UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
Commission File Number 0-49638
ICTV BRANDS INC.
(Name of Registrant as Specified in Its Charter)
Nevada | 76-0621102 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
489 Devon Park Dr. Ste 315 Wayne, PA 19087
(Address of Principal Executive Offices) (Zip Code)
(484) 598-2300
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE, $0.001
Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes . No X .
Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes . No X .
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 .
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X . No .
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. X .
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 definition of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12B-2 of the Exchange Act.
Large accelerated filer | . | Accelerated filer | . |
Non-accelerated filer | . (Do not check if a smaller reporting company) | Smaller reporting company | X . |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of the Securities Act).
Yes . No X .
The aggregate market value of the voting common stock held by non-affiliates on June 30, 2014 (the last business day of our most recently completed second fiscal quarter) was $8,542,461 using the closing price of $0.58 on June 30, 2014.
As of March 19, 2015, the registrant had issued and outstanding 24,144,399 shares of common stock.
Documents Incorporated by Reference: None.
ICTV BRANDS INC.
Index to
Annual Report on Form 10- K
For the Year Ended December 31, 2014
Part I |
| Page |
Item 1. | Description of Business | 3 |
Item 1A. | Risk Factors | 10 |
Item 1B. | Unresolved Staff Comments | 12 |
Item 2. | Properties | 12 |
Item 3. | Legal Proceedings | 12 |
Item 4. | Mine Safety Disclosures | 12 |
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Part II |
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Item 5. | Market for Common Equity, Related Stockholder Matters and Issuer's Purchases of Equity Securities | 13 |
Item 6. | Selected Financial Data | 15 |
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operation | 15 |
Item 7A. | Market Risk Disclosures | 19 |
Item 8 | Financial Statements | 19 |
Item 9 | Changes in and Disagreements with Accountants on Auditing and Financial Disclosure | 19 |
Item 9A | Controls and Procedures | 19 |
Item 9B | Other Information | 20 |
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Part III |
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Item 10. | Directors, Executive Officers and Corporate Governance | 21 |
Item 11. | Executive Compensation | 22 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 23 |
Item 13. | Certain Relationships and Related Transactions and Director Independence | 24 |
Item 14. | Principal Accountant Fees and Services | 24 |
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Part IV |
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Item 15. | Exhibits and Financial Statement Schedules | 25 |
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Part I
FORWARD-LOOKING STATEMENTS
The matters discussed in this Form 10- K may 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 ICTV Brands Inc. ("ICTV"). You should not place undue reliance on forward-looking statements. Forward-looking statements involve risks and uncertainties. The actual results that ICTV 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 ICTV assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by ICTV in our reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect its business.
ITEM 1. DESCRIPTION OF BUSINESS
Overview
ICTV Brands Inc. ("ICTV" or the "Company" or "we" or "us") sells various consumer products via infomercials and through other channels. We produce long-form infomercials and short-form advertising spots and sell our proprietary brands of advertised products directly to our viewing audience. In addition, we sell products via televised shopping networks, the internet, and retail distribution channels.
The goal of our business plan is to create brand awareness through our infomercial and spot advertising, and in doing so, create a customer base that we can cross-sell our brands to and will buy our consumable products on a repetitive basis. In addition, we plan to create brand awareness so that these brands and their families of products may be sold in dedicated shelf-space areas by product category in traditional retail stores. We acquire the rights to our products that we market via licensing agreements, acquisition and in-house development. We currently sell these products domestically and internationally.
A short-form spot is a 30-second, 1-minute, 2-minute, 3-minute or 5-minute commercial, while a long-form infomercial is a 28 1/2-minute direct response commercial. Short-form spots generally feature products that can be explained or demonstrated in two minutes or less, with a selling price of $29 or less. Short-form spots of three to five minutes are typically cut down versions of well branded long-form infomercials. Long-form infomercials generally feature products with a selling price of $30 - $300 and are usually unique, with more benefits and features, and thus require a lengthier demonstration and explanation.
For the fiscal years ended December 31, 2014 and 2013, 78% and 89%, respectively, of our product sales were generated from products sold through our direct response television consumer division.
Our international third party distributor division represented 22% and 11% of our sales volume for the years ended December 31, 2014 and 2013, respectively. International revenues resulted primarily from the sale of products to international distributors who in turn marketed our products to their respective markets via direct response and retail marketing channels.
We are a Nevada corporation, and our headquarters are located at 489 Devon Park Drive, Suite 315, Wayne, PA 19087.
The ICTV Brands Strategy
Our goal is to create several brands of products and to introduce our brands of products to the market by airing infomercials featuring one or a few anchor products for each particular brand. As our brands achieve recognition through the infomercial of the anchor product(s), we plan to sell the anchor product(s) and related families of products under those brands through multiple channels, including traditional retail stores. Our objective is to have our brands of proprietary products sold in retail stores in dedicated shelf space areas by product category. We are currently developing the infrastructure we will need to develop our brands and to take families of products under those brands to the traditional retail environment.
Our Proposed Brands and Current Products
We continually seek to develop, acquire or obtain the license to consumer products that we believe can be distributed and marketed profitably, especially in the retail environment. Our success depends, in part, on our ability to market products that appeal to viewers and that can be easily associated with a particular brand. In order to succeed, we are also aware of the need to identify new products to supplement and possibly replace our existing product lines as they mature through product life cycles.
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Our product development and marketing efforts are the backbone of our Company. We put forth extensive effort to research and develop new products that are unique and that will be suitable both for direct response marketing in infomercials and for sale in traditional retail stores. Our development of new product ideas stems from a variety of sources, including inventors, trade shows, strategic alliances with manufacturing and consumer product companies, industry conferences, and the continuous review of new developments within targeted brand and product categories. In addition, we also receive unsolicited new product proposals from independent parties.
The Company also internally generates ideas for new products that it wishes to develop. If the Company has an idea for a product, it will present prototype specifications to one of its manufacturers to develop a prototype, and the Company will then evaluate the feasibility of selling the product through an infomercial.
When we evaluate a product for its suitability for an infomercial, we consider how appropriate it is for television demonstration and how consumers will perceive the value of the product. Part of our selection criteria for new products are as follows:
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Products must be unique, demonstrable, have mass-market appeal and generally be unavailable elsewhere in the marketplace. Benefits must be capable of being demonstrated visually, preferably with support from customer testimonials;
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Must support a minimum 5 times mark-up from landed cost while still representing good perceived value to the consumer;
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Must have a unique "hook" to be able to catch the attention of the viewer - infomercials simply portray the consumer's problem and the solution provided by the product and usually present a significant before and after state - the bigger the problem solved by the product, the greater the sales potential;
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Easily and effectively promoted through sustained television branding;
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Supports a margin sufficiently high enough to maintain profitability to us when sold through conventional retailers;
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Has high volume sales potential, to ensure retailer interest;
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Exhibits potential for "back-end" sales either through traditional retail or by company-run "auto ship" continuity programs - the more related products that are available for upsell/back-end campaigns, the wider the advantage in the infomercial marketplace;
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Should have the potential to be turned into a long-term retail item – a product can drive retail sales by capitalizing on awareness advertising that is created with a successful infomercial; and
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Must be relatively easy to ship.
Our primary product categories are health and beauty, diet and fitness, and leisure and toy products. These categories have performed well in Direct Response Television ("DRTV") campaigns and they move smoothly to retail sales channels. Retail buyers seek out new and better products in these categories, especially branded products that have gained a high profile through television.
The following is a list of products we own or have certain rights to and that we are currently marketing or plan to market over the next twelve months.
Health and Beauty Products
The Health and Beauty category is a strong and proven DRTV category as products in this category demonstrate well on television with before and after clinicals, possess high profit margins, and are aimed at the highly motivated "Fountain of Youth" markets.
DermaWand TM
We have a worldwide exclusive license to sell the DermaWand TM , a skin care appliance that reduces fine lines and wrinkles and improves overall skin appearance. The price consumers pay for DermaWand TM varies from country to country, however, it generally ranges from $90-$120. The DermaWand TM is sold and marketed with DermaVital TM skin care products which are offered with a monthly continuity program. The Company sold approximately 444,000 and 407,000 DermaWand TM units worldwide during 2014 and 2013, respectively. During the year ended December 31, 2014, the Company sold approximately 129,000 and 315,000 units to DRTV consumers and international third party distributors, compared to 206,000 and 201,000, respectively during the year ended December 31, 2013. Sales to third party distributors are made at a wholesale price.
During 2014 and 2013, the DermaWand TM infomercial aired on both national cable stations and throughout a variety of major and minor broadcast markets in the United States. The Company recognized $22,764,000 and $33,512,000 of revenue related to the DermaWand TM infomercial, including DermaVital TM sales, during 2014 and 2013, respectively. The Company plans to continue to run the current show in 2015, as well as create new short-form infomercials. In addition, the Company sells the DermaWand TM to third party international distributors in over 40 countries. The Company recognized approximately $7,192,000 and $4,703,000 of international third party distributor revenue during 2014 and 2013, respectively.
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DermaVital ®
DermaVital ® is a brand of cosmetics with a wide variety of products. The product line consists of several moisturizers that allow water to penetrate the skin's surface, thus re-hydrating the deeper layers. Medical experts, including dermatologists, agree that dehydration or lack of water is a major cause of skin problems. In addition to moisturizers, the DermaVital ® line has facial cleansers, microdermabrasion treatments, eye cream, lip cream, and hand cream. The Company is currently working on developing new products to market under the DermaVital ® name.
DermaVital ® has been offered to DermaWand buyers through U.S. DRTV and Internet distribution channels as a monthly continuity program. Customers are enrolled month to month and can cancel at any time. The Company recognized $3,769,000 and $4,236,000 of DermaVital ® revenue during 2014 and 2013, respectively. The Company is focused on expanding the number of customers that enroll in continuity, increasing the average order value of our continuity shipments, and increasing the average number of cycles that a customer stays in a continuity program.
CoralActives ®
In March 2014, the Company entered into a licensing agreement with Ermis Labs, LLC, in which ICTV obtained the exclusive worldwide rights to manufacture and distribute their line of CoralActives ® acne treatment and skin cleansing products. As part of the agreement, the Company purchased approximately $150,000 in inventory. The Coral Actives product line consists of a cleanser & serum 2-step acne treatment, retinol exfoliating cleanser, penetrating acne serum gel, moisturizer and cleansing bar. The Company had sales of $45,000 in the year ended December 31, 2014. The Company incurred clinical trial costs of approximately $14,000 and production costs of approximately $26,000 in the year ended December 31, 2014. ICTV launched a radio campaign with former Olympic Gold Medalist Shawn Johnson in January 2015. Additionally, ICTV plans include further development and build-out of a continuity program, production of a new direct response television marketing infomercial and expansion of distribution channels, including retail in 2015.
Derma Brilliance TM
In April 2013, the Company entered into a licensing agreement with DermaNew, Inc., in which the Company obtained the exclusive worldwide rights to manufacture and distribute their latest patented anti-aging and re-surfacing scientific skincare system, Derma Brilliance TM , a patented anti-aging, resurfacing and skin polishing system. As part of the agreement, the Company paid a non-refundable advance royalty of $25,000 in April 2013 to DermaNew and agreed to share in the cost of a new clinical trial. The Company incurred Derma Brilliance TM clinical trial costs of approximately $34,000 in the year ended December 31, 2014. In addition, the Company completed a new long form infomercial and incurred production costs of approximately $265,000 in the year ended December 31, 2014. The Company performed a limited media test in December 2014 which generated sales of approximately $10,000. Derma Brilliance TM is scheduled for a live home shopping airing date on the Home Shopping Network ("HSN") in April 2015 and the Company expects to continue to market the product through both its long form infomercial and live home shopping throughout 2015.
Elastin-rp ®
In July 2013, ICTV acquired the exclusive worldwide rights to Elastin-rp ® via a licensing agreement with BioActive Skin Technologies. Elastin-rp ® is a branded system of cosmetic formulations designed to help improve the elasticity of the skin, thereby diminishing the appearance of fine lines and wrinkles. Elastin-rp ® addresses the anti-aging market and is delivered using a unique body heat-activated system which enables the BioLastin Complex to penetrate quickly to help stimulate your skin's natural ability to replenish elastin and collagen. ICTV spent several months re-editing an infomercial it acquired the rights to in the licensing agreement before running media in January 2014. The Company incurred production costs of approximately $60,000 in the year ended December 31, 2014. The Company ran media until April 2014 and experienced delays in inventory production, and as such, did not air further media in 2014. The Company had sales of approximately $72,000 in the year ended December 31, 2014. The Company plans to continue to market the product and resume the campaign throughout 2015.
Jidue TM