will vest every 6 months. The maximum term of options granted is 10 years and the number of shares authorized for grants of options is 3,000,000.
The Company uses ASC 718, “Stock Compensation”, to account for stock-based compensation. The Company recognizes compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees over the requisite vesting period of the awards. Stock options granted to non-employees are remeasured at each reporting period.
For the nine months ended September 30, 2010 and 2009, the Company issued no options and recorded no stock compensation expense related to vesting of options previously granted.
The following is a summary of stock options outstanding under the existing stock option plan for the nine months ended September 30, 2010 and 2009:
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Number of Shares
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Weighted
Average
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Employee
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Non-
Employee
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Totals
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Exercise
Price
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Balance, January 1, 2010
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- | 817,000 | 817,000 | $ | 1.68 | |||||||||||
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Granted during 2010
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- | - | - | - | ||||||||||||
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Exercised during the year
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- | - | - | - | ||||||||||||
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Cancelled during the year
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- | - | - | - | ||||||||||||
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Balance, September 30, 2010
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- | 817,000 | 817,000 | $ | 1.68 | |||||||||||
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Number of Shares
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Weighted
Average
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|||||||||||||||
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Employee
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Non-
Employee
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Totals
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Exercise
Price
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Balance, January 1, 2009
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- | 1,117,000 | 1,117,000 | $ | 1.39 | |||||||||||
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Granted during 2009
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- | - | - | - | ||||||||||||
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Exercised during the period
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- | - | - | - | ||||||||||||
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Cancelled during the period
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- | (300,000 | ) | (300,000 | ) | 0.35 | ||||||||||
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Balance, September 30, 2009
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- | 817,000 | 817,000 | $ | 1.68 | |||||||||||
There were no stock options granted during the nine months ended September 30, 2010 and 2009. Of the stock options currently outstanding, 785,000 options are vested and exercisable at September 30, 2010 at exercise prices ranging from $0.36 to $2.00. The weighted average exercise price of these options was $1.73. These options expire at dates ranging between November 8, 2010 and September 28, 2011. The aggregate intrinsic value for options outstanding and exercisable at September 30, 2010 was immaterial.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 1 - Summary of significant accounting policies (continued)
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.
Note 2 - License and reconveyance agreements
Effective April 1, 2000, the Company entered into a License and Reconveyance Agreement with WSL and RJML. These agreements are royalty-free. WSL and RJML owned or had rights in certain intellectual properties that were transferred or assigned to ICTV during 2003. Accordingly, WSL and RJML granted all production rights, proprietary rights, inventory, development rights, tangible assets, licenses and any assets or rights to the Company. The Company has the right to further develop and enhance the intellectual properties as the Company sees fit.
Note 3 - Commitments and contingencies
Leases
As of September 30, 2010, the Company had one active lease related to the office space in Wayne, Pennsylvania. Total rent expense incurred during the three and nine months ended September 30, 2010 and 2009 totaled $16,542 and $14,248 and $46,127 and $56,536, respectively. The schedule below details the future financial obligations under the remaining lease.
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(Remaining 3 Months)
2010
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2011
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2012
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2013
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2014
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2015
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TOTAL OBLIGATION
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Wayne - Operations Office
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$ | 8,899 | $ | 8,925 | $ | - | $ | - | $ | - | $ | - | $ | 17,824 | ||||||||||||||
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Total Lease Obligations
|
$ | 8,899 | $ | 8,925 | $ | - | $ | - | $ | - | $ | - | $ | 17,824 | ||||||||||||||
Cell RXTM
Cell RX is a skin care product that works through a process called nanotechnology, includes high-quality Vitamin C contained in a powder form. This powder turns to a cream as you rub in onto your face, so your skin can absorb the Vitamin C more effectively, without it oxidizing in its liquid form. In clinical studies, those who used Cell RX saw a 50%-70% reduction in fine lines and wrinkles.
In March of 2010, we chose to terminate our licensing agreement to sell Cell RX, and no longer have plans to distribute the product line.
DermaWandTM
On October 15, 1999, WSL entered into an endorsement agreement with an individual for her appearance in a DermaWand infomercial. On July 11, 2001, the agreement was amended to include a payment for each unit sold internationally, up to a maximum payment for any one calendar quarter. Further, if the infomercial is aired in the United States, then the airing fee will revert back to the same flat rate per calendar quarter. The initial term of the agreement is five years starting October 15, 1999. The agreement automatically and continually renews for successive additional five-year terms unless RJML is in material default and is notified in writing at least thirty days prior to the end of the then current term that the individual intends to terminate the agreement.
The Company assumed any and all responsibilities associated with the agreements noted above on April 1, 2000, pursuant to the license and reconveyance agreement disclosed in Note 2.
On January 5, 2001, WSL entered into an agreement with Omega 5. This agreement was amended July 28, 2010. WSL shall have worldwide nonexclusive rights to manufacture market and distribute DermaWandTM. In consideration of these rights, WSL shall pay a monthly payment for each unit sold of DermaWand depending on various scenarios as defined in the agreement. The agreement is silent as to its duration.
During 2007, the Company entered into an exclusive license agreement with Omega 5 wherein ICTV was assigned all of the trademarks and all of the patents and pending patents relating to the DermaWandTM and was granted exclusive license with respect to the commercial rights to the DermaWandTM. The geographical scope of the license granted is the entire world consisting of the United States of America and all of the rest of the world. The license remains exclusive to ICTV provided ICTV pays to Omega 5 a minimum annual payment of $250,000 in the initial 18 month term of the agreement and in each succeeding one-year period. If the Company fails to meet the minimum requirements as outlined in the agreement, it may be forced to assign the trademarks and patents back to Omega 5. After the initial term, the exclusive license granted shall renew automatically for a three year period, and thereafter automatically at three-year intervals.
The amount of expenses incurred under the agreement with Omega 5 for sales of the DermaWandTM were approximately $104,000 and $50,000 and $311,000 and $273,000 for the three and nine month periods ended September 30, 2010 and 2009 respectively.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 3 - Commitments and contingencies (continued)
Other matters
Product Liability Insurance
For certain products, the Company was (and is) listed as an additional insured party under the product manufacturers’ insurance policy. The current policy has a scheduled expiration of April 20, 2011.
At present, management is not aware of any claims against the Company for any products sold.
Note 4 – Severance payable
In September 2010 the Company entered into a severance agreement with a former consultant. Under the severance agreement, the consultant will be paid $270,000 over a 27 month periods increments of $10,000 per month beginning in September 2010 and continuing through November 2012. The Company recorded the $270,000 payment as a General and Administrative expense in the three months ended September 30, 2010. The Severance Payable balance at September 30, 2010 is $260,000 of which $120,000 is current and $140,000 is long-term.
Note 5 - Related party transactions
The Company has received short-term advances from a shareholder. These advances amounted to approximately zero and $3,000 during the nine months ended September 30, 2010 and 2009, respectively. The Company has made repayments which amounted to approximately $1,000 and $5,000 during the nine months ended September 30, 2010 and 2009, respectively. These advances are non-interest bearing and without specific terms of repayment. These advances are included in accounts payable – related parties, on the accompanying consolidated balance sheets.
The Company has a note payable to a shareholder in the amount of $590,723. This loan is interest-free and has no specific terms of repayment.
Note 6 - Capital transactions
During the nine months ended September 30, 2010 and 2009, the Company had no capital transactions.
The 2007 stock purchase agreement for the private placement stock at $2.20 per share included an anti-dilution clause that states if the Company issues, sells, or otherwise distributes any shares, or any other securities convertible into shares, other than pursuant to a stock split, stock dividend or consolidation of its outstanding shares into a smaller number of shares, for a consideration per share less than $2.20 per share, then effective upon such share distribution, the Company will issue to each investor additional shares in an amount equal to the purchase price, divided by the consideration per share received by the Company in the share distribution, less the number of shares previously issued to the investor in the transaction. There was no capital transactions in the nine month period ended September 30, 2010 and 2009 that triggered this clause.
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 7 - Basic and diluted loss per share
ASC 260, “Earnings Per Share” requires presentation of basic earnings per share and diluted earnings per share.
The computation of basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives the effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on net loss.
The computations for basic and fully diluted loss per share are as follows:
|
For the 3-month ended September 30, 2010:
|
Loss
(Numerator)
|
Shares (Denominator)
|
Per Share
Amount
|
|||||||||
|
Basic and diluted loss per share
|
||||||||||||
|
Loss to common shareholders
|
$ | (194,686 | ) | 14,505,912 | $ | (0.01 | ) | |||||
|
For the 3-month ended September 30, 2009:
|
Loss
(Numerator)
|
Shares (Denominator)
|
Per Share
Amount
|
|||||||||
|
Basic and diluted loss per share
|
||||||||||||
|
Loss to common shareholders
|
$ | (137,209 | ) | 14,505,912 | $ | (0.01 | ) | |||||
|
For the 9-month ended September 30, 2010:
|
Loss
(Numerator)
|
Shares (Denominator)
|
Per Share
Amount
|
|||||||||
|
Basic and diluted loss per share
|
||||||||||||
|
Loss to common shareholders
|
$ | (587,115 | ) | 14,505,912 | $ | (0.04 | ) | |||||
|
For the 9-month ended September 30, 2009:
|
Loss
(Numerator)
|
Shares (Denominator)
|
Per Share
Amount
|
|||||||||
|
Basic and diluted loss per share
|
||||||||||||
|
Loss to common shareholders
|
$ | (158,482 | ) | 14,505,912 | $ | (0.01 | ) | |||||
INTERNATIONAL COMMERCIALTELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 8 - Segment reporting
The Company operates in one industry segment and is engaged in the selling of various consumer products primarily through direct marketing infomercials and televised home shopping. The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is operating income (loss) by geographic area. Operating expenses are primarily prorated based on the relationship between domestic and international sales.
Information with respect to the Company’s operating income/(loss) by geographic area is as follows:
|
For the three months ended September 30, 2010
|
For the three months ended September 30, 2009
|
|||||||||||||||||||||||
|
Domestic
|
International
|
Totals
|
Domestic
|
International
|
Totals
|
|||||||||||||||||||
|
NET SALES
|
$ | 495,819 | $ | 385,640 | $ | 881,459 | $ | 419,591 | $ | 324,657 | $ | 744,248 | ||||||||||||
|
COST OF SALES
|
187,808 | 117,253 | 305,061 | 304,346 | 107,564 | 411,910 | ||||||||||||||||||
|
Gross profit
|
308,011 | 268,387 | 576,398 | 115,245 | 217,093 | 332,338 | ||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
General and administrative
|
670,126 | 14,068 | 684,194 | 427,128 | 14,911 | 442,039 | ||||||||||||||||||
|
Selling and marketing
|
77,563 | 9,428 | 86,991 | 25,162 | 2,454 | 27,616 | ||||||||||||||||||
|
Total operating expense
|
747,689 | 23,496 | 771,185 | 452,290 | 17,365 | 469,655 | ||||||||||||||||||
|
Operating income (loss)
|
$ | (439,678 | ) | $ | 244,891 | $ | (194,787 | ) | $ | (337,045 | ) | $ | 199,728 | $ | (137,317 | ) | ||||||||
|
For the nine months ended September 30, 2010
|
For the nine months ended September 30, 2009
|
|||||||||||||||||||||||
|
Domestic
|
International
|
Totals
|
Domestic
|
International
|
Totals
|
|||||||||||||||||||
|
NET SALES
|
$ | 1,589,103 | $ | 1,514,721 | $ | 3,103,824 | $ | 4,084,755 | $ | 753,667 | $ | 4,838,422 | ||||||||||||
|
COST OF SALES
|
1,015,577 | 594,083 | 1,609,660 | 1,960,704 | 318,149 | 2,278,853 | ||||||||||||||||||
|
Gross profit
|
573,526 | 920,638 | 1,494,164 | 2,124,051 | 435,518 | 2,559,569 | ||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
General and administrative
|
1,702,343 | 44,969 | 1,747,312 | 1,468,441 | 51,021 | 1,519,462 | ||||||||||||||||||
|
Selling and marketing
|
316,928 | 17,398 | 334,326 | 1,190,578 | 8,474 | 1,199,052 | ||||||||||||||||||
|
Total operating expense
|
2,019,271 | 62,367 | 2,081,638 | 2,659,019 | 59,495 | 2,718,514 | ||||||||||||||||||
|
Operating income (loss)
|
$ | (1,445,745 | ) | $ | 858,271 | $ | (587,474 | ) | $ | (534,968 | ) | $ | 376,023 | $ | (158,945 | ) | ||||||||
INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010 and September 30, 2009
(Unaudited)
Note 9 - Income taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has provided a full valuation allowance on the net deferred tax asset because of uncertainty regarding its realization. This asset primarily consists of net operating losses. For the most part, the Company has experienced operating losses since inception. Therefore the Company has accumulated approximately $4,000,000 of net operating loss carryforwards for federal and state purposes, which expire twenty years from the time of incurrence for federal purposes. Expiration for the state net operating carryforwards may vary based on different state rules.
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 zero interest and penalties for the nine month periods ended September 30, 2010 and 2009, respectively. At September 30, 2010 and December 31, 2009, the Company has approximately $250,000 accrued for various tax penalties.
The Company has not filed income tax returns since inception; therefore, the statute for all years remains open and any of these years could potentially be audited.
|
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.
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.
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.
Results of Operations
The following discussion compares operations for the three and nine months ended September 30, 2010 with the three and nine months ended September 30, 2009.
Revenues
Our revenues increased to approximately $881,000 for the three months ended September 30, 2010, up from approximately $744,000 for the three months ended September 30, 2009, an 18% increase. The reason for the increase in sales for the three month period is the timing of televised shopping airings and international sales orders, which were both higher during the three months ended September 30, 2010 compared to September 30, 2009. For the three months ended September 30, 2009, the Company did not have any Direct Response Television (DRTV) revenue from sales of DermaWand due to the Allstar Marketing Group (“Allstar”) agreement in which Allstar received exclusive distribution rights to DermaWandTM for all U.S. distribution channels with the exception of televised home shopping and beauty salons. As a result of the Allstar agreement, the Company terminated its DRTV campaign for the DermaWand in the U.S. as of March 2009. In March 2010, the Company terminated the Allstar agreement due to the decrease in Allstar’s sales.
Our revenues decreased to approximately $3,104,000 for the nine months ended September 30, 2010, down from approximately $4,838,000 for the nine months ended September 30, 2009, a 36% decrease. The reason for the decrease in revenue during the nine month period relates to the agreement the Company entered into with Allstar described above. Although the Company terminated the Allstar agreement in March 2010, the Company did not resume its DRTV infomercials as of September 30, 2010, which resulted in reduction of revenues.
Gross Margin
Gross margin percentage was approximately 65% and 45% during the three months ended September 30, 2010 and 2009, respectively. The reason for the increase in gross margin is due to two main factors. First, domestic sales increased in the three months ended September 30, 2010 as compared to the same period in 2009. These domestic sales come primarily from televised shopping and web based sales, both of which generate higher selling prices than our international business. The second factor which contributed to the increase in gross margin during the period was a change in the product mix of items sold.
Gross margin percentage was approximately 48% and 53% during the nine months ended September 30, 2010 and 2009, respectively. The major reason for the decrease for the nine months ended September 30, 2010 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 of the DermaWand on the Home Shopping Network has decreased over the last year from a high of $89.95 to a low of $49.95. During the nine months ended September 30, 2010, we generated gross margins of approximately $1,494,000, and in the nine months ended September 30, 2009, we generated gross margins of $2,560,000.
Operating Expenses
Total operating expenses increased during the three months ended September 30, 2010 to approximately $771,000, up from approximately $470,000 during the three months ended September 30, 2009, an increase of approximately $301,000 or 64%. The primary reason for the 64% increase in overall operating expenses during the period relates to a severance expense incurred by the Company totaling $272,000. The majority of this expense related to an agreement entered into between the Company and a former consultant. Under the severance agreement, the consultant will be paid $270,000 over a 27 month period in increments of $10,000 per month beginning in September 2010.
In addition to the increase in severance expense, other operating expense increases for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 were; a $37,000 increase in fulfillment costs, a $14,000 increase in accounting expense, and a $23,000 increase in legal expenses. Increases in these expenses were offset by individually insignificant decreases in certain other operating expenses.
Total operating expenses decreased during the nine months ended September 30, 2010 to approximately $2,082,000, down from approximately $2,719,000 during the nine months ended September 30, 2009, a decrease of approximately $637,000 or 23%. The primary reason for the 23% decrease in overall operating expenses relates to the fact that the Company was still running its DRTV media campaign for DermaWand in the first quarter of 2009 prior to the licensing agreement with Allstar. The media expense incurred during the nine months ended September 30, 2009 were approximately $621,000 as compared to approximately $11,000 for the same period in 2010. The DRTV campaign ceased in March of 2009 and has not resumed as of September 30, 2010, despite the termination of the Allstar agreement.
Net Loss
The Company incurred a net loss of approximately $195,000 and $587,000 for the three and nine months ended September 30, 2010, compared with a net loss of approximately $137,000 and $158,000 for the three and nine months ended September 30, 2009. Changes in the net loss for the three and nine month periods ended were driven by factors that impacted our revenues and expenses described above.
Liquidity and Capital Resources
At September 30, 2010, we had approximately $130,000 in cash on the hand, compared to approximately $268,000 at September 30, 2009. Of the cash on hand, approximately $2,000 was restricted at September 30, 2010. We generated negative cash flows from operating activities of approximately $245,000 in the nine months ended September 30, 2010 compared to a negative cash flow from operating activities of approximately $121,000 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 $587,000, an increase in accounts receivable of approximately $26,000, a decrease in inventory of approximately $446,000, an increase in prepaid expense and deposits of approximately $6,000, an increase in accounts payable of approximately $6,000, a decrease in deferred revenue of approximately $89,000, and depreciation expense of approximately $11,000. The primary reason for the decrease in cash on hand is due to the use of cash in operating activities.
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, we will receive approximately $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 September 30, 2010 of approximately $245,000, and the Company, for the most part, has experienced recurring losses from operations. As of September 30, 2010, the Company had a negative working capital of approximately $776,000, compared to a negative working capital of approximately $275,000 at September 30, 2009, and an accumulated deficit of approximately $6,001,000 as of September 30, 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
There have been no changes to our critical accounting policies and estimates in the nine months ended September 30, 2010. Our critical accounting policies and estimates are discussed under “Critical Accounting Policies and Estimates” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2009, as filed with the Commission as an exhibit to Form 10-K on June 22, 2010.
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.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time frames specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and its Chief Financial Officer, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) and 15d-15(e).
Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
During the audits of our financial statements for the years ended December 31, 2009 and 2008, our independent registered public accounting firm Amper, Politziner & Mattia, LLP (AP&M), informed us and our Board of Directors that they had discovered conditions which they deemed to be material weaknesses in our internal controls (as defined by standards established by the Public Company Accounting Oversight Board) which are disclosed in our Form 10-K for the year ended December 31, 2009.
We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2010 (the “Evaluation Date”). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, and a conclusion on this evaluation. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, management concluded that, as of the end of such period, our disclosure controls and procedures were not effective at the reasonable assurance level because of the material weaknesses in internal control over financial reporting noted above, which continued to be material weaknesses during the quarter ended September 30, 2010. The material weaknesses exist mainly due to the fact that we are a small company with limited accounting personnel. The Company is currently working to remediate these material weaknesses.
There were no changes in our internal control over financial reporting for the quarter ended September 30, 2010 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
PART II – OTHER INFORMATION
|
ITEM1.
|
LEGAL PROCEEDINGS
|
We announced in a report on Form 8-K filed on October 31, 2008, that we had discovered apparent errors in our recognition of revenues beginning with the third quarter of 2007 and that, as a result, we would be restating our financial statements for the last two quarters of 2007 and the first two quarters of 2008. During the restatement process, that report was amended to include the second quarter of 2007. The restatement of our financial statements has been completed and we have been current in our financial reporting since June 30, 2010.
As a result of our announcement, the Securities and Exchange Commission conducted an informal inquiry to determine if there had been violations of federal securities laws. We provided our full cooperation to the SEC. The SEC on August 9, 2010, charged the Company with filing inaccurate financial statements as a result of improper revenue recognition during the period from the second quarter of 2007 through the second quarter of 2008. We have settled all charges by consenting to an injunction against future violations of the SEC requirements to file accurate financial statements and to maintain controls necessary to ensure accuracy. No monetary penalties were sought, and no fraud or similar charges were brought against the Company or any of our present officers or directors.
|
ITEM 1A.
|
RISK FACTORS
|
Not required for smaller reporting company
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES
|
None
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
None
|
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
ITEM 5.
|
OTHER INFORMATION
|
None
|
ITEM 6.
|
EXHIBITS
|
|
Exhibit
|
|
|
Number
|
Description
|
|
2 *
|
Share and Option Purchase Agreement
|
|
3.1 *
|
Amended and Restated Articles of Incorporation (
|
|
3.2 *
|
Amended and Restated Bylaws
|
|
3.3 *
|
First Amendment to Amended and Restated Bylaws
|
|
10.1 *
|
2001 Stock Option Plan
|
|
10.2 *
|
Promissory Note by Moran Dome Exploration Inc. payable to the Trustees of the Better Blocks Trust, in the amount of $590,723.27
|
|
10.3 *
|
Extension of Promissory Note dated August 23, 2001, by and between the Trustees of the Better Blocks Trust and International Commercial Television Inc.
|
|
10.4 **
|
Second Extension of Promissory Note dated March 25, 2002, by and between the Trustees of the Better Blocks Trust and International Commercial Television Inc.
|
|
10.5 ***
|
Assignment of Trademark by Dimensional Marketing Concepts, Inc.
|
|
31.1 ****
|
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
|
|
31.2 ****
|
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer
|
|
32 ****
|
Section 1350 Certifications
|
* Incorporated by reference from Form SB-2 filed with the Securities and Exchange Commission on October 3, 2001.
** Incorporated by reference from Post-Effective Amendment No. 1 to Form SB-2 filed with the Securities and Exchange Commission on April 12, 2002.
*** Incorporated by reference from Amendment No. 1 to Form SB-2 filed with the Securities and Exchange Commission on December 24, 2001.
**** Filed herewith
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
INTERNATIONAL COMMERCIAL TELEVISION INC.
|
|
|
Registrant
|
|
|
Date: November 12, 2010
|
By: /s/ Kelvin Claney
|
|
Name: Kelvin Claney
|
|
|
Title: Chief Executive Officer
|
|
|
Date: November 12, 2010
|
By: /s/ Richard Ransom
|
|
Name: Richard Ransom
|
|
|
Title: Chief Financial Officer
|
Page 25