As filed with the Securities and Exchange Commission on April 14, 2017

 

Registration No. 333-

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM S-1

 

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

 

ICTV Brands Inc.

(Exact name of registrant as specified in its charter)

Nevada 3845 76-0621102
(State or other jurisdiction of incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer
Identification No.)

 

489 Devon Park Drive, Suite 306

Wayne, PA 19087

(484) 598-2300

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

Richard Ransom, President

489 Devon Park Drive, Suite 306

Wayne, PA 19087

(484) 598-2300

(Names, addresses and telephone numbers of agents for service)

 

 

 

Copies to:

Louis A. Bevilacqua, Esq.

BEVILACQUA PLLC

1629 K Street, NW, Suite 300

Washington, DC 20006

(202) 869-0888

 

Approximate date of commencement of proposed sale to public: From time to time after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

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.

 

  Large accelerated filer [  ] Accelerated filer [  ]  
  Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered   Amount to be registered (1)     Proposed maximum offering price per share (2)     Proposed maximum aggregate offering price     Amount of registration fee (3)  
Common Stock, $0.001 par value (4)     20,588,243     $ 0.57     $ 11,735,298.51     $ 1,360.12  

 

(1) Pursuant to Rule 416(b) under the Securities Act of 1933, as amended, or the Securities Act, the shares of common stock offered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of any stock split, dividend or other distribution, recapitalization or similar event, or any price adjustment as a result of such stock splits, reverse stock splits or similar events with respect to any of the common stock offered hereby.
(2) Estimated solely for the purpose of calculating the registration fee and based upon the average high and low sale price of the registrant’s common stock as reported on the OTCQX Marketplace on April 12, 2017, in accordance with Rule 457(c) under the Securities Act.
(3) Pursuant to Rule 457(o) under the Securities Act, the registration fee has been calculated on the basis of the maximum aggregate offering price.
(4) The shares of common stock will be offered under the secondary offering prospectus relating to resales by the selling stockholders of the shares of common stock issued to such selling stockholders. The shares were issued to the selling stockholders in the January 2017 in a private placement.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

     
 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS

 

Subject to completion, dated April 14, 2017

 

 

ICTV Brands Inc.

 

20,588,243 Shares of Common Stock

 

This prospectus relates to the resale by the selling stockholders identified in this prospectus of up to 20,588,243 shares of our common stock, par value $0.001 per share, issued to various stockholders in an exempt private placement completed on January 23, 2017.

 

All the shares of common stock offered by this prospectus are being sold by the selling stockholders. It is anticipated that the selling stockholders will sell the shares of common stock from time to time in one or more transactions, in negotiated transactions or otherwise, at prevailing market prices or at prices otherwise negotiated. For additional information on the possible methods of sale that may be used by the selling stockholders, see “Plan of Distribution” which begins on page 63.

 

We will not receive any of the proceeds from the sale of these shares of common stock by the selling stockholders. All expenses of registration incurred in connection with this offering are being borne by us; however, we are not responsible for any broker or similar commissions incurred by any selling stockholder.

 

Our common stock is traded in the OTCQX marketplace under the symbol “ICTV” and on the Canadian Securities Exchange under the symbol “ITV.”

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE “RISK FACTORS” BEGINNING ON PAGE 6.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is April 14, 2017.

 

     
 

 

TABLE OF CONTENTS

 

SUMMARY 1
RISK FACTORS 6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 18
USE OF PROCEEDS 19
DIVIDEND AND DISTRIBUTION POLICY 19
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 19
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION 20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 30
OUR BUSINESS 38
DESCRIPTION OF PROPERTY 51
LEGAL PROCEEDINGS 51
MANAGEMENT 52
EXECUTIVE COMPENSATION 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 57
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 59
SELLING STOCKHOLDERS 60
DESCRIPTION OF COMMON STOCK 61
PLAN OF DISTRIBUTION 63
LEGAL MATTERS 65
INTERESTS OF NAMED EXPERTS AND COUNSEL 66
EXPERTS 66
WHERE YOU CAN FIND MORE INFORMATION 66
INDEX TO FINANCIAL STATEMENTS F-1

 

Please read this prospectus carefully. It describes our business, our financial condition and results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision.

 

WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SHARES IN ANY STATE OR OTHER JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.

 

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SUMMARY

 

The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements, the notes thereto and matters set forth under “Risk Factors” on page 6. References in this prospectus to “ICTV Brands,” “we,” “our,” and “us” refer to ICTV Brands Inc.

 

The Company

 

We develop, market and sell our products through a multi-channel distribution strategy, including direct response television, or DRTV, digital marketing campaigns, live home shopping, traditional retail and e-commerce market places, and our international third party distributor network. We offer primarily health, beauty and wellness products as well as various consumer products, including:

 

  DermaWand TM , a skin care device that reduces the appearance of fine lines and wrinkles, and helps improve skin tone and texture;  
       
  DermaVital®, a professional quality skin care line that effects superior hydration;  
       
  CoralActives® brand of acne treatment and skin cleansing products;  
       
  Derma Brilliance®, a skin care resurfacing device that helps reduce visible signs of aging;  
       
  Jidue TM , a facial massager device which helps alleviate stress; and  
       
  Good Planet Super Solution TM , a multi-use cleaning agent.  

 

We acquire the rights to the products that we market primarily via licensing agreements, acquisition and in-house development and sell both domestically and internationally. We are presently exploring other devices and consumable product lines currently under licensing agreements.

 

As described below under “Recent Transactions,” we recently acquired several new brands, related intellectual property, inventory and other assets and have begun (or, will shortly begin) marketing and selling the following new products:

 

  no!no!® Hair, a home use hair removal device;  
       
  no!no!® Skin, a home use device that uses light and heat to calm inflammation and kill bacteria in pores to treat acne;  
       
  no!no!® Face Trainer, a home use mask that supports a series of facial exercises;  
       
  no!no!® Glow, a home use device that uses light and heat energy to treat skin;  
       
  Made Ya Look, a heated eyelash curler;  
       
  no!no!® Smooth Skin Care, an array of skin care products developed to work with the devices to improve the treated skin;  
       
  Kryobak®, a home use device for the treatment of non-specific lower back pain;  
       
  ClearTouch®, a home use device for the safe and efficient treatment of nail fungus; and  
       
  Ermis Labs acne treatment cleansing bars.  
       

 

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Competitive Strengths

 

We believe that our competitive strengths include the decades of management experience and strong industry relationships of our management team; our ability to associate our products with brands and then focus on traditional retail environments for the sales of those products; and our strong intellectual property portfolio.

 

Our Growth Strategy


We will implement the following strategic plans to take advantage of industry opportunities and our competitive strengths:

 

  Capitalize on our multi-channel marketing approach;  
       
  Develop, acquire or obtain the license to consumer products that can be distributed and marketed profitably through a distribution network;  
       
  Research and develop new products that are unique and that will be suitable for direct response marketing;  
       
  Expand our proprietary product categories organically and through acquisitions;  
       
  Create brand awareness and further strengthen our brands through comprehensive marketing efforts;  
       
  Develop complementary products under existing brands;  
       
  Expand retail distribution of products initially marketed through DRTV;  
       
  Realize process; and  
       
  Expand into new international markets.  

 

Risks Related to Our Business

 

Our business is subject to numerous risks, which are described in the section entitled “Risk Factors” immediately following this prospectus summary. Some of these risks include:

 

  Lower than expected infomercial response rates or unsuccessful infomercials may result in a failure to achieve the customer base necessary to become or remain profitable.  
       

 

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  Failure to source new products may inhibit our ability to compete effectively.  
       
  Inability to effectively integrate the business that we acquired from PhotoMedex and its affiliates or additional businesses that we may acquire in the future may negatively affect our financial condition and results of operations.  
       
  Loss of key management may prevent us from implementing our business plan, limit our profitability and decrease the value of your stock.  
       
  Failure to protect our intellectual property rights could negatively affect our operating results.  
       
  The international nature of our business exposes us to certain business risks that could limit the effectiveness of our growth strategy and cause our results of operations to suffer.  
       
  We may encounter difficulties in quality testing and the manufacturing of our products in commercial quantities, which could adversely impact the rate at which we grow.  
       
  Failure to manage and protect our network security and underlying data effectively could harm our operating results.  
       
  We are exposed to risks associated with credit card and payment fraud and with credit card processing, which could cause us to lose revenue.  
       
  Any significant interruptions in the operations of our third-party call centers could cause us to lose sales and disrupt our ability to process orders and deliver our solutions in a timely manner.  
       
  A higher than anticipated level of product returns may adversely affect our business and our customers may misuse certain of our products, and product and other damages imposed on us may exceed our insurance coverage, or we may be subject to claims that are not covered by insurance.  
       
  We may be subject to product liability claims from time to time.  
       
  Our costs could substantially increase if we experience a significant number of warranty claims.  
       
  Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercially distributing and marketing current or upgraded products in the United States, which could severely harm our business.  
       
  We may need to raise additional funds to pursue its growth strategy or continue our operations, and we may be unable to raise capital when needed.  
       

 

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The Offering

 

  Common stock offered: 20,588,243 shares by the selling stockholders.  
       
 

Common stock outstanding

before and after this offering:

52,053,725 shares.  
       
 

Common stock outstanding

after this offering:

52,053,725 shares.  
       
  Use of proceeds: We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders. See Use of Proceeds on page 19.  
       
  Risk Factors:  See “Risk Factors” beginning on page 6 and the other information included in this prospectus for a discussion of some of the factors you should consider before deciding to purchase shares of our common stock.  
       
  Trading market: Our common stock is traded in the OTCQX marketplace under the symbol “ICTV” and on the Canadian Securities Exchange under the symbol “ITV.”  

 
The number of shares of our common stock outstanding after this offering is based on 52,053,725 shares of our common stock outstanding as of March 31, 2017, and excludes:
 

  2,555,002 shares of our common stock issuable upon exercise of outstanding options with a weighted-average exercise price of $0.22 per share under the 2011 Stock Option Plan and 2,135,002 shares of our common stock issuable upon exercise of outstanding options with a weighted average exercise price of $0.36 per share for stock options outside the 2011 Stock Option Plan; and  
       
  2,359,998 shares of our common stock reserved for future grants pursuant to our 2011 Stock Option Plan, as amended.  

 

Recent Transactions

 

PhotoMedex Acquisition

 

On October 4, 2016, we, and our wholly-owned subsidiary ICTV Holdings, entered into an asset purchase agreement, pursuant to which we agreed to acquire substantially all of the assets of PhotoMedex and its subsidiaries, Radiancy, PhotoTherapeutics and Radiancy (Israel). The transaction was completed on January 23, 2017.

 

Ermis Labs Acquisition

 

On October 4, 2016, we, and our wholly-owned subsidiary Ermis Lab, Inc., entered into an asset purchase agreement with LeoGroup Private Debt Facility and Ermis Labs, pursuant to which our subsidiary agreed to acquire substantially all of the assets of Ermis Labs. The transaction was completed on January 23, 2017.

 

 

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Private Placement

 

On October 4, 2016, we entered into a securities purchase agreement with several accredited investors and on January 23, 2017 we sold 8,823,530 shares of common stock to such investors at a price of $0.34 per share, for aggregate gross proceeds of $3,000,000. Thereafter, on February 1, 2017 we completed a second and final closing under the securities purchase agreement in which we sold an additional 11,764,713 shares of our common stock to such investors at a price of $0.34 per share, for aggregate gross proceeds of $4,000,000.

 

We also entered into a registration rights agreement with the investors who participated in the private placement pursuant to which we are required to file this registration statement to register for re-sale the shares of our common stock that we sold in the private placement.

 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Transactions” for more information about the PhotoMedex acquisition, the Ermis Labs acquisition and the private placement.

 

Corporate Information

 

Our principal executive offices are located at 489 Devon Park Drive, Suite 306, Wayne, PA 19087 and our telephone number is (484) 598-2300. We maintain a website at www.ictvbrands.com. Information available on our website is not incorporated by reference in and is not deemed a part of this prospectus.

 

 

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RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information contained or referred to in this prospectus, before making an investment decision with respect to our common stock or our company. If any of the following events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment.

 

If the response rates to our infomercials are lower than we predict, we may not achieve the customer base necessary to become or remain profitable, and the value of your investment may decrease.

 

Our revenue projections assume that a certain percentage of viewers who see our infomercials will purchase our products. If a lower percentage of these viewers purchase our products than we project, we will not achieve the customer base necessary to become or remain profitable, and the value of your investment may decrease.

 

If our infomercials are not successful, we will not be able to recoup significant advance expenditures spent on production and media times, and our business plan may fail.

 

Our business involves several risks inherent in operating a direct response television business. The production of infomercials and purchase of media time for television involves significant advance expenditures. A short-form infomercial generally costs around $35,000-$50,000 to produce, while production costs for a long-form infomercial are generally around $150,000-$200,000. We are dependent on the success of the infomercials we produce and the public’s continued acceptance of infomercials in general. If our infomercials do not generate consumer support and create brand awareness and we cannot recover the initial money we spend on production and media time, we will not be able to recoup the advance expenditures and may go out of business if new products and additional capital are not available.

 

If we do not continue to source new products, our ability to compete will be undermined, and we may be unable to implement our business plan.

 

Our ability to compete in the direct marketing industry and to expand into the traditional retail environment depends on our ability to develop or acquire new innovative products under brands and to complement these products with related families of products under those brands. If we do not source new products as our existing products mature through their product life cycles, or if we do not develop related families of products under our brands, we will not be able to implement our business plan, and the value of your investment may decrease.

 

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A significant portion of our DrmaWand TM sales depend on search engines and other online sources to attract visitors to our websites, and if we are unable to attract these visitors and convert them into customers in a cost-effective manner, our business and financial results may be harmed.

 

With a significant portion of our DermaWand TM sales being derived from e-commerce sites, our sales depend on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner, which depends, in part, on website design, search engines and other online sources for our website traffic. If our television media does not drive a sufficient amount of visits to our websites, if one or more of our competitors outbids us for specific search terms or utilizes search terms which are similar to those purchased by us, or if one or more of the website development companies or other online sources on which we rely for purchased listings, modifies or terminates its relationship with us, our expenses could rise, we could lose customers, traffic to our websites could decrease and our web sales and financial results could be negatively impacted.

 

We generate a significant portion of our direct response television revenue through long form infomercials, and the reduction in availability of such advertising or loss of advertising outlets could seriously harm our business.

 

We generate a significant portion of DermaWand TM sales using long form 30-minute infomercials. If we cannot purchase an adequate amount of advertising time, deliver our advertising in an appropriate and effective manner, and/or reach an acceptable rate of return on our advertising spend, we will continue to receive lower levels of sales leads and ultimately customers, and will generate less revenue, which could have a material impact on our business and our revenues.

 

We may not be able to effectively integrate the business that we acquired from PhotoMedex and its affiliates or additional businesses that we may acquire in the future.

 

Our ability to realize the anticipated benefits of the PhotoMedex acquisition will depend on our ability to integrate that business with our own. The combination of two independent businesses is a complex, costly and time-consuming process and there can be no assurance that we will be able to successfully integrate the PhotoMedex business into our business, or if such integration is successfully accomplished, that such integration will not be costlier or take longer than presently contemplated. Integration of the PhotoMedex acquisition may include various risks and uncertainties, including the factors discussed in the paragraph below. If we cannot successfully integrate and manage the PhotoMedex business within a reasonable time, we may not be able to realize the potential and anticipated benefits of the such acquisition, which could have a material adverse effect on our share price, business, cash flows, results of operations and financial position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Transactions” for more information about the PhotoMedex acquisition.

 

We may also consider other strategic transactions, including acquisitions that we believe will complement, strengthen and enhance growth in our consumer products direct marketing business. We evaluate opportunities on a preliminary basis from time to time, but these transactions may not advance beyond the preliminary stages or be completed. Such acquisitions are subject to various risks and uncertainties, including:

 

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  The inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which are in diverse geographic regions) and achieve expected synergies;
     
  The potential disruption of existing business and diversion of management’s attention from day-to-day operations;
     
  The inability to maintain uniform standards, controls, procedures and policies;
     
  The need or obligation to divest portions of the acquired companies;
     
  The potential impairment of relationships with customers;
     
  The potential failure to identify material problems and liabilities during due diligence review of acquisition targets;
     
  The potential failure to obtain sufficient indemnification rights to fully offset possible liabilities associated with acquired businesses; and
     
  The challenges associated with operating in new geographic regions.

 

In addition, we cannot make assurances that the integration and consolidation of newly acquired businesses will achieve any anticipated cost savings and operating synergies.

 

We depend on key management and employees, the loss of whom may prevent us from implementing our business plan, limit our profitability and decrease the value of your stock.

 

We are dependent on the talent and resources of our key executives and employees. The success of our business depends on Kelvin Claney, our Chief Executive Officer and a member of our Board of Directors, and Richard Ransom, our President. Both Mr. Claney and Mr. Ransom have extensive experience in the direct response industry, and their services are critical to our success. The market for persons with experience in the direct response television industry is very competitive, and there can be no guarantee that we will be able to retain their services. The loss of either Mr. Claney or Mr. Ransom may prevent us from implementing our business plan, which may limit our profitability and decrease the value of your stock.

 

If we cannot protect our intellectual property rights, our operating results will suffer, and you could ultimately lose your investment.

 

We seek to protect our proprietary rights to our products through a combination of patents, trademarks, copyrights and design registrations. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or obtain and use information that we consider proprietary. Litigation may be necessary to enforce our intellectual property rights and to determine the validity and scope of the proprietary rights of others. Any litigation could result in substantial costs and diversion of management and other resources with no assurance of success and could seriously harm our business and operating results. Investors could lose their entire investment.

 

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The markets for our products are intensely competitive and we may not be able to compete effectively against the larger, more well-established companies that dominate this market or emerging, and small, innovative companies that may seek to obtain or increase their share of the market.

 

The markets for our products are intensely competitive and many of our competitors are much larger and have substantially more financial and human resources than we do. Many have long histories and strong reputations within the industry and a relatively small number of companies dominate these markets.

 

We compete directly with branded, premium retail products. In addition, due to regulatory restrictions concerning claims about the efficacy of personal care products, we may have difficulty differentiating our products from other competitive products, and competing products entering the personal care market could harm our revenue.

 

Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunity will be reduced or eliminated if we are unsuccessful in convincing physician and patient customers and consumers to use our products or if our competitors develop and commercialize products that are safer and more effective than any products that we may develop.

 

The international third party distributor segment is exposed to business and macro-economic risks, which could cause results of our operations to suffer.

 

Expanding into new international markets and bringing new brands to our international distributor network is a major element of our growth strategy. Factors such as compliance with foreign laws regarding manufacture, importation and registration of our products, currency fluctuations including the impact of the strengthening of the U.S. dollar, competition from entrenched local companies, and product integration issues may have an adverse impact on our financial condition.

 

The international nature of our business exposes us to certain business risks that could limit the effectiveness of our growth strategy and cause our results of operations to suffer.

 

Continued expansion into international markets is an element of our growth strategy. Introducing and marketing our services internationally, developing direct and indirect international sales and support channels and managing foreign personnel and operations will require significant management attention and financial resources. We face several risks associated with expanding our business internationally that could negatively impact our results of operations, including:

 

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  management, communication and integration problems resulting from cultural differences and geographic dispersion;
     
  compliance with foreign laws, including laws regarding importation and registration of products;
     
  compliance with foreign regulatory requirements and the ability to establish additional regulatory clearances necessary to expand distribution of our products in countries outside of the United States;
     
  competition from companies with international operations, including large international competitors and entrenched local companies;
     
  difficulties in protecting intellectual property rights in international jurisdictions;
     
  political and economic instability in some international markets;
     
  sufficiency of qualified labor pools in various international markets;
     
  currency fluctuations and exchange rates; and
     
  potentially adverse tax consequences or an inability to realize tax benefits.

 

We may not succeed in our efforts to expand our international presence as a result of the factors described above or other factors that may have an adverse impact on our overall financial condition and results of operations.

 

We may encounter difficulties in quality testing and the manufacturing of our products in commercial quantities, which could adversely impact the rate at which we grow.

 

There can be no guarantee that our quality assurance testing programs will be adequate to detect all defects, either ones in individual products or ones that could affect numerous shipments, which might interfere with customer satisfaction, reduce sales opportunities, or affect gross margins. In the future, we may need to replace certain of our product’s components and provide remediation in response to the discovery of defects or bugs in such products that we have shipped. There can be no assurance that such a remediation, depending on the product involved, would not have a material impact. An inability to cure a product defect could result in the failure of a product line, temporary or permanent withdrawal from a product or market, damage to our reputation, inventory costs or product reengineering expenses, any of which could have a material impact on our revenue, margins and net income.

 

Further, we may encounter difficulties manufacturing our line of products because we have limited experience manufacturing such products in significant commercial quantities. Thus, we will, in order to increase its manufacturing output significantly, have to attract and retain qualified employees for such assembly and testing operations.

 

Some of the components necessary for the assembly of our products are currently provided to us by third-party suppliers. While alternative suppliers exist and could be identified, the disruption or termination of the supply of components could cause a significant increase in the costs of these components, which could affect our operating results. Our dependence on a limited number of third-party suppliers and the challenges we may face in obtaining adequate supplies involve several risks, including limited control over pricing, availability, quality and delivery schedules. A disruption or termination in the supply of components could also result in our inability to meet demand for its products, which could harm our ability to generate revenues, lead to customer dissatisfaction and damage its reputation. Furthermore, if we are required to change the manufacturer of a key component of our products, we may be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines including Quality Systems Regulations, or QSR requirements and performance standards. Failure to do so could result in the FDA taking legal or regulatory enforcement action against us and/or our products (e.g. recalls, fines, penalties, injunctions, seizures, prosecution or other adverse actions). The delays associated with the verification of a new manufacturer could delay our ability to manufacture our products.

 

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If we fail to manage and protect our network security and underlying data effectively our businesses could be disrupted which could harm our operating results.

 

Our possession and use of personal information presents risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation, damage our reputation and possibly result in a lower revenue stream and the loss of some of our customers.

 

Maintaining our network security is of critical importance because the online e-commerce systems store proprietary and confidential customer data such as names, addresses, other personal information and credit card numbers. We use commercially available encryption technology to transmit personal information when taking orders. However, third parties may be able to circumvent these security and business measures by developing and deploying viruses, worms and other malicious software programs that are designed to attack or attempt to infiltrate our systems and networks. In addition, employee error, malfeasance or other errors in the storage, use or transmission of personal information could result in a breach of customer or employee privacy. We employ contractors and temporary and part-time employees who may have access to the personal information of customers and employees. It is possible such individuals could circumvent its controls, which could result in a breach of customer privacy.

 

Possession and use of personal information in conducting our business subject us to legislative and regulatory burdens that could require notification of data breach, restrict our use of personal information and hinder its ability to acquire new customers or market to existing customers. We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.

 

If third parties improperly obtain and use the personal information of our customers, we may be required to expend significant resources to resolve these problems. A major breach of our network security and systems could have serious negative consequences for our businesses, including possible fines, penalties and damages, reduced customer demand for our products and services, harm to its reputation and brand and loss of our ability to accept and process customer credit card orders.

 

  11  
 

 

We are exposed to risks associated with credit card and payment fraud and with credit card processing, which could cause us to lose revenue.

 

A significant part of our sales is processed through credit cards or automated payment systems to pay for our products and services. We have suffered losses, and may continue to suffer losses, because of orders placed with fraudulent credit cards or other fraudulent payment data. For example, under current credit card practices, we may be liable for fraudulent credit card transactions if we do not obtain a cardholder’s signature, a frequent practice in internet sales. We employ technology solutions to help us detect fraudulent transactions. However, the failure to detect or control payment fraud could cause us to lose sales and revenue.

 

Any significant interruptions in the operations of our third-party call centers could cause us to lose sales and disrupt our ability to process orders and deliver our solutions in a timely manner.

 

We rely on third-party call centers to sell our products, respond to customer service and technical support requests and process orders. Any significant interruption in the operation of these facilities, including an interruption caused by our failure to successfully expand or upgrade our systems or to manage these expansions or upgrades, could reduce our ability to receive and process orders and provide products and services, which could result in lost and cancelled sales and damage to our brand and reputation.

 

As we grow, we will need more capacity from those existing call centers, or we will need to identify and contract with new call centers. We may not be able to continue to locate and contract for call center capacity on favorable terms, or at all. Additionally, the rates those call centers charge us may increase, or those call centers may not continue to provide service at the current levels.

 

If our third-party call center operators do not convert inquiries into sales at expected rates, our ability to generate revenue could be impaired. Training and retaining qualified call center operators is challenging, and if we do not adequately train our third party call center operators, they will not convert inquiries into sales at an acceptable rate.

 

Our marketing campaigns and advertising may be attacked as false and misleading, and our media spending might not result in increased net sales or generate the levels of product and brand name awareness that we desire. We might not be able to increase our net sales at the same rate as we increase our advertising and marketing expenditures.

 

Our future growth and profitability will depend in part on the effectiveness and efficiency of our marketing campaigns and media spending, including its ability to:

 

create greater awareness of our products and brand name;
   
determine the appropriate creative message and media mix for future expenditures; and
   
effectively manage advertising costs, including creative and media costs, to maintain acceptable costs in relation to sales levels and operating margins.

 

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Our consumer product’s portfolio of infomercials advertising, and other forms of media may not result in increased sales or generate desired levels of product and brand name awareness, and may be attacked as false and misleading. We may not be able to increase our net sales at the same rate as we increase our advertising expenditures or may be required to defend against inaccurate claims of false advertising.

 

We periodically update the content of our infomercials and revise our product offerings. If customers are not as receptive to new infomercial content or product offerings, our sales through our infomercial sales channel will decline. In addition, if there is a marked increase in the price that we pay for our media time, the cost-effectiveness of our infomercials will decrease. If our infomercials are broadcast during times when viewership is low, this could also result in a decrease of the cost-effectiveness of such broadcasts, which could cause our results of operations to suffer. Also, to the extent we have committed in advance for broadcast time for our infomercials, we would have fewer resources available for potentially more effective distribution channels.

 

A higher than anticipated level of product returns may adversely affect our business and our customers may misuse certain of our products, and product and other damages imposed on us may exceed our insurance coverage, or we may be subject to claims that are not covered by insurance.

 

We offer consumers who purchase our consumer products directly from us an unconditional full 30-days or 60-days money-back guarantee, depending on the product returned. Retailers and home shopping channels are also permitted to return the consumer products, subject to certain limitations. We establish revenue reserves for product returns based on historical experience, estimated channel inventory levels and other factors. If product returns exceed estimates, the excess would offset reported revenue, which could negatively affect our financial results. Product returns and the potential need to remedy defects or provide replacement products or parts for items shipped in volume could result in substantial costs, the requirement to conduct an FDA recall and/or submit an FDA-required report of a correction/removal and have a material adverse effect on our business and results of operations.

 

We may be subject to product liability claims from time to time.

 

Several our products are highly complex and some are used to treat delicate skin conditions on and near a patient’s face. In addition, the clinical testing, manufacturing, marketing and use of certain of our products and procedures may also expose us to product liability, FDA regulatory and/or legal actions, or other claims.

 

We presently maintain liability insurance with coverage limits of at least $1,000,000 per occurrence, which we believe is an adequate level of product liability insurance, but product liability insurance is expensive and we might not be able to obtain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us, if at all. A successful claim brought against us in excess of our insurance coverage could have a material adverse effect on our business, results of operations and financial condition. In addition, continuing insurance coverage may also not be available at an acceptable cost, if at all. Therefore, we may not be able to obtain insurance coverage that will be adequate to satisfy a liability that may arise. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues. Thus, regardless of whether we are insured, a product liability claim or product recall may result in losses that could result in the FDA taking legal or regulatory enforcement action us and or our products including recall, and could have a material adverse effect upon our business, financial condition and results of operations.

 

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Our costs could substantially increase if we experience a significant number of warranty claims.

 

We provide 12-month product warranties, and offer longer warranty available for purchase, against technical defects. Our product warranty requires us to repair defective parts of our products, and if necessary, replace defective components. Historically, we have received a limited number of warranty claims for these products. The costs associated with such warranty claims have historically been relatively low. Thus, we generally do not accrue a significant liability contingency for potential warranty claims.

 

If we experience an increase in warranty claims, or if our repair and replacement costs associated with such warranty claims increases significantly, we will begin to incur liabilities for potential warranty claims after the sale of our products at levels that we have not previously incurred or anticipated. In addition, an increase in the frequency of our warranty claims or amount of warranty costs may harm our reputation and could have a material adverse effect on our financial condition and results of operations.

 

We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.

 

Our business may bring us into conflict with its licensees, licensors, or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from us. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. Such litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business. The outcome of litigation is always uncertain, and in some cases, could include judgments against us that require us to pay damages, enjoin us from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business. In addition, while we maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover the total amount of all insured claims and liabilities. It also is not possible to obtain insurance against all potential risks and liabilities. We cannot predict what the outcome will be in any ongoing or threatened litigations, and any adverse results in any such litigations may also materially and negatively impact our business, the market price of its common stock, cash flow, prospects, revenues, profitability or capital expenditures, or have other material adverse effects on its business, reputation, results of operations, financial condition or liquidity.

 

  14  
 

 

Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercially distributing and marketing current or upgraded products in the United States, which could severely harm our business.

 

Our products are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain these clearances or approvals on a timely basis, if at all. The FDA permits commercial distribution of a new medical device only after the device has received clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or is the subject of an approved premarket approval application, or PMA, unless the device is specifically exempt from those requirements. Should the FDA require, or a change in current regulations occur, that our products be FDA-cleared for marketing and sale in the U.S. we may be required to incur significant expense and engage in a time-consuming process seeking such approvals. If we were unable to obtain the required FDA approvals for these products or as necessary to make certain claims about the efficacy of the products, our sales of these products in the U.S. could be materially adversely affected.

 

The FDA clears marketing of lower-risk medical devices through the 510(k) process if the manufacturer demonstrates that the new product is substantially equivalent to other 510(k)- cleared products. High risk devices deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or devices not deemed substantially equivalent to a previously cleared device, require the pre-market approval (PMA). The PMA process is costlier, and lengthier, than the 510(k) clearance process. A PMA application must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the device for its intended use.

 

Our failure to comply with U.S. federal, state and foreign governmental regulations could lead to the issuance of warning letters or untitled letters, the imposition of injunctions, suspensions or loss of regulatory clearance or approvals, product recalls, or corrective action, termination of distribution, product seizures or civil penalties. In the most extreme cases, criminal sanctions or closure of the manufacturing facility are possible.

 

If we fail to manage our growth effectively, our businesses could be disrupted which could harm our operating results.

 

We have experienced, and may in the future experience, growth in our business, both organically and through the acquisition of businesses and products. We expect to make significant investments to enable our future growth through, among other things, new product innovation and clinical trials for new applications and products.

 

Such growth may place a strain on our management and operations. Our ability to manage this growth will depend upon, among other factors, our ability to broaden our management team; our ability to attract, hire, train, motivate and retain skilled employees; and the ability of our officers and key employees to continue to implement and improve our operational, financial and other systems, to manage multiple, concurrent customer relationships and different products and to respond to increasing compliance requirements. Our future success is heavily dependent upon achieving such growth and acceptance of our products. Any failure to effectively manage future growth could have a material adverse effect on our business, results of operations and financial condition.

 

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We may need to raise additional funds to pursue our growth strategy or continue our operations, and we may be unable to raise capital when needed.

 

From time to time, we may seek additional equity or debt financing to provide for the capital expenditures required to finance working capital requirements, continue our expansion, to increase liquidity, develop new products and services or make acquisitions or other investments. In addition, if our business plans change, general economic, financial or political conditions in our markets change, or other circumstances arise that have a material effect on its cash flow, the anticipated cash needs of our business as well as our conclusions as to the adequacy of our available sources of capital could change significantly. Any of these events or circumstances could result in significant additional funding needs, requiring us to raise additional capital, and we cannot predict the timing or amount of any such capital requirements now. If financing is not available on satisfactory terms, or at all, we may be unable to expand our business or to develop new business at the rate desired and its results of operations may suffer.

 

Our issuance of additional shares may have the effect of diluting the interest of stockholders .

 

Any additional issuances by us of common stock from our authorized but unissued shares may have the effect of diluting the percentage interest of existing stockholders. Out of our 100,000,000 authorized common shares, 47,946,275 shares, or 48%, remain unissued at March 31, 2017. We have 5,833,336 stock options outstanding as of March 31, 2017. The board of directors has the power to issue such shares without stockholder approval. None of our 20,000,000 authorized preferred shares are issued. We may issue additional common shares or preferred shares in the future to raise capital to fund our business operations and growth objectives.

 

The board of directors’ authority to set rights and preferences of preferred stock may prevent a change in control by stockholders of common stock.

 

Preferred shares may be issued in series from time to time with such designation, rights, preferences and limitations as our board of directors determines by resolution and without stockholder approval. This is an anti-takeover measure. The board of directors has exclusive discretion to issue preferred stock with rights that may trump those of common stock. The board of directors could use an issuance of preferred stock with dilutive or voting preferences to delay, defer or prevent common stockholders from initiating a change in control of our company or reduce the rights of common stockholders to the net assets upon dissolution. Preferred stock issuances may also discourage takeover attempts that may offer premiums to holders of our common stock.

 

Concentration of ownership of management and directors may reduce the control by other stockholders over ICTV.

 

Our executive officers and directors own or exercise full or partial control over 26% of our outstanding common stock. Thus, other investors in our common stock may not have much influence on corporate decision-making. In addition, the concentration of control over our common stock in the executive officers and directors could prevent a change in control of our company.

 

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Our board of directors is staggered, which makes it more difficult for a stockholder to acquire control of our company.

 

Our articles of incorporation and bylaws provide that our board of directors be divided into three classes, with one class being elected each year by the stockholders. This generally makes it more difficult for stockholders to replace a majority of directors and obtain control of the board.

 

Stockholders do not have the authority to call a special meeting, which discourages takeover attempts.

 

Our articles of incorporation permit only our board of directors to call a special meeting of the stockholders, thereby limiting the ability of stockholders to effect a change in control of our company.

 

We do not anticipate paying dividends to common stockholders in the foreseeable future, which makes investment in our stock speculative or risky.

 

We have not paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. The board of directors has sole authority to declare dividends payable to our stockholders. The fact that we have not and do not plan to pay dividends indicates that we must use all our funds generated by operations for reinvestment in our operating activities. Investors also must evaluate an investment in our company solely on the basis of anticipated capital gains.

 

Limited liability of our executive officers and directors may discourage stockholders from bringing a lawsuit against them.

 

Our articles of incorporation and bylaws contain provisions that limit the liability of directors for monetary damages and provide for indemnification of officers and directors. These provisions may discourage stockholders from bringing a lawsuit against officers and directors for breaches of fiduciary duty and may also reduce the likelihood of derivative litigation against officers and directors even though such action, if successful, might otherwise have benefited the stockholders. In addition, a stockholder’s investment in our company may be adversely affected to the extent that costs of settlement and damage awards against officers or directors are paid by us under the indemnification provisions of the articles of incorporation and bylaws. The impact on a stockholder’s investment in terms of the cost of defending a lawsuit may deter the stockholder from suing one of our officers or directors. We have been advised that the Securities and Exchange Commission takes the position that this provision does not affect the liability of any director under applicable federal and state securities laws.

 

Our pro forma financial information may not be representative of our future performance.

 

In preparing the pro forma financial information included in this prospectus, we have adjusted our historical financial information based upon currently available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the acquisition of assets from PhotoMedex and its affiliates as described elsewhere in this prospectus. The estimates and assumptions used in the calculation of the pro forma financial information in this prospectus may be materially different from our actual experience. Accordingly, the pro forma financial information included in this prospectus does not purport to indicate the results that would have been achieved had the acquisition of such assets been completed on the assumed date or for the periods presented, or which may be realized in the future, nor does the pro forma financial information give effect to any events other than those discussed in our unaudited pro forma financial statements and related notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Transactions” for more information about the PhotoMedex acquisition.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this prospectus include and incorporate forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include, but are not limited to, statements about the plans, objectives, expectations and intentions of our management and other statements contained in this prospectus that are not historical facts. Forward-looking statements in this prospectus or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports made to our stockholders and other publicly available statements issued or released by us involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Such future results are based upon management’s best estimates, which in turn are based upon current conditions and the most recent results of operations. When used in this prospectus, the words “expect,” “anticipate,” “assume,” “intend,” “may,” “plan,” “predict,” “project,” “believe,” “seek,” “estimate” and similar expressions are generally intended to identify forward-looking statements, because these forward-looking statements involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements about:

 

  forecasts of future business performance, consumer trends and macro-economic conditions;
     
  descriptions of market and/or competitive conditions;
     
  descriptions of plans or objectives of management for future operations, products or services, including our ability to integrate and capitalize on our acquisitions;
     
  our estimates regarding the sufficiency of our cash resources, expenses, capital requirements and needs for additional financing, and our ability to obtain additional financing
     
  our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
     
  our ability to obtain and maintain regulatory approvals of our products;
     
  our ability to integrate businesses that we have acquired and may acquire in the future; and
     
  descriptions or assumptions underlying or related to any of the above items.

 

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Considering these assumptions, risks and uncertainties, the results and events — discussed in the forward-looking statements contained in this prospectus — might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether because of new information, future events or otherwise. All subsequent forward-looking statements attributable to us or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. There are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed under “Risk Factors.”

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

 

DIVIDEND AND DISTRIBUTION POLICY

 

To date we have not paid any dividends on our common stock, and we do not expect to declare or pay any dividends on our common stock in the foreseeable future. Payment of any dividends will be dependent upon our future earnings, if any, our financial condition, and other factors the board of directors determines are relevant.

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

Our common stock is currently traded in the Over-the-Counter Markets Group, “OTCQX,” under the symbol “ICTV,” and on the Canadian Securities Exchange, or “CSE”, under the symbol “ITV.” The range of reported high and reported low bid prices per share for our common stock for each fiscal quarter within the last two fiscal years, as reported by Yahoo! Finance is set forth below. These quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

 

    High     Low         High     Low  
Quarter ended   ($)     ($)     Quarter ended   ($)     ($)  
December 31, 2016     0.41       0.16     December 31, 2015     0.45       0.16  
September 30, 2016     0.29       0.15     September 30, 2015     0.59       0.40  
June 30, 2016     0.32       0.16     June 30, 2015     0.69       0.50  
March 31, 2016     0.27       0.17     March 31, 2015     0.78       0.43  

 

Number of Holders of Our Common Stock

 

As of March 31, 2017, there were 52,053,725 shares of common stock outstanding. We estimate these shares are held by approximately 366 stockholders of record.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information and related notes present the historical condensed combined financial information of ICTV Brands, Inc. (herein referred to as the “Company,” “we,” “our,” or similar terms unless the context indicates otherwise) and PhotoMedex, Inc. after giving effect to the asset acquisition of the consumer products division of PhotoMedex, Inc. that was completed on January 23, 2017, pursuant to which, ICTV Brands, Inc. acquired certain identifiable assets of PhotoMedex, Inc.

 

On October 4, 2016, we and our newly-formed, wholly-owned subsidiary ICTV Holdings entered into an asset purchase agreement with PhotoMedex, Inc., a Nevada corporation, and its subsidiaries, Radiancy, Inc., a Delaware corporation, PhotoTherapeutics Ltd, a private limited company limited by shares incorporated under the laws of England and Wales, and Radiancy (Israel) Limited, a private corporation incorporated under the laws of the State of Israel, (collectively referred to as PhotoMedex, Inc.), pursuant to which ICTV Holdings agreed to acquire substantially all of the assets of PhotoMedex, Inc., including, but not limited to, all of the equity interests of PhotoMedex, Inc.’s subsidiaries Radiancy (HK) Limited, a private limited company incorporated under the laws of Hong Kong, and LK Technology Importaçăo E Exportaçăo LTDA, a private Sociedade limitada formed under the laws of Brazil, for a total purchase price of $9,500,000 (such acquisition is referred to herein as the “PhotoMedex Acquisition”). The asset purchase agreement was subject to certain terms and conditions and on January 23, 2017, we completed the PhotoMedex acquisition.

 

The PhotoMedex acquisition included the acquisition of proprietary products and services that address skin diseases and conditions or pain reduction using home-use devices for various indications including hair removal, acne treatment, skin rejuvenation, and lower back pain; which products are sold and distributed to traditional retail, online and infomercial outlets for home-use products and include, without limitation, the following: (a) no!no! ® Hair, (b) no!no! ® Skin, (c) no!no! ® Face Trainer, (d) no!no! ® Glow, (e) Made Ya Look, (f) no!no ®! Smooth Skin Care, (g) Kyrobak, and (h) ClearTouch ®.

 

The $9,500,000 purchase price was funded by the following:

 

On January 23, 2017, pursuant to the terms of the securities purchase agreement, dated October 4, 2016, between our company and the selling stockholders, we completed a private placement whereby the selling stockholders purchased 8,823,530 shares of common stock at a price of $0.34 per share, for aggregate gross proceeds of $3,000,000. The issuance of the shares was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933. All of the proceeds were used for the PhotoMedex Acquisition.

 

On February 1, 2017, pursuant to the terms of the securities purchase agreement, we completed a second and final private placement whereby the selling stockholders purchased 11,764,713 shares of common stock at a price of $0.34 per share, for aggregate gross proceeds of $4,000,000. The issuance of the shares was exempt from registration under Regulation D and Section 4(2) of the Securities Act of 1933. $2,000,000 of the proceeds were used for the PhotoMedex Acquisition and the remaining $2,000,000 were used for initial working capital.

 

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The remaining $4,500,000 is being funded through a continuing royalty payment agreement. Under the purchase agreement, we are required to pay to PhotoMedex, Inc. and its subsidiaries a continuing monthly royalty on net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of products from the consumer products division that we acquired from PhotoMedex, Inc. Such royalty payments commence with net cash actually received from and after January 23, 2017, and continue until the total royalty paid to PhotoMedex, Inc. and its subsidiaries totals $4,500,000, calculated as follows: (i) 35% of net cash from the sale of all acquired consumer products sold through live television promotions made through Home Shopping Network (HSN) in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, less (a) deductions for sales commissions actually paid and on-air costs incurred for those amounts collected related to the sale of the acquired consumer products made through HSN in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, and (b) the cost of goods sold to generate such net cash; and (ii) 6% of net cash from the sale of all acquired consumer products other than the foregoing sales.

 

The PhotoMedex acquisition was accounted for as a business combination in accordance with the guidance contained in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The unaudited pro forma condensed combined financial information gives effect to PhotoMedex acquisition based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2016 is presented as if the PhotoMedex acquisition had occurred on December 31, 2016. The unaudited condensed combined statement of operations for the year ended December 31, 2016 is presented as if the PhotoMedex acquisition had occurred on January 1, 2016.

 

The unaudited pro forma condensed combined financial information was prepared in accordance with Article 8 of the U.S. Securities and Exchange Commission’s Regulation S-K. The unaudited pro forma adjustments reflecting the transaction have been prepared in accordance with the guidance for business combinations presented in ASC 805, and reflect the allocation of our preliminary purchase price to the assets acquired in the PhotoMedex acquisition based on their estimated fair values. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the PhotoMedex acquisition; (ii) factually supportable; and (iii) with respect to the condensed combined statement of operations, expected to have a continuing impact on our combined results of operations.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the PhotoMedex acquisition had been affected on the dates previously set forth, nor is it indicative of the future operating results or financial position in combination. Our preliminary purchase price allocation was made using our best estimates of fair value, which are dependent upon certain valuation and other analyses that are not yet final. As a result, the unaudited pro forma purchase price adjustments related to the PhotoMedex acquisition are preliminary and subject to further adjustments as additional information becomes available and as additional analyses are performed during the applicable measurement period under ASC 805 (up to one year from the acquisition date). There can be no assurances that any final valuations will not result in material adjustments to our preliminary estimated purchase price allocation. Further, the unaudited pro forma condensed combined financial information does not give effect to the potential impact of anticipated synergies, operating efficiencies, cost savings or transaction and integration costs that may result from the PhotoMedex acquisition.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with our historical consolidated financial statements and their accompanying notes presented in our Annual Report on Form 10-K for the year ended December 31, 2016, as well as the historical financial statements of PhotoMedex, Inc. for the year ended December 31, 2016.

 

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ICTV BRANDS INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2016

 

ASSETS
    Historical Information   Pro Forma     Pro Forma
    ICTV Brands Inc.   PhotoMedex, Inc.   Adjustments   Notes   Combined
Current assets                                    
Cash and cash equivalents and restricted cash   $ 1,390,641     $ 2,677,000     $ (677,000 )   (a), (b), (c)   $ 3,390,641  
Accounts receivable, net     506,337       4,125,000       (4,125,000 )   (c)     506,337  
Inventories, net     1,499,270       -0-       7,336,000     (b)     8,835,270  
Prepaid expenses and other current assets     254,303       3,253,000       (3,253,000 )   (c)     254,303  
Assets held for sale     -0-       8,362,000       (8,362,000 )   (b), (c)     -0-  
                                     
Total current assets     3,650,551       18,417,000       (9,081,000 )         12,986,551  
                                     
Property and equipment, net     15,999       77,000       834,000     (b), (c)     926,999  
                                     
Goodwill     -0-       -0-       1,138,000     (b)     1,138,000  
                                     
Other assets - long-term, net     872,864       7,000       108,000     (b), (c)     987,864  
                                     
Total Assets   $ 4,539,414     $ 18,501,000     $ (7,001,000 )       $ 16,039,414  
                                     
LIABILITIES AND EQUITY  
                                     
Current liabilities                                    
Accounts payable and accrued liabilities   $ 1,644,899     $ 18,768,000     $ (18,627,221 )   (c), (d)   $ 1,785,678  
Deferred revenue - short-term     377,445       1,141,000       (1,141,000 )   (c)     377,445  
Other liabilities - short-term, net of discount     288,525       -0-       -0-           288,525  
                                     
Total current liabilities     2,310,869       19,909,000       (19,768,221 )         2,451,648  
                                     
Deferred revenue - long-term     274,374       -0-       -0-           274,374  
                                     
Other liabilities - long-term, net of discount     665,713       -0-       4,500,000     (b)     5,165,713  
                                     
Shareholders' equity (deficit)     1,288,458       (1,408,000 )     8,267,221     (a), (b), (c), (d)     8,147,679  
                                     
Total Liabilities and Shareholders' Equity   $ 4,539,414     $ 18,501,000     $ (7,001,000 )       $ 16,039,414  

 

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ICTV BRANDS INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2016

 

    Historical Information   Pro Forma       Pro Forma
    ICTV Brands Inc.   PhotoMedex, Inc.   Adjustments   Notes   Combined
Net sales   $ 16,788,736     $ 38,397,000     $ (4,066,000 )     (e)   $ 51,119,736  
                                         
Costs of goods sold     4,998,682       8,086,000       (2,224,000 )     (e)     10,860,682  
                                       
Gross profit     11,790,054       30,311,000       (1,842,000 )           40,259,054  
                                         
Operating expenses     12,772,811       42,303,000       (5,081,000 )     (e)       49,994,811  
                                       
Operating loss     (982,757 )     (11,992,000 )     3,239,000             (9,735,757 )
                                       
Interest expense, net     (13,587 )     (385,000 )     -0-       (e)       (398,587 )
                                       
Loss before provision for income tax     (996,344 )     (12,377,000 )     3,239,000             (10,134,344 )
                                         
Provision for income tax     -0-       762,000       (762,000 )     (f)       -0-  
                                         
Net loss   $ (996,344 )   $ (13,139,000 )   $ 4,001,000           $ (10,134,344 )
                                       
Net loss per share                                    
Basic   $ (0.04 )                     $ (0.21 )
Diluted   $ (0.04 )                     $ (0.21 )
                                   
Weighted average number of common shares                                    
Basic     28,213,675                   (g)       48,801,918  
Diluted     28,213,675                   (g)       48,801,918  

 

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ICTV BRANDS INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

 

Note 1 – Basis of Pro Forma Presentation

 

On October 4, 2016, ICTV Brands, Inc. through our newly-formed, wholly-owned subsidiary, ICTV Holdings, entered into an asset purchase agreement with PhotoMedex, Inc. and its various subsidiaries pursuant to which we acquired the consumer products division of PhotoMedex, Inc. (the “PhotoMedex Acquisition”). The PhotoMedex Acquisition was completed January 23, 2017. The unaudited pro forma condensed combined financial statements are based on ICTV Brands, Inc.’s and PhotoMedex, Inc.’s historical consolidated financial statements as adjusted to give effect to the business acquisition of PhotoMedex, Inc. The unaudited pro forma combined statements of operations for the year ended December 31, 2016 give effect to the PhotoMedex, Inc. business acquisition as if it had occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet as of December 31, 2016 gives effect to the business acquisition of PhotoMedex, Inc. as if it had occurred on December 31, 2016. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are: (i) directly attributable to the PhotoMedex Acquisition; (ii) factually supportable; and (iii) with respect to the condensed combined statement of operations, expected to have a continuing impact on our combined results of operations.

 

Note 2 – Preliminary Consideration Transferred

 

The $9,500,000 purchase price paid by ICTV Holdings in the PhotoMedex Acquisition, for which we are also jointly and severally liable, was paid as follows: (i) $3,000,000 of the purchase price, which was raised in a private placement securities purchase agreement, was deposited on October 5, 2016 into an escrow account established by counsel to ICTV Brands, Inc. and ICTV Holdings, as escrow agent, under an escrow agreement entered into on October 4, 2016 among ICTV Brands, Inc., ICTV Holdings, PhotoMedex, Inc., and certain investors in ICTV Brand, Inc.’s private placement securities purchase agreement, which escrow funds were paid to PhotoMedex, Inc. on January 23, 2017, in accordance with the escrow agreement and subject to the conditions thereof; (ii) $2,000,000 of the purchase price is to be paid by on or before the 90 th day following January 23, 2017; and (iii) the remainder of the purchase price is payable in the form of a continuing royalty as described in more detail below. On October 4, 2016, as required by the purchase agreement, we delivered to PhotoMedex, Inc. a letter of credit from LeoGroup Private Debt Facility, L.P., a private equity fund that secured our obligation to make the $2 million payment referred to in clause (ii) above. The letter of credit is valid until the earlier of; (1) full payment on demand and presentation on or before January 23, 2017, or (2) 180 days from the date of letter of credit.

 

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Under the purchase agreement, we are required to pay to PhotoMedex, Inc. and its subsidiaries a continuing monthly royalty on net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of products from the consumer products division that we acquired from PhotoMedex, Inc. Such royalty payments commence with net cash actually received from and after January 23, 2017, and continue until the total royalty paid to PhotoMedex, Inc. and its subsidiaries totals $4,500,000, calculated as follows: (i) 35% of net cash from the sale of all acquired consumer products sold through live television promotions made through Home Shopping Network (HSN) in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, less (a) deductions for sales commissions actually paid and on-air costs incurred for those amounts collected related to the sale of the acquired consumer products made through HSN in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, and (b) the cost of goods sold to generate such net cash; and (ii) 6% of net cash from the sale of all acquired consumer products other than the foregoing sales.

 

Note 3 – Preliminary Purchase Price Allocation

 

Under the acquisition method of accounting outlined in ASC 805, the identifiable assets acquired in the PhotoMedex Acquisition are recorded at their acquisition-date fair values and are included in the ICTV Brands, Inc.’s condensed combined financial position. Our unaudited pro forma adjustments are preliminary in nature and based on the estimates of fair value for all assets acquired to illustrate the estimated effect of the PhotoMedex acquisition on our condensed combined balance sheet at December 31, 2016. Accordingly, the unaudited pro forma purchase price allocation is subject to further adjustments as additional information becomes available and as additional analyses are performed. The primary areas that are not yet finalized relate to our estimated fair values for inventory and identifiable intangible assets. There can be no assurances that any final valuations will not result in material adjustments to our preliminary estimated purchase price allocation.

 

The following table shows the preliminary allocation of the purchase price for Photomedex, Inc. to the acquired identifiable assets:

 

Total purchase price   $ 9,500,000  
Inventory   $ 7,336,000  
Property and equipment     911,000  
Other assets     115,000  
Assets acquired   $ 8,362,000  
         
Total pro forma goodwill   $ 1,138,000  

 

Property and equipment is estimated to have a useful life of five years.

 

Acquisition-related costs totaled $140,779 and are included in accounts payable and accrued liabilities on the accompanying unaudited pro forma condensed combined balance sheet.

 

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Note 4 – Pro Forma Adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

(a) Reflects the financing of the $7,000,000 cash portion of the asset acquisition agreement, raised from the January 23, 2017 and February 1, 2017 private placement securities purchase agreements.

 

(b) Reflects the $5,000,000 cash tendered and the additional $4,500,000 under the royalties payable agreement for the identifiable assets of PhotoMedex, Inc, including the preliminary purchase price allocation and estimate of goodwill, which represents the excess of the purchase price over the fair value of PhotoMedex, Inc.’s identifiable assets acquired as shown in Note 2.

 

(c) Reflects the elimination of the assets, liabilities, and shareholders’ equity that were not purchased as part of the business acquisition of PhotoMedex, Inc. The following shows the effects of adjustments (b) and (c) to PhotoMedex, Inc.’s balance sheet:

 

ASSETS
    Historical   Assets not Acquired Liabilities not   Pro Forma   Adjusted
    PhotoMedex, Inc.   Assumed   Adjustments   PhotoMedex, Inc .
Current assets                                
Cash and cash equivalents and restricted cash   $ 2,677,000     $ (2,677,000 )   $ -0-     $ -0-  
Accounts receivable, net     4,125,000       (4,125,000 )     -0-       -0-  
Inventories, net     -0-       -0-       7,336,000       7,336,000  
Prepaid expenses and other current assets     3,253,000       (3,253,000 )     -0-       -0-  
Assets held for sale     8,362,000       -0-       (8,362,000 )     -0-  
                                 
Total current assets     18,417,000       (10,055,000 )     (1,026,000 )     7,336,000  
                                 
Property and equipment, net     77,000       (77,000 )     911,000       911,000  
                                 
Goodwill     -0-       -0-       1,138,000       1,138,000  
                                 
Other assets - long-term, net     7,000       (7,000 )     115,000       108,000  
                                 
Total Assets   $ 18,501,000     $ (10,139,000 )   $ 1,138,000     $ 9,500,000  
                                 
LIABILITIES AND EQUITY  
                                 
Current liabilities                                
Accounts payable and accrued liabilities   $ 18,768,000     $ (18,768,000 )   $ -0-     $ -0-  
Deferred revenue - short-term     1,141,000       (1,141,000 )     -0-       -0-  
                                 
Total current liabilities     19,909,000       (19,909,000 )     -0-       -0-  
                                 
Shareholders’ equity     (1,408,000 )     9,770,000       1,138,000       9,500,000  
                                 
Total Liabilities and Shareholders’ Equity   $ 18,501,000     $ (10,139,000 )   $ 1,138,000     $ 9,500,000  

 

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(d) Reflects the adjustment for an accrual of $140,779 of acquisition-related costs, including legal and accounting fees.

 

(e) Reflects the adjustments to the statement of operations for the other divisions of PhotoMedex, Inc., either previously sold or not purchased by ICTV Brands, Inc. On September 15, 2016, PhotoMedex, Inc. sold the assets of its Neova product line, which was all of its physician recurring division, except for $100,000 in revenues. The remainder of that division’s revenues and the professional division were not purchased by ICTV Brands, Inc. as part of the PhotoMedex acquisition. Unallocated interest expense and operating expenses, such as insurance, outside legal and audit fees, compensation of in-house legal and accounting staff, etc. are allocated to the PhotoMedix Acquisition as these expenses support revenue generating operations and the PhotoMedex Acquisition represents the majority of revenue. The following shows the effect of adjustment (e) to PhotoMedex, Inc.’s statement of operations:

 

    Historical   Divisions   Divisions   Adjusted
    PhotoMedex, Inc.   Previously Sold   Not Purchased   PhotoMedex, Inc.
Net sales   $ 38,397,000     $ (3,202,000 )   $ (864,000 )   $ 34,331,000  
                                 
Costs of goods sold     8,086,000       (1,847,000 )     (377,000 )     5,862,000  
                                 
Gross profit     30,311,000       (1,355,000 )     (487,000 )     28,469,000  
                                 
Operating expenses     42,303,000       (5,048,000 )     (33,000 )     37,222,000  
                                 
Operating income (loss)     (11,992,000 )     3,693,000       (454,000 )     (8,753,000 )
                                 
Interest expense, net     (385,000 )     -0-       -0-       (385,000 )
                                 
Income (loss) before provision for income tax   $ (12,377,000 )   $ 3,693,000     $ (454,000 )   $ (9,138,000 )

 

(f) Reflects the adjustment for $762,000 of the provision for income tax for a subsidiary not acquired in the PhotoMedex Acquisition.

 

(g) Reflects the additional 20,588,243 shares that were issued as part of the January 23, 2017 and February 1, 2017 private placement securities purchase agreements.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the consolidated financial statements contained elsewhere in this prospectus. Certain statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

 

Overview

 

We develop, market and sell products through a multi-channel distribution strategy, including direct response television, or DRTV, digital marketing campaigns, live home shopping, traditional retail and e-commerce market places, and our international third party distributor network. We offer primarily health, beauty and wellness products as well as various consumer products, including:

 

  DermaWand TM , a skin care device that reduces the appearance of fine lines and wrinkles, and helps improve skin tone and texture;
     
  DermaVital®, a professional quality skin care line that effects superior hydration;
     
  CoralActives® brand of acne treatment and skin cleansing products;
     
  Derma Brilliance®, a skin care resurfacing device that helps reduce visible signs of aging;
     
  Jidue TM , a facial massager device which helps alleviate stress; and
     
  Good Planet Super Solution TM , a multi-use cleaning agent.

 

We acquire the rights to the products that we market primarily via licensing agreements, acquisition and in-house development and sell both domestically and internationally. We are presently exploring other devices and consumable product lines currently under licensing agreements.

 

We recently acquired several new brands, related intellectual property, inventory and other assets and have begun (or, will shortly begin) marketing and selling the following new products:

 

  no!no!® Hair, a home use hair removal device;
     
  no!no!® Skin, a home use device that uses light and heat to calm inflammation and kill bacteria in pores to treat acne;
     
  no!no!® Face Trainer, a home use mask that supports a series of facial exercises;
     
  no!no!® Glow, a home use device that uses light and heat energy to treat skin;
     
  Made Ya Look, a heated eyelash curler;
     
  no!no!® Smooth Skin Care, an array of skin care products developed to work with the devices to improve the treated skin;
     
  Kryobak®, a home use device for the treatment of non-specific lower back pain;
     
  ClearTouch®, a home use device for the safe and efficient treatment of nail fungus; and
     
  Ermis Labs acne treatment cleansing bars.

 

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Our strategy is to introduce our brands to the market via an omni-channel platform that includes but is not limited to DRTV, digital marketing, live home shopping, traditional retail, e-commerce market places, and international thirds party distributor networks. Our objective is to have our portfolio of products sold through these channels to develop long lasting brands with strong returns on investments.

 

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, number of infomercials run, the product’s stage in its life-cycle, the public’s general acceptance of the marketing campaign and other outside factors, such as the general state of the economy.

 

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

 

Many of our expenses for our own products are incurred up-front. Some of our up-front expenditures include infomercial production costs, which are expensed at the start of a campaign and purchases of media time. If our infomercials are successful, these up-front expenditures produce revenue as consumers purchase the products aired on the infomercials. We do not incur infomercial production costs and media time for our international sales to third party distributors, 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 fiscal year ended December 31, 2016, with the fiscal year ended December 31, 2015.

 

Revenues

 

Our net sales decreased to approximately $16,789,000 during the year ended December 31, 2016 from approximately $24,096,000 during the year ended December 31, 2015. Net sales relating to DermaWand TM for DRTV, including DermaVital®, were approximately $9,224,000 in 2016 as compared to approximately $16,271,000 in the prior year. The primary driver of the decline in sales was generated by our decrease in media related expenditures, as we reduced the amount of airings of the DermaWand TM infomercial and allocated additional resources to other products in our pipeline. We reduced our total media spend to approximately $4,965,000 during the year ended December 31, 2016 from approximately $7,907,000 during the year ended December 31, 2015. Further, as a result of the reduced media spend, sales related to the DermaVital® skin care line were approximately $1,430,000 and $2,720,000 during 2016 and 2015, respectively.

 

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Included in net sales is retail sales of $474,000 during the year ended December 31, 2016 compared to $69,000 of retail sales during the year ended December 31 2015. We expect our retail sales to grow throughout 2017. During 2016, we had $32,000 in revenue generated sales from live televised home shopping compared to $393,000 for the year ended December 31, 2015.

 

During the year ended December 31, 2016, international third party distributor sales revenue for the DermaWand TM decreased to approximately $4,311,000 from approximately $5,317,000 during the year ended December 31, 2015. Our international third party distributor revenue is impacted by timing of shipments at period end, currency fluctuations and the appreciation of the U.S. dollar, as well as scheduling considerations with our distributors’ end customers. The decrease is primarily due to a decline in sales from our third party distributor customer located in France, Novellia. Sales from our French distributor Novellia decreased to approximately $876,000 for the year ended December 31, 2016 compared to approximately $1,488,000 for the year ended December 31, 2015. In addition, sales from the Latino Media Services (LMS) group comprised of distributors from Chile, Argentina, Peru, Colombia, El Salvador, and Ecuador decreased to approximately $1,186,000 in 2016 compared to approximately $1,298,000 in the prior year. Offsetting the decrease in sales from Novellia and the Latino Media Services (LMS) group, was an increase of sales from Inova to $1,248,000 in 2016 from $1,019,000 in the prior year. We are continuing to work on a new model and marketing campaign for DermaWand TM as well as diversifying our international product portfolio in order to grow this segment in the future.

 

Gross Margin

 

Gross margin percentage was 70% in 2016, compared to 68% in 2015. In 2016, we generated approximately $11,790,000 in gross profit, compared to approximately $16,421,000 in 2015. The gross margin percentage for domestic DRTV consumer revenue was approximately 77% and 74% compared to approximately 49% and 48% for international third party distributor sales in 2016 and 2015, respectively. The increases in gross margin percentage is mainly attributable to a royalty agreement with the developer of DermaWand TM , which decreased the amount of royalties as a percentage of sales. Amortization of the Dermawand TM intangible asset amounted to approximately $291,000 recorded in cost of sales for the year ended December 31, 2016, compared to approximately $782,000 in royalty expense for DermaWand TM for the year ended December 31, 2015.

 

Operating Expenses

 

Total operating expenses decreased to approximately $12,773,000 during the year ended December 31, 2016, compared to approximately $17,809,000 in the prior year. This decrease in operating expenses is due to a few key factors. The largest factor is a decrease in media expenditures. Media expenditures were approximately $4,965,000 and $7,907,000 in the years ended December 31, 2016 and 2015, respectively. Partially offsetting the decrease in media expenditures was an increase in internet marketing expense as we shifted to more digital marketing efforts through search engine marketing and optimization, paid social media and banner ad campaigns. Internet marketing expenditures were approximately $1,347,000 and $906,000 during the years ended December 31, 2016 and 2015, respectively.

 

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As a result of the decrease in media expenses, there were additional volume related decreases. Answering service expenses were approximately $663,000 and $1,060,000 during the years ended December 31, 2016 and 2015, respectively. Customer service expenses were approximately $339,000 and $850,000 during the years ended December 31, 2016 and 2015, respectively. Merchant fees decreased to approximately $274,000 in the year ended December 31, 2016, compared to approximately $470,000 during the year ended December 31, 2015. Total bad debt expenses decreased to approximately $921,000 during the year ended December 31, 2016 from approximately $1,372,000 in the prior year, which is consistent with the decrease in sales.

 

In addition to the volume related decreases, we reduced our operating expenditures in a number of other areas. Production expenses were approximately $239,000 and $323,000 during the years ended December 31, 2016 and 2015, respectively, because of the timing of campaign launches. In 2015, we brought in-house several responsibilities previously outsourced to third party consultants, resulting in consulting fees decreasing to $305,000 from $392,000 during the years ended December 31, 2016 and 2015, respectively. Furthermore, as we completed several clinical trials and production initiatives in the prior year, our research and development and travel expenditures decreased to approximately $111,000 and $104,000 during the year ended December 31, 2016, from approximately $115,000 and $253,000 in the prior year, respectively. Additionally, as all non-employee awards vested in the prior year, our total share based compensation expenses decreased to approximately $417,000 during the year ended December 31, 2016, from approximately $612,000 during the year ended December 31, 2015.

 

Net Loss

 

We generated a net loss of approximately $996,000 for the year ended December 31, 2016, compared with a net loss of $1,388,000 for the year ended December 31, 2015. The decrease can be attributed to the decrease in net sales, more than offset by the overall decreases in operating expenses discussed above.

 

Recent Transactions

 

PhotoMedex Acquisition

 

On October 4, 2016, we and our wholly-owned subsidiary ICTV Holdings entered into an asset purchase agreement with PhotoMedex and its subsidiaries pursuant to which ICTV Holdings agreed to acquire substantially all of the assets of PhotoMedex and its subsidiaries, including, but not limited to, all of the equity interests in its Hong Kong and Brazilian subsidiaries.

 

The PhotoMedex acquisition included the acquisition of proprietary products and services that address skin diseases and conditions or pain reduction using home-use devices for various indications including hair removal, acne treatment, skin rejuvenation, and lower back pain; which products are sold and distributed to traditional retail, online and infomercial outlets for home-use products and include, without limitation, the following: (a) no!no!® Hair, (b) no!no!® Skin, (c) no!no!® Face Trainer, (d) no!no!® Glow, (e) Made Ya Look, (f) no!no!® Smooth Skin Care, (g) Kryobak®, and (h) ClearTouch®.

 

On January 23, 2017 we completed the PhotoMedex acquisition for an aggregate purchase price of $9.5 million, payable as follows: (i) $3 million of the purchase price was paid from an escrow fund pursuant to an escrow agreement, entered into on October 4, 2016 with certain investors in our private placement; (ii) $2 million of the purchase price is to be paid on or before the 90 th day following January 23, 2017; and (iii) the remainder of the purchase price is payable in the form of a continuing royalty described in more detail below.

 

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Under the PhotoMedex purchase agreement, we are required to pay to PhotoMedex and its subsidiaries a continuing monthly royalty on net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of the consumer products that we acquired from PhotoMedex. Such royalty payments commence with net cash actually received from and after January 23, 2017 and continue until the total royalty paid to PhotoMedex and its subsidiaries totals $4,500,000, calculated as follows: (i) 35% of net cash from the sale of all acquired consumer products sold through live television promotions made through Home Shopping Network (HSN) in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, less (a) deductions for sales commissions actually paid and on-air costs incurred for those amounts collected related to the sale of the acquired consumer products made through HSN in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, and (b) the cost of goods sold to generate such net cash; and (ii) 6% of net cash from the sale of all acquired consumer products other than the foregoing sales.

 

Ermis Labs Acquisition

 

On October 4, 2016, we entered into an asset purchase agreement with LeoGroup Private Debt Facility and Ermis Lab pursuant to which we agreed to acquire substantially all of the assets of Ermis Labs.

 

On January 23, 2017, we completed the Ermis Labs acquisition for an aggregate purchase price of $2,150,000, paid as follows: (i) $400,000 of the purchase price was paid on January 23, 2017 through the issuance of 2,500,000 shares of our common stock to the stockholders of Ermis Labs, the value of which was based on the closing price of our common stock on the OTCQX on October 4, 2016, which was $0.16 per share; and (ii) the remainder of the purchase price is payable in the form of a continuing royalty as described in more detail below. The issuance of the common stock was made in reliance upon an exemption from the registration requirements of the Securities Act provided under Section 4(a)(2) of the Securities Act.

 

Under the Ermis purchase agreement, we are required to pay to Ermis Labs a continuing monthly royalty of 5% of net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of the over-the-counter medicated skin care products acquired in the Ermis Labs acquisition, commencing with net cash actually received by us or our affiliates from and after January 23, 2017 and continuing until the total royalty paid to Ermis Labs totals $1,750,000; provided, however, that we are required to pay a minimum annual royalty amount of $175,000 on or before December 31 of each year commencing with calendar year ending December 31, 2017.

 

Private Placement

 

On October 4, 2016, we entered into a securities purchase agreement with certain accredited investors pursuant to which we could issue in one or more offerings up to 20,588,243 shares of our common stock, at a price of $0.34 per share, for an aggregate maximum amount of up to $7 million.

 

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On January 23, 2017, pursuant to the terms of the securities purchase agreement, we completed the sale of 8,823,530 shares of common stock at a price of $0.34 per share, for aggregate gross proceeds of $3,000,000. Thereafter, on February 1, 2017, we completed a second and final closing whereby we sold 11,764,713 shares of common stock at a price of $0.34 per share, for aggregate gross proceeds of $4,000,000.

 

On January 23, 2017, we also entered into a registration rights agreement with the investors in connection with the completion of the private placement. Subject to the terms and conditions of the registration rights agreement, we will file and maintain a registration statement covering the resale of the common stock sold to the investors in the private placement, subject to customary underwriter cutbacks .

 

The issuance of the common stock pursuant to the securities purchase agreement was made in reliance upon an exemption from the registration requirements of the Securities Act provided under Section 4(a)(2) of the Securities Act.

 

Liquidity and Capital Resources

 

At December 31, 2016, we had approximately $1,391,000 in cash and cash equivalents compared to approximately $1,334,000 at December 31, 2015. Cash flow provided by operating activities was approximately $283,000 during the year ended December 31, 2016 compared to cash flow used by operating activities of approximately $1,515,000 during the same period in 2015. The fluctuation was primarily a result of a decrease in inventory of approximately $706,000, a decrease in prepaid expenses and other assets of approximately $163,000 as well as a increase of approximately $83,000 in accounts payable, accrued expenses and severance payable offset by a net loss of approximately $996,000, an increase in accounts receivable, net of bad debt expense, of approximately $205,000. We had $225,000 in net cash used in financing activities as a result of the pay-down of the DermaWand® asset purchase agreement during the year ended December 31, 2016, compared to net cash proceeds of $1,704,000 for the same period in 2015. Included in 2015, was the issuance of 3,333,334 shares of common stock for proceeds of $1,000,000 and the exercise of $500,000 in stock options.

 

As discussed in Note 5 in the Notes to the Consolidated Financial Statements contained elsewhere in this prospectus, on January 22, 2016, we entered into a purchase agreement with Omega 5 Technologies, Inc. to acquire the worldwide ownership of the DermaWand® patent and all related trademarks and intellectual property, for $1,200,000, payable with annual payments of $300,000 per year for the calendar years 2016 through 2019. As of December 31, 2016, we had a debt obligation of approximately $954,000 related to this purchase agreement compared to no debt obligations as of December 31, 2015. We believe that this agreement will provide additional liquidity with a lower royalty cost per unit sold over the coming years.

 

We had working capital of approximately $1,340,000 at December 31, 2016, compared to $2,253,000 at December 31, 2015. Based on our current rate of cash outflows and cash on hand, management believes that our current cash will be sufficient to meet the anticipated cash needs for working capital for at least the next twelve months.

 

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Critical Accounting Policies and Estimates

 

The Securities and Exchange Commission, or SEC, defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in Note 2 in the Notes to the Consolidated Financial Statements. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.

 

Accounts receivable

 

Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $123,000 and $119,000 as of December 31, 2016 and 2015, respectively. The majority of our receivables are from our direct to consumer DRTV customers. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. From time to time, our customers dispute the amounts due to us, and, in other cases, our customers experience financial difficulties and cannot pay on a timely basis. In certain instances, these factors ultimately result in uncollectible accounts. The determination of the appropriate reserve needed for uncollectible accounts involves significant judgment. Such factors include changes in the financial condition of our customers as a result of industry, economic or customer-specific factors. A change in the factors used to evaluate collectability could result in a significant change in the allowance needed. We calculate our allowances based on historical customer returns and bad debt activity. We complete a validation process on our reserve estimates by performing a retrospective review on an ongoing basis.

 

In addition to reserves for returns on accounts receivable, an accrual is made for the 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 $91,000 and $80,000 as of December 31, 2016 and 2015, respectively.

 

Inventories

 

Inventories consist primarily of products held for resale, and are valued at the lower of cost (first-in, first-out method) or market. Reserves for slow-moving, excess and obsolete inventories, reduce the historical carrying value of our inventories, and are provided based on historical experience and product demand. Management evaluates the adequacy of these reserves periodically based on forecasted sales and market trends. Included in inventory at December 31, 2016 and 2015 is approximately $67,000 and $42,000 of consigned product, respectively, that has been shipped to customers under the 30-day free trial period for which the trial period has not expired and as such the customer has not accepted the product.

 

Revenue recognition

 

For our direct response television consumer 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. Our revenues in the Consolidated Statement of Operations are net of sales taxes.

 

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We offer a 30-day risk-free trial as one of our payment options. Revenue on the 30-day risk-free trial 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 risk-free trial is recognized upon shipment of the product to the customer and collectability is assured.

 

Revenue related to our DermaVital TM continuity program is recognized monthly upon shipment to customers. Revenue related to international third party distributor customers is recorded at gross amounts with a corresponding charge to cost of sales.

 

We have 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 we have accepted returns past 30 days of receipt. For Cleartouch®, Kyrobak® and no!no!®, our products newly acquired in the PhotoMedex acquisition, we currently have a return policy whereby the customer can return any product received within 60 days for a full refund, excluding shipping and handling. We provide an allowance for returns based upon past experience. All significant returns for the years presented have been offset against gross sales.

 

Income taxes

 

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

 

Our policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

OUR BUSINESS

 

Overview

 

We develop, market and sell products through a multi-channel distribution strategy, including direct response television, or DRTV, digital marketing campaigns, live home shopping, traditional retail and e-commerce market places, and our international third party distributor network. We offer primarily health, beauty and wellness products as well as various consumer products, including:

 

  DermaWand TM , a skin care device that reduces the appearance of fine lines and wrinkles, and helps improve skin tone and texture;
     
  DermaVital®, a professional quality skin care line that effects superior hydration;
     
  CoralActives® , brand of acne treatment and skin cleansing products;
     
  Derma Brilliance®, a skin care resurfacing device that helps reduce visible signs of aging;
     
  Jidue TM , a facial massager device which helps alleviate stress; and
     
  Good Planet Super Solution TM , a multi-use cleaning agent.

 

We acquire the rights to the products that we market primarily via licensing agreements, acquisition and in-house development and sell both domestically and internationally. We are presently exploring other devices and consumable product lines currently under licensing agreements.

 

We recently acquired several new brands, related intellectual property, inventory and other assets and have begun (or, will shortly begin) marketing and selling the following new products:

 

  no!no!® Hair, a home use hair removal device;
     
  no!no!® Skin, a home use device that uses light and heat to calm inflammation and kill bacteria in pores to treat acne;
     
  no!no!® Face Trainer, a home use mask that supports a series of facial exercises;
     
  no!no!® Glow, a home use device that uses light and heat energy to treat skin;
     
  Made Ya Look, a heated eyelash curler;
     
  no!no!® Smooth Skin Care, an array of skin care products developed to work with the devices to improve the treated skin;
     
  Kryobak®, a home use device for the treatment of non-specific lower back pain;
     
  ClearTouch, a home use device for the safe and efficient treatment of nail fungus; and
     
  Ermis Labs acne treatment cleansing bars.

 

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Our Background and Corporate History

 

We were formerly known as International Commercial Television, Inc. and were organized under the laws of the State of Nevada on September 25, 1998. On July 3, 2014, we changed our name to ICTV Brands Inc.

 

We currently have the following wholly-owned subsidiaries:

 

  Better Blocks International Limited, or BBI, a New Zealand corporation
     
  Ermis Labs, Inc., a Nevada corporation
     
  ICTV Holdings, Inc., a Nevada corporation
     
  Radiancy (HK) Limited, a private limited company limited by shares, incorporated under the laws of Hong Kong
     
  LK Technology Importaçăo E Exportaçăo LTDA, a private Sociedade limitada formed under the laws of Brazil.

 

Although our companies are incorporated in Nevada, New Zealand, Hong Kong and Brazil, our operations are currently run from our Wayne, Pennsylvania office.


Our Growth Strategy

 

Our strategy is to introduce our brands to the market through an omni-channel platform that includes, but is not limited to direct response television, digital marketing, live home shopping, traditional retail, e-commerce market places, and international third party distributor networks. Our objective is to have our portfolio of products sold through these channels to develop long lasting brands with strong returns on investments.

 

We continually seek to develop, acquire or obtain the license to consumer products that can be distributed and marketed profitably through a distribution network. Success depends, in part, on our ability to market products that appeal to consumers and that can be easily associated with a brand. In order to succeed, we need to identify new products to supplement and possibly replace the existing product lines as they mature through product life cycles.

 

We put forth extensive effort to research and develop new products that are unique and that will be suitable for direct response marketing. The 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 receive unsolicited new product proposals from independent parties.

 

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We also internally generate ideas for new products that we wish to develop. If we have an idea for a product, we will present prototype specifications to one of our manufacturers to develop a prototype, and we will then evaluate the feasibility of selling the product through direct marketing initiatives.

 

When we evaluate a product for its suitability for direct sale, its uniqueness, ability to be demonstrated and consumer’s perception of value are considered. Part of the selection criteria for new products are as follows:

 

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;
   
Must support a sufficient media cost per order allowable while still representing good perceived value to the consumer;
   
Must have a unique “hook” to be able to catch the attention of the consumer - the bigger the problem solved by the product, the greater the sales potential;
   
Easily and effectively promoted through sustained direct sale channels, specifically digital;
   
Supports a margin sufficiently high enough to maintain profitability when sold through conventional retailers;
   
Has high volume sales potential, to ensure live home shopping and retailer/e-commerce interest;
   
Exhibits potential for “back-end” sales either through live home shopping, traditional retail or continuity programs; and
   
Should have the capability to be marketed internationally through wholesale distributor network.

 

Brand Portfolio

 

The following is a list of brands in the ICTV portfolio through ownership or licensing agreement.

 

DermaWand TM

 

Since 1998, we owned the exclusive rights to sell the DermaWand TM , an at-home skin care device that reduces fine lines and wrinkles and improves overall skin appearance. Backed by clinically proven results that have been published in accredited journals, millions have been sold around the world. Targeting the older female demographic, DermaWand TM uses radio frequency technology, the same technology used in medspas and doctor’s offices but at a lower amplitude. The combination of thermal energy, instant stimulation and oxygenation show visible improvement in the skin including reduced fine lines and wrinkles, toned and tightened skin and reduced pore size.

 

In January 2016, we acquired the worldwide ownership of the DermaWand TM patent and all related trademarks. The price consumers pay for DermaWand TM varies from country to country, however, it generally ranges from $90-$150 while sales to third party distributors are made at a wholesale price. The DermaWand TM is sold and marketed with DermaVital TM skin care products, which are offered with various continuity programs. We recognized approximately $9,224,000 and $16,271,000 of revenue related to the DermaWand TM infomercial, including DermaVital TM sales, during 2016 and 2015, respectively. We plan to release the next generation DermaWand TM model in 2017, which is currently being developed.

 

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DermaVital ®

 

DermaVital ® is a brand of cosmetics with a wide variety of skin care products that complement the DermaWand TM . The product line consists of several moisturizers that allow water to penetrate the skin’s surface, thus re-hydrating the deeper layers. In addition to moisturizers, the DermaVital ® line has facial cleansers, microdermabrasion treatments, eye cream, lip cream, and hand cream.

 

DermaVital ® has been offered to DermaWand TM buyers through Canada and U.S direct response television (“DRTV”) and digital distribution channels through an auto shipment program. Customers that enrolled can cancel at any time. We recognized approximately $1,430,000 and $2,720,000 of DermaVital ® revenue during 2016 and 2015, respectively.

 

no!no! ®

 

On January 23, 2017, we acquired the no!no! ® brand, which includes an array of hair removal and skin care devices with proven technology that is portable, can be used at home and targets a broad demographic that includes anyone with unwanted hair.

 

The no!no! ® hair removal products treat and remove the hair by using Thermicon ® technology, which was developed on the basic principle of sending heat signals to the hair. When used consistently over time, Thermicon ® can reduce the regrowth of hair. Additionally, unlike other hair removing technologies, no!no! ® Thermicon ® works on all hair color and skin tones. The no!no! ® hair removal line includes a few options that vary in size and power including the Micro, Pro, Ultra, and yet to be released is the no!no! ® Pivot, the most powerful and agile version to date, complete with a pivoting head to target hard to reach curves and 2 additional intensity levels.

 

Also under the no!no! ® brand, is the no!no! ® Skin device which uses light and heat, the same technology available in dermatologist’s offices, to calm inflammation and kill bacteria in the pore to fight acne. With two ten-second treatments in the morning and evening up to 81% of consumers saw clearance of acne within 24 hours. no!no! ® has a FDA 510(k) clearance with the U.S. Food and Drug administration (FDA).

 

In addition to the devices, the no!no! ® brand includes an array of consumable skin care products under the name no!no! ® Smooth, which are developed to work with the devices to improve the treated skin.

 

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Kyrobak ®

 

On January 23, 2017, we acquired Kyrobak ® which was developed to relieve back pain, using continuous passive motion (CPM) to increase mobility and improve wellness from the comfort of your home. CPM technology is a standard treatment in sports health and rehabilitation clinics around the world. Kyrobak ® is designed to move your spine in the same range of motion you would experience when walking at a steady pace. CPM technology brings motion to your spine allowing the vertebrae to open up and decompress. The key demographics for this brand are older men and women.

 

Cleartouch ®

 

On January 23, 2017, we acquired ClearTouch ® which provides FDA cleared technology resulting in a no mess option to help with nail fungus. This product is safe, clean and is backed by customer testimonials that have seen impressive results with only two treatments a day that last only 10 seconds each by emitting heat and light to the affected area. Sized no larger than a cell phone and weighing only 3.4 ounces, ClearTouch ® can be easily stowed for travel and targets men and women who suffer from nail fungus.

 

Ermis Labs Medicated Bars

 

On January 23, 2017, we acquired Ermis Labs Medicated Bars, which provides affordable, reliable relief for some of the toughest conditions including acne, psoriasis, dandruff, dermatitis and fungus resulting in a broad target audience. Every bar is dermatologist recommended and formulated with Sea Whip Coral Extract, – a natural, renewable resource found in the Caribbean proven to help reduce inflammation, irritation and redness. They are also enriched with Vitamin A to keep skin cells healthy, Vitamin E to protect skin cells from free radicals and Shea Butter to moisturize and heal skin.

 

CoralActives ®

 

In March 2014, we entered into a licensing agreement with Ermis Labs, in which we obtained the exclusive worldwide rights to manufacture and distribute their line of CoralActives ® acne treatment and skin cleansing products. In January 2017, we acquired the CoralActives ® brand from Ermis Labs. This product line consists of a retinol exfoliating cleanser, penetrating acne serum gel, moisturizer, cleansing bar and motorized cleansing brush and targets younger men and women. The entire line is formulated with Sea Whip Coral Extract, a renewable resource found in the Caribbean that carries natural anti-inflammatory properties. This key ingredient allows for a higher Benzoyl Peroxide concentration, resulting in an acne treatment more powerful and gentler than the competition. We had sales of approximately $53,000 and $51,000 for the years ended December 31, 2016 and 2015, respectively.

 

Derma Brilliance TM

 

In April 2013, we entered into a licensing agreement with DermaNew, Inc., in which we obtained the exclusive worldwide rights to manufacture and distribute Derma Brilliance TM , a patented anti-aging, exfoliating and resurfacing system that targets middle aged to older women. The DermaBrilliance TM Sonic Exfoliation System cleanses, exfoliates and massages your skin for a smooth, luminous more youthful appearance. Clinically proven to visibly reduce the signs of aging by removing dull, dry, skin and debris to bring new, fresh skin to the surface for a radiant, glowing look. The DermaBrilliance TM System combines a revolutionary random orbit skin care device, operating at 5,000 oscillations, with the Jewel Resurfacing Cream. This patented formula is infused with 1 full carat of micronized diamond and over 100 carats of micronized garnets for a luxury spa treatment at home. The DermaBrilliance TM product line also includes an array of skin care products including moisturizers, cleansers and replacement heads. We had sales of approximately $368,000 and $237,000 in the years ended December 31, 2016 and 2015, respectively.

 

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Elastin-rp ®

 

In July 2013, we acquired the exclusive worldwide rights to Elastin-rp ® through 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. Targeting older women, 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. We had sales of approximately $35,000 and $117,000 in the years ended December 31, 2016 and 2015, respectively.

 

Wrinkle Filler

 

In June 2016, we began purchasing and marketing and selling, Skineance Wrinkle Filler from the dirstributor, Intersourcing Inc., a Belgium corporation on a non-exclusive basis. Wrinkle Filler is a remarkable serum that will visually make your lines and wrinkles disappear within seconds. Targeting older women, Wrinkle Filler is effective on crow’s feet, forehead wrinkles, lion’s brow, lip/laugh lines and under eye wrinkles, this anti-wrinkle silicone gel also moisturizes giving the appearance of healthy, youthful skin. We sell Wrinkle Filler in the U.S., Canada, and United Kingdom (“U.K.”) markets. We had sales of approximately $27,000 for the year ended December 31, 2016.

 

Juvion

 

In November 2013, we acquired exclusive worldwide licenses to two unique facial beauty devices that we had brand under the trademark Juvion. The Juvion product line features a Face Wand, Eye Wand, serum and beauty masks and targets older women. The Juvion Face Wand and Eye Wand use three types of energy to gently, yet effectively reduce fine lines and wrinkles. Using Electroporation (Galvanic Wave Energy), Radio Frequency (RF) and Electric Muscle Stimulation (EMS), this multi anti-wrinkle technology stimulates blood circulation to increase the composition of collagen and elastin. Combined with the Juvion Serum which undergoes a patented encapsulation ion-charged treatment process, conducts the electrical currents to penetrate deeply into the skin. We had sales of approximately $10,000 and $0 for the year December 31, 2016 and 2015, respectively.

 

Jidue TM

 

In July 2014, we entered into an exclusive marketing agreement with Audy Global Enterprises Inc., in which we obtained the exclusive worldwide license to market and distribute the Jidue TM Facial Massager Mask. Jidue TM Facial Massager gently massages your temples and the skin around your eyes to help improve both your quality of sleep and under eye appearance targeting middle aged and older men and women. Using ancient acupressure principles, 18 uniquely positioned pulsating nodes to stimulate the 4 key pressure points around the eye to increase facial blood circulation and lymph flow. Jidue TM is clinically proven to help relieve eye puffiness, dark circles and facial tension. Jidue TM helps relieve stress to fall asleep fast and sleep soundly through the night. We had sales of approximately $380,000 and $201,000 for the year December 31, 2016 and 2015, respectively. In 2016, we incurred production costs for a new infomercial of approximately $117,000 compared to $32,000 in the year ended December 31, 2015.

 

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Dr. Ho’s PerfectBack TM Rest

 

In August 2016, we entered into an exclusive marketing and distribution agreement to sell the Dr. Ho’s PerfectBack TM Rest in the United States. The Dr. Ho’s PerfectBack TM Rest transforms any chair at home, in the office or in the car into an ergonomic seating experience. Dr. Michael Ho, Doctor of Chiropractic and Acupuncture, engineered this back support system with 16 pressure point massagers to soothe achy muscles. Targeting middle aged and older men and women, the PerfectBack TM Rest attaches quickly and easily to any chair to support the spine’s natural curve to promote healthy posture. It can also be used on the floor as a spinal bridge for stretching and to support your back during abdominal exercises. We had sales of approximately $20,000 for the year December 31, 2016.

 

Good Planet Super Solution TM

 

Good Planet Super Solution TM is a safe solvent that cleans, shines, seals and protects any hard surface, inside or outside. This German formulated, non-toxic, environmentally friendly solution contains no petroleum distillates, aromatics or solvents as a base. Targeting middle aged and older men and women, Good Planet Super Solution TM can be used on cars, trucks, boats, jet ski’s, stainless steel appliances, marble, wood laminate, ceramic/glass countertops, tile, glass/mirrors, shower screens chrome and any non-porous hard surface. We had sales of approximately $13,000 and $234,000 for the year ended December 31, 2016 and 2015, respectively, primarily from our international distributors.

 

Other Products

 

We continue to seek new products and have plans to market a number of additional products within its distribution network in 2017, including an at-home pedicure device, the Ultimate Pedi by Dermawand, the Point Perfect Sprinkler, which has twelve adjustable heads that allow you to quickly and easily water your whole yard, and an exercise device, Spin Force.

 

ICTV Brands Strategic Approach

 

As consumer trends and viewership habits evolve, a successful marketer needs to be adaptive and adjust to the marketplace. To meet this demand, we employ an omni-channel approach to test, launch and develop our brands. This strategy has become key to a brand’s success and allows marketers to meet consumers’ wants and needs no matter their demographic, habits or buying preferences.

 

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As we expand the brands and their distribution channels, the marketing efforts to support them are selected based on the type of product, the key demographic, competitive trends and historical performance across similar products/brands. As each brand differs so does the formulaic approach to the media mix, however we employ one or many of the following to profitably support our company.

 

Digital Advertising – The online world changes daily and with the advancements of targeted advertising based on behavioral habits and demographic, we have shifted our key testing approach from television to digital initiatives. This helps minimize the marketing waste, which leads to smaller but more efficient testing budgets to more pragmatically determine the next steps for a brand. This strategic approach is applied to the launch of new products, sustaining mature products and re-establishing dormant products with the ultimate goal of driving consumers to the brand’s direct site and converting the visitor into a sale.

 

The digital space offers a variety of marketing opportunities that are used to test, expand and grow the brands; however we focus on the following elements of digital marketing;

 

  o Paid Search – Advertising within the sponsored listings of a search engine or partner site by bidding certain keywords allows us to hit the consumer when they are searching for a term related to a brand.
     
  o Email Marketing – Utilizing email lists, typically built from past customers, drives sales that start directly from the consumer’s inbox and allows us to customize a message and exclusive offer with direct delivery.
     
  o Programmatic – Automated bidding on online inventory based on previous buyer’s data allows for cost efficient expansion that adjusts automatically for unsurpassed efficiencies.
     
  o Social Media – With consistent increase in consumer’s social media intake and the demographic details available about the consumer, utilizing the top tiered social media platforms (i.e. Facebook, YouTube) allows us to deliver targeted creative in environments consumers trust to educate, communicate and interact with about the brands.
     
  o Remarketing – Following and offering creative to those that have already visited a brand’s site is a necessary layer to our digital advertising approach as it allows to build frequency and convert the visitor to a future sales.
     
  o Text, Display & Video – We use a combination of carefully constructed text, imagery and video across a variety of digital initiatives to educate and drive the consumer to act in a way that results in a sale.

 

Direct Response Television (DRTV) – Reaching a mass audience with a television creative that elicits an action is one of the original pillars of direct response marketing. With the advancements of DVR and online streaming alongside the massive advancements in digital advertising, DRTV has lost some of its market share to other methods. However, DRTV remains a significant source to drive large sale volumes for us. A variety of factors affect what goes into a brand’s DRTV media mix including the product category, target audience, offer/price point, and competitive behavior. We evaluate these elements for each brand to determine if DRTV is the right fit for the product. If a brand is the right fit for DRTV a strategic plan is developed around the following elements;

 

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  o Length – Different lengths of creative are employed depending campaign’s goal. For brands with a direct sale focus, longer lengths (longform), including infomericals and 5-minute creatives are used. We more often employ this type of length as it provides ample time to educate the consumer to a point of direct purchase for a product with a higher price point, more typical of the ICTV portfolio. Shorter lengths (shortform), including any creative shorter than 2 minutes, are typically employed for brands with lower price points or for branding and drive to retail initiatives. ICTV utilizes these lengths however more sparingly.
     
  o Geography – DRTV media is offered on a national level and local level. As we typically do not have any geographic restrictions and can deliver our products nationwide, all media options are viable. Our DRTV strategic approach involves a combination of national and local media.
     
  o Media Type/Station – With thousands of channels and television programs to choose from, we select the appropriate media type (such as national cable, local broadcast, syndication, and network) and station combination based on the target demographic, cost structure, historical performance, competitive presence and available time.

 

Continuity Program – One of the key factors in selecting brands for our portfolio is the presence of consumables that could be packaged for a continuity program, in which the items are automatically charged and shipped to the consumer based on a predetermined usage schedule. This continuous automatic flow of sale allows us to invest more into converting the initial sale with the expectation of future revenue without additional investment.
   
Cross Selling – Our portfolio consists of a myriad of products that provide solutions to different consumer problems. However, the brands target demographics largely overlap creating an opportunity to cross sell. We build strong order flows that take the consumer through a variety of upsells and downsells across brands to build the final sale’s total. Whether on the initial inbound sales call, outbound sales call, inbound customer service call or online via the order flows at the direct sites and through email blasts across customer lists, cross selling is an essential part of our strategy that is employed across every brand in the portfolio.
   
Retail/E-Commerce Sales - To capitalize on the brand and product awareness created through the direct sale media support, we move logically to the traditional retail stores and online ecommerce retailers transitioning from the direct response audience to the retail audience. Brand marketers must invest significantly in marketing costs to introduce a new brand. However we leverage the direct sale media and the product/brand awareness incurred to cost efficiently enter and support the retail environment.

 

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Live Home Shopping – Our portfolio of demonstrable products makes them ideal for live home shopping opportunities. Live home shopping networks such as QVC, the Home Shopping Network (HSN) and The Shopping Channel Canada (TSC), have a very large and loyal consumer base providing the brands an opportunity to demonstrate the product live, offer an exclusive deal and grow brand awareness profitably.
   
International Third Party Distributors – We distribute product by either selling direct in a country or partnering with a third party distributor who purchases the products at wholesale pricing and sells it at an agreed upon region/country exclusively. Partnering with these distributors allows us to quickly and cost efficiently enter a market and tailor the brand by region without the cost and risk of setting up a direct selling platform. We work with these distributors to geographically expand the brands in their portfolio as well as add new brands to their portfolio by licensing products from their portfolios to sell in the regions where we have direct sale capabilities.
   
Print – Direct mail, inserts and print media are employed to extend a brand’s message, target specific geographic locations, increase brand awareness and/or drive direct sale. This type of media tends to resonate with an older demographic which overlaps into many of the products in our portfolio.

 

Regardless of the marketing initiatives, we utilize a flexible methodology to drive a brand from testing to profitable rollout. This methodology is based on a platform of continuous testing, evaluating, retesting and expansion, moving forward only with those initiatives that provide a profitable return. As the marketplace changes, this approach allows us to identify any shifts and adjust to meet the new standards. ICTV continuously looks for new media outlets, creative approaches and 3 rd party vendors to cautiously test to keep the brands growing and profitable.

 

Customer Service

 

We seek to provide our customers with quality customer service. We generally offer an unconditional 30-day money back return policy to purchasers of our products. For our products newly acquired on January 23, 2017, Cleartouch ® , Kyroback ® and no!no! ® we currently offer 60-day money back return policy to purchasers of our products. Our policy is to investigate the cause of returns if returns begin to undermine our expectations for a product’s profitability.

 

Competition

 

We compete directly with several established companies that generate sales from infomercials and direct response television, as well as small independent direct response television producers. Products like ours may be sold in department stores, pharmacies, general merchandise stores, magazines, newspapers, direct mail advertising, catalogs, and over the internet. Many of our major competitors, which include Telebrands Corp. and Guthy-Renker Corp., have substantially greater financial, marketing and other resources than do we.

 

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We expect that we will face additional competition from new market entrants and current competitors as they expand their direct marketing business models. The barriers to entry in the infomercial industry are low, but there are many difficult hurdles for young entrants to overcome for success in the long-term. To be competitive, we believe we must respond promptly and effectively to the challenges of technological change, evolving standards and our competitors’ innovations. We must also source successful products, create brand awareness and utilize good sales pitches for our products. We believe that although we have a limited operating history, we are strategically positioned to compete because of our management’s experience and strong relationships in the industry. In addition, we feel that associating our products with brands and focusing on the traditional retail environment, as we intend to do, will give us a competitive advantage over traditional infomercial companies who fail to capitalize on the consumer awareness they create through their infomercials.

 

Intellectual Property

 

Our success is dependent, in part, upon our proprietary rights to our primary products. The following consists of a description of our intellectual property rights.

 

Trademarks

 

We have several registered trademarks for DermaWand TM , DermaVital®, Jidue TM , Good Planet Super Solution TM , Derma Brilliance TM , and CoralActives® throughout the world. In addition, under our current licensing agreements for all products, all related trademarks are assigned to us. Further, all registered trademarks for the family of no! no!®, Kyrobak®, Thermicon® and Ermis Labs® have been assigned to us.

 

Patents

 

We own the worldwide patent and all related trademarks for DermaWand TM and CoralActives® as is necessary to manufacture, market and distribute DermaWand TM and CoralActives®. In addition, under our current licensing agreements for all products, all related patents are assigned to us. Further, all registered patents for the family of no! no! ® , Kyrobak®, Thermicon® and Ermis Labs® patents have been assigned to us.

 

Copyrights

 

We have copyright registrations for all versions of our infomercials.

 

There can be no assurance that our current or future intellectual property rights, if any, will not be challenged, invalidated or circumvented, or that any rights granted under our intellectual property will provide competitive advantages to us. In addition, there can be no assurance that claims allowed on any future patents will be sufficiently broad to protect our products. The laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. We intend to enforce our proprietary rights using licensing agreements and, when necessary, litigation. Although we believe the protection afforded by our patents, trademarks, copyrights and registered designs has value, rapidly changing technology and industry standards make our future success depend primarily on the innovative skills, expertise, and management abilities of our team rather than on patent and trademark protection.

 

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Royalty Agreements

 

In April 2000, we assumed from R.J.M. Ventures Limited and Better Blocks International Limited, through the share and option purchase agreement we signed with The Better Blocks Trust, the obligation to pay royalties on the sales of the DermaWand TM . Under a marketing and royalty agreement with the developer of DermaWand TM , we were obligated to pay them a royalty at a fixed rate per unit sold. Under a purchase agreement that we entered into on January 22, 2016 with Omega 5 Technologies, Inc., we acquired the DermaWand TM patent and all related trademarks for the sum of $1,200,000 paid out as follows: $300,000 per year for calendar years 2016 through 2019, payable in uniform quarterly installments on or before the last day of each calendar quarter. No interest was charged, and we may, in our sole discretion, at any time without permission or penalty, pre-pay some or all of the purchase price. Thus, effective January 1, 2017, we are no longer obligated to make royalty payments on sales of DermaWand TM .

 

In April 2013, we entered into a licensing agreement with DermaNew, in which we obtained the exclusive worldwide rights to manufacture and distribute Derma Brilliance TM , a patented anti-aging, resurfacing and skin polishing system. The agreement contains royalties based on a percentage of net sales.

 

In July 2013, we 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. The agreement contains royalties based on a percentage of net sales.

 

In March 2014, we entered into a licensing agreement with Ermis Labs, in which we obtained the exclusive worldwide rights to manufacture and distribute their line of CoralActives® acne treatment and skin cleansing products. In January 2017, we acquired the assets of Ermis Labs, which included all the intellectual property associated with the CoralActives® acne treatment system of products, as well as five unique formulas for medicated cleansing bars that treat such conditions as acne, psoriasis, dermatitis, dandruff and fungus. We are required to pay a minimum annual royalty amount of $175,000 on or before December 31 of each year commencing with calendar year ending December 31, 2017, continuing until the total royalty paid to Ermis Labs totals $1,750,000.

 

In July 2014, we entered into an exclusive marketing agreement with Audy Global Enterprises Inc., in which we obtained the exclusive worldwide license to market and distribute the Jidue TM Facial Massager Mask and associated products, provided that the license does not include the right to manufacture the product. The agreement contains royalties based on a percentage of net sales.

 

In January 2017, we completed the PhotoMedex and Ermis Labs acquisitions of proprietary products and services that address skin diseases and conditions or pain reduction using home-use devices for various indications, the CoralActives® brand and related intellectual property, as well as five unique formulas for medicated cleansing bars that treat such conditions as acne, psoriasis, dermatitis, dandruff, and fungus. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Transactions” for more information regarding these acquisitions.

 

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In connection with the PhotoMedex acquisition, we are required to pay to PhotoMedex and its subsidiaries a continuing monthly royalty on net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of the consumer products that we acquired from PhotoMedex. Such royalty payments commence with net cash actually received from and after January 23, 2017 and continue until the total royalty paid to PhotoMedex and its subsidiaries totals $4,500,000, calculated as follows: (i) 35% of net cash from the sale of all acquired consumer products sold through live television promotions made through Home Shopping Network (HSN) in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, less (a) deductions for sales commissions actually paid and on-air costs incurred for those amounts collected related to the sale of the acquired consumer products made through HSN in the United States, QVC in the European Union, and The Shopping Channel (TSC) in Canada, and (b) the cost of goods sold to generate such net cash; and (ii) 6% of net cash from the sale of all acquired consumer products other than the foregoing sales.

 

In connection with the Ermis acquisition, we are required to pay to Ermis Labs a continuing monthly royalty of 5% of net cash (invoiced amount less sales refunds, returns, rebates, allowances and similar items) actually received by us or our affiliates from sales of the over-the-counter medicated skin care products acquired in the Ermis Labs acquisition, commencing with net cash actually received by us or our affiliates from and after January 23, 2017 and continuing until the total royalty paid to Ermis Labs totals $1,750,000; provided, however, that we are required to pay a minimum annual royalty amount of $175,000 on or before December 31 of each year commencing with calendar year ending December 31, 2017.

 

Governmental Regulation

 

We are subject to regulation by a variety of federal, state and local agencies, including the Federal Trade Commission, the Federal Communications Commission, the Consumer Product Safety Commission, Health Canada, the Canadian Standards Association and the Food and Drug Administration under the FDC Act. The government regulations to which we are subject vary depending on the types of products we manufacture and market. As we begin to market a broader variety of products and services, we may become subject to regulation by additional agencies.

 

We are also subject to the Federal Mail/Telephone Order Rule. Under the Mail/Telephone Order Rule, it is an unfair or deceptive act or practice for a seller to solicit any order for the sale of merchandise to be ordered by the buyer through the mail or by telephone unless, at the time of the solicitation, the seller has a reasonable basis to expect that it will be able to ship the ordered merchandise to the buyer within 30 days after the seller’s receipt of a properly completed order from the buyer. If the buyer uses credit to pay for the merchandise, the period within which the seller must ship the merchandise to the buyer is extended to 50 days. Under the Mail/Telephone Order Rule, the seller, among other things, must provide the buyer with any revised shipping date. If the seller is unable to fulfill an order within 30 or 50 days, as the case may be, then the seller must provide the buyer an option either to consent to a delay in shipping or to cancel their order and receive a prompt refund.

 

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There can be no assurance that new laws, rules, regulations or policies that may have an adverse effect on our operations will not be enacted or promulgated at a future date.

 

Employees

 

As of December 31, 2016, we employed a total of eleven employees. We consider our labor relations to be good. None of our employees are covered by a collective bargaining agreement.

 

Research and Development

 

Our research and development costs have consisted of efforts to discover and develop new products and the testing and development of direct-response advertising related to these products. During the years ended December 31, 2016 and 2015, we spent a total of $111,000 and $115,000, respectively, on research and development.

 

Available Information and Reports to Stockholders

 

We are subject to the information and periodic reporting requirements under Section 12(g) of the Securities Exchange Act and, accordingly, will file periodic reports, proxy statements and other information with the Securities and Exchange Commission. Any document we file may be read and copied at the Commission’s Public Reference Room located at 450 Fifth Street NW, Washington DC 20549. Please call the Commission at 1-800-SEC-0330 for further information about the public reference rooms. Our filings with the Commission are also available to the public from the Commission’s website at http://www.sec.gov.

 

DESCRIPTION OF PROPERTY

 

Our executive offices are located at 489 Devon Park Drive, Suite 306 in Wayne, Pennsylvania where we lease 5,298 square feet with a monthly lease payment of approximately $9,700, which expires in February 2022. We believe that our present facilities will be suitable for the operation of our business for the foreseeable future and should we need to expand, we expect that suitable additional space will be available on commercially reasonable terms, although no assurance can be made in this regard. Our property is adequately covered by insurance in the Wayne location.

 

LEGAL PROCEEDINGS

 

During August 2016, we filed a suit against Kia USA for trademark infringement on the DermaWand TM . We signed a settlement agreement and received $60,000 in February 2017.

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition, operating results or cash flow.

 

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MANAGEMENT

Executive Officers, Board of Directors

 

The following table sets forth the names, positions and ages of our executive officers and directors as of the date of this prospectus. Our directors are elected by our stockholders at each annual meeting and serve staggered one-year terms and until their successors are elected and qualified. Officers are elected by our board of directors and their terms of office are at the discretion of our board.

 

Name   Age   Position
Kelvin Claney   67   Chief Executive Officer, Secretary and Chairman
Richard Ransom   38   President
Ernest P. Kollias, Jr.   43   Chief Financial Officer
Stephen J. Jarvis   63   Director, Audit Committee Member
William N. Kinnear   72   Director, Audit Committee Chair
Donald McDonald, Jr.   64   Director, Audit Committee Member
Diana Pessin   44   Director, Audit Committee Member

 

The following biographies describe the business experience of our company’s current executive officers and directors.

 

Kelvin Claney . Kelvin Claney has served as a director of our company since January 2001, and has served as our Chief Executive Officer since 2001. Mr. Claney began working in the United States direct response business in 1989 as an independent contractor to National Media Corp., where he produced, sourced, and executive-produced various infomercial projects, including Euro Painter, HP9000, Auri polymer sealant and Color Cote 2000 TM , Dustmaster 2000, LeSnack, Iron Quick and Fatfree Express. Since 1992 until 2014, Mr. Claney has served as President of R.J.M. Ventures, Inc., a television direct response marketing company, where he was responsible for such things as identifying projects in which we want to become involved, selecting production companies to produce infomercials and selecting media times to promote the infomercials. The creation of the SmartStacks TM infomercial, which is now owned by us, was one of the projects Mr. Claney was responsible for as President of R.J.M. Ventures, Inc. He also created the infomercial for the children’s toy product known as BetterBlocks TM , which was then owned by The Better Blocks Trust.

 

Richard Ransom . Richard Ransom joined ICTV in July of 2008 as our Controller, and was appointed as Chief Financial Officer on December 8, 2008. Mr. Ransom joined our company with experience in financial management roles at Traffic.com, Hildebrandt International, and Grant Thornton. He is a graduate of Pennsylvania State University with a degree in Accounting, and received his MBA from Delaware Valley College in December 2009. In August 2011, Mr. Ransom was promoted to President of ICTV. Mr. Ransom resigned his position as Chief Financial Officer effective January 1, 2014, but remains as our President.

 

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Ernest P. Kollias, Jr . Ernest P. Kollias, Jr. joined our company in October of 2016 as our Chief Financial Officer. Prior to joining our company, Mr. Kollias served as the CEO and President of Freedom Financial Advisory & Capital Management, Inc. He is a Certified Financial Planner professional and business owner with over 22 years of experience in growing and developing businesses. He has also worked for Fortune 100 companies such as General Electric, SmithKline Beecham, Pfizer, and PNC Bank, and has held positions in finance, accounting, international operations, taxation, financial services, and insurance. He has also worked in public accounting for a globally recognized CPA firm before starting his own businesses over 15 years ago.

 

Stephen Jarvis . Stephen Jarvis has served as a director of our company since December 17, 2009. Mr. Jarvis is the co-founder and President of Positive Response Vision, Inc., located in Manila, Philippines. Formed in 1996, Positive Response Vision is one of the largest infomercial-based direct response companies in Southeast Asia, and has 400 employees. The company markets and distributes a vast range of products throughout the Philippines. As President, Mr. Jarvis is responsible for product sourcing and acquisition, inventory, finance control and design issues. Mr. Jarvis also produces infomercials in a private capacity, licensing them to Positive Response Vision and other international infomercial companies. Mr. Jarvis has been engaged in direct response marketing since 1983.

 

William Kinnear . William Kinnear became a director of our company in March 2013. Mr. Kinnear is a Chartered Professional Accountant in Canada, and has more than 40 years of experience as a senior officer with a variety of companies, both public and private, in the accounting and financial disciplines. His experience includes the areas of mortgage underwriting and finance, point of sale, steel fabrication, secretarial services, and investments. Mr. Kinnear is currently Corporate Secretary for a private investment company, and provides corporate secretarial services to a variety of companies, working closely with stock exchanges and security commissions within Canada.

 

Donald McDonald, Jr. Donald McDonald, Jr. became a director of our company in April 2014. Mr. McDonald’s 40-year career spans several organizations from financing to direct response advertising to technology and media. His responsibilities as a founder and executive over the past 30 years include strategy, vision, management, operational and sales. In particular, Mr. McDonald led National Media Corporation, a direct response marketing company, to $320 million in annual sales and a NYSE listing as a public company. Mr. McDonald is currently with Great Valley Capital Advisors, assisting companies with corporate development and strategy.

 

Diana Pessin . Diana Pessin became a director of our company in January 2016. Ms. Pessin has more than fifteen years of senior-level business management experience in product and direct to consumer marketing. Ms. Pessin is currently Vice President of User Acquisition & Programmatic Buying with HBO, where she leads the customer acquisition strategy for HBO’s streaming service and oversees a multi-million dollar media budget to drive subscriptions across search, display, video, paid social and programmatic buying efforts. She has extensive experience in developing coordinated marketing and promotional campaigns, partnership negotiations, and analysis of sales and finances. Additionally, Ms. Pessin has served in consumer marketing roles at Sportscapsule, Inc. and Colgate-Palmolive Company. Ms. Pessin holds an MBA with a Concentration in Marketing and Media Management from Columbia University, a Bachelors of Science with Distinction in Applied Economics and Business Management from Cornell University.

 

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There is no family relationship between any director, executive officer, or person nominated or chosen by our company to become a director or executive officer.

 

Section 16(A) Beneficial Ownership Reporting Compliance

 

Control persons, including all directors and executive officers, of our company are required by Section 16(a) of the Securities Exchange Act, to report to the SEC their transactions in, and beneficial ownership of, our common stock, including any grants of options to purchase common stock. To the best of our knowledge, our directors and executive officers, and beneficial owners of more than 10% of our common stock, timely filed all required reports with the SEC during the year ended December 31, 2016.

 

Audit Committee and Code of Ethics

 

Our Audit Committee consists of our four independent members, William Kinnear, Stephen Jarvis, Donald McDonald, Jr. and Diana Pessin. Mr. Kinnear is Chairman of the Audit Committee and is considered the Audit Committee financial expert. We have not yet adopted a code of ethics applicable to our senior management, or persons performing those functions, due to the small number of persons involved in management of our company.

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth all compensation paid or earned for services rendered to our company in all capacities during the years ended December 31, 2016 and 2015, by our executive officers.

 

Name And Principal Position   Year    

Salary

($)

   

Bonus

($) (1)

   

Stock

($) (1)

   

Option Awards Granted

($) (3)

 
Kelvin Claney (Chief Executive Officer)     2016       290,000       -       -       -  
      2015       290,000       -       -       -  
                                         
Richard Ransom (President)     2016       200,000       -       -       -  
      2015       200,000       -       -       -  
                                         
Ernest P. Kollias, Jr. (Chief Financial Officer) (1)     2016       40,000       -       -       195,000  
      2015       -       -       -       -  
                                         
Ryan LeBon (former Chief Financial Officer) (2)     2016       105,000       -       -       -  
      2015       140,000       -       -       9,400  

 

(1) Ernest P. Kollias, Jr. joined our company on October 10, 2016 as our Chief Financial Officer with an annual salary of $160,000.

(2) Ryan LeBon had an annual salary of $140,000 and resigned form the position of Chief Executive Officer effective September 30, 2016.

(3) Option awards measured in accordance with FASB ASC Topic 718 and such awards vest over three years. See Note 2 for further information.

 

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Employment Agreements

 

We entered into an employment agreement with Kelvin Claney, our Chief Executive Officer, effective March 1, 2011, the terms of which were amended in January 2017. Under the terms of the new employment agreement, effective January 1, 2017, the employment term is three years, which automatically renews each year for a new three-year term, unless terminated in accordance with the terms of the employment agreement. For the first three years, Mr. Claney will serve as CEO. Thereafter, Mr. Claney will serve as Creative Director, responsible for product identification and development, infomercial and video commercial development and product sales initiatives. As CEO, Mr. Claney will receive an annual salary of $290,000, subject to annual review and adjustment. Once Mr. Claney becomes Creative Director, his salary will be reduced as agreed at the time, but not less than $175,000 per year. Mr. Claney will also be reimbursed for the reasonable cost of a supplemental health insurance policy, as approved by the Company’s Compensation Committee, to supplement his Medicare primary insurance, will participate in the Company’s group life and disability policies, will receive an automobile allowance, and will be eligible to participate in all other benefits awarded to the Company’s senior management, such as employee stock option plans, profit-sharing plans and 401k plans. While he is CEO, Mr. Claney will be entitled to an annual bonus equal to a percentage of the Company’s EBITDA over $1,000,000. EBITDA, which is an acronym for earnings before interest, taxes, depreciation, and amortization, is a financial measurement of the Company’s operating performance. The percentage used to calculate the bonus ranges from 1% up to 3.5% to the extent EBITDA exceeds $5,000,000. If the Company’s EBITDA for any year does not show an increase over the prior year, the amount of the performance bonus shall be subject to review and appropriate adjustment by the Company’s Compensation Committee. Mr. Claney’s employment agreement may be terminated on death, disability, or for cause, in which event Mr. Claney will receive his salary, benefits and bonus as accrued through the date of termination. The employment agreement may also be terminated without cause, in which event Mr. Claney will be entitled to his salary through the remaining term, his benefits and bonus as accrued through the date of termination, immediate vesting of any stock options previously granted to him and 1,000,000 shares of the Company’s common stock.

 

On April 17, 2012, we entered into an employment agreement with Richard Ransom, our President, the terms of which were amended in January 2017. Under the terms of the new employment agreement, effective January 1, 2017, the employment term is three years, which will automatically renew each year for a new three-year term unless terminated in accordance with the terms of the employment agreement. Mr. Ransom will receive an annual salary of $225,000, subject to annual review and adjustment. Mr. Ransom will be eligible to participate in the Company’s group health, life and disability policies, will receive an automobile allowance, and will be eligible to participate in all other benefits awarded to the Company’s senior management, such as employee stock option plans, profit-sharing plans and 401k plans. The employment agreement provides that Mr. Ransom will be entitled to an annual bonus equal to a percentage of the Company’s EBITDA over $1,000,000. The percentage used to calculate the bonus ranges from 1% up to 3.5% to the extent EBITDA exceeds $5,000,000. If the Company’s EBITDA for any year does not show an increase over the prior year, the amount of the performance bonus shall be subject to review and appropriate adjustment by the Company’s Compensation Committee. The employment agreement may be terminated on death, disability, or for cause, in which event Mr. Ransom will receive his salary, benefits and bonus as accrued through the date of termination. The employment agreement may also be terminated without cause, in which event Mr. Ransom will be entitled to his salary through the remaining term, his benefits and bonus as accrued through the date of termination, immediate vesting of any stock options previously granted to him and 1,000,000 shares of the Company’s common stock.

 

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On June 26, 2014, we entered into an employment agreement with Ryan LeBon, former Chief Financial Officer. Under the terms of the employment agreement, we paid an annual salary that was subject to review and, if appropriate, adjustment on an annual basis by the Board of Directors. Effective January, 1, 2015, this annual salary was increased to $140,000 from $125,000 and approved by the Board of Directors. The former Chief Financial Officer was also entitled to annual performance bonuses as determined appropriate by the Board of Directors, and was entitled to receive stock options and other employee benefits such as health insurance reimbursement; automobile allowance and other reimbursable expenses. Effective September 30, 2016, Ryan LeBon resigned from his position as Chief Financial Officer.

 

On October 6, 2016, we entered into an employment letter agreement with Ernest P. Kollias, Jr., our Chief Financial Officer. In January 2017, we entered into an employment agreement with Mr. Kollias for a three year term. Mr. Kollias will receive an annual salary of $160,000, subject to annual review and adjustment. Mr. Kollias will be eligible to participate in the Company’s group health, life and disability policies, will receive an automobile allowance, and will be eligible to participate in all other benefits awarded to the Company’s senior management, such as employee stock option plans, profit-sharing plans and 401k plans. The employment agreement provides that Mr. Kollias will be entitled to an annual bonus equal to a percentage of the Company’s EBITDA over $1,000,000. The percentage used to calculate the bonus ranges from .5% up to 2% to the extent EBITDA exceeds $5,000,000. If the Company’s EBITDA for any year does not show an increase over the prior year, the amount of the performance bonus shall be subject to review and appropriate adjustment by the Company’s Compensation Committee. The employment agreement may be terminated on death, disability, or for cause, in which event Mr. Kollias will receive his salary, benefits and bonus as accrued through the date of termination. The employment agreement may also be terminated without cause, in which event Mr. Kollias will be entitled to his salary through the remaining term or, if greater, for 18 months, his benefits and bonus as accrued through the date of termination, and immediate vesting of any stock options previously granted to him.

 

Compensation of Directors

 

During 2016, Stephen Jarvis, William Kinnear, Donald McDonald, Jr. and Diana Pessin each received $9,000 as compensation for their service as directors. During 2015, Stephen Jarvis, William Kinnear and Donald McDonald, Jr. each received $9,000 as compensation for their service as directors. In 2016 and 2015, Stephen Jarvis was paid $0 and $3,617, respectively, for commissions above and beyond his duties as a director. As part of her appointment as director on January 7, 2016, Diana Pessin was awarded 50,000 options at a price of $0.2057. For the year ended December 31, 2017, each director will receive an annual stipend of $9,000.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT

 

The following table sets forth certain information regarding the beneficial ownership of our common stock sold in this offering. Since shares of common stock are being sold by the selling stockholders and not the company, the information for each person below does not change because of the offering, except as otherwise indicated in the footnotes. The number of shares beneficially owned by each entity, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and any shares which the individual or entity has the right to acquire within sixty days of March 31, 2017 through the exercise of an option, conversion feature or similar right. See the section entitled “Description of Shares” for more information about the shares of the company.

 

Directors and Officers   Title  

Number of

Shares Owned

   

Percent of

Class Owned (19)

 
               
Kelvin Claney (1) (7) (14)   Chairman of the Board of Directors and Chief Executive Officer     8,648,536       16.4 %
Richard Ransom (1) (8)   President     2,080,332       3.9 %
Ernest P. Kollias, Jr (1) (9)   Chief Financial Officer     363,500       0.7 %
Stephen Jarvis (2) (10)   Director     546,999       1.0 %
William Kinnear (3) (11)   Director     141,667       0.3 %
Donald McDonald, Jr. (4) (12)   Director     116,667       0.2 %
Diana Pessin (5) (13)   Director     2,063,518       4.0 %
All directors and officers as a group (7 persons named above)         13,961,219       25.7 %
5% Security Holders                    
The Better Block Trust, declared January 1, 1994 (6)         6,668,660       12.7 %
Norman Pessin (15)         2,240,484       4.3 %
Sandra Pessin (15) (20)         5,696,079       10.9 %
LeoGroup Private Debt Facility, L.P. (16)(17)         5,786,765       11.1 %
DG Value Partners, LP(18)         890,528       1.7 %
DG Value Partners II Master Fund (18)         3,911,235       7.5 %

 

* Less than 1%

 

Except as noted below, all shares are held of record and each record stockholder has sole voting and investment power. Ownership percentage calculations are based on 52,053,725 shares of common stock outstanding as of March 31, 2017.

 

(1) This business address for these persons is 489 Devon Park Drive, Suite 306. Wayne, PA 19087.
   
(2) Mr. Jarvis’ business address is 320 J P Razal Street, Unit 301, 3 rd Floor Aralco Bldg., Poblacion, Makati City 1210, Phillipines.
   
(3) Mr. Kinnear’s business address is 72 Airdrie Road, Toronto, Ontario M46 1M2, Canada.
   
(4) Mr. McDonald’s business address is 431 Drummers Lane, Wayne PA 19087.
   
(5) Ms. Pessin’s business address is 310 E 75th Street, Apt 2a, New York, NY 10021.
   
(6) The address for The Better Blocks Trust is 34 Manchester Court, Berwyn, PA 19312.
   
(7) Includes 533,333 shares as to which Mr. Claney holds exercisable options within 60 days, and 500,000 shares of common stock being sold in this offering, held jointly by Kelvin Claney and Robin Claney.
   
(8) Includes 1,141,666 shares as to which Mr. Ransom holds exercisable options within 60 days.
   
(9) Includes 200,000 shares as to which Mr. Kollias holds exercisable options within 60 days.
   
(10) Includes 183,334 shares as to which Mr. Jarvis holds exercisable options within 60 days.

 

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(11) Includes 141,667 shares as to which Mr. Kinnear holds exercisable options within 60 days.
   
(12) Includes 116,667 shares as to which Mr. McDonald holds exercisable options within 60 days.
   
(13) Includes 1,989,561 shares owned indirectly by spouse, Brian Pessin and 16,667 shares as to which Ms. Pessin holds exercisable options within 60 days.
   
(14) Includes 6,668,660 shares owned by The Better Blocks Trust, of which Mr. Claney is a joint trustee. Mr. Claney disclaims beneficial ownership of the shares and options owned or controlled by The Better Blocks Trust beyond the extent of his pecuniary interest.
   
(15) Mr. and Mrs. Pessin’s business address is 366 Madison Avenue, 14th Floor, New York, NY 10017.
   
(16) The address for LeoGroup Private Debt Facility, L.P. is 100 Wood Avenue South, #209, Iselin, NJ 08830.  The shares reported herein are held directly by LeoGroup Private Debt Facility, L.P., or LeoGroup LP.  LeoGroup Management, LLC, or LeoGroup Management, is the General Partner of LeoGroup LP.  LeoGroup Management is 100% owned by The Leo Group, LLC, or LeoGroup.  Matthew J. Allain is the principal owner of LeoGroup.  The shares directly owned by LeoGroup LP may be deemed indirectly owned by LeoGroup Management, Leo Group and Mr. Allain; however, each of LeoGroup Management, Leo Group and Mr. Allain disclaims beneficial ownership of these securities except to the extent of its respective pecuniary interest therein, if any, and the inclusion of these shares herein shall not be deemed an admission of beneficial ownership of all of the shares for purposes of Section 16 or any other purpose.
   
(17) Includes 4,411,765 shares of common stock being sold in this offering.  Assuming all the shares in this offering are sold, LeoGroup LP will own 1,375,000 shares, or 2.6%, after the offering.
   
(18) The address for DG Value Partners, LP and DG Value Partners II Master Fund is 460 Park Avenue, 22 nd Floor, New York, NY 10022.  All the shares owned by DG Value Partners, LP and DG Value Partners II Master Fund are being sold in this offering.  Assuming all the shares in this offering are sold, each of DG Value Partners, LP and DG Value Partners II Master Fund will own 0 shares after the offering.
   
(19) Currently exercisable options have been included as outstanding shares for purposes of this calculation.
   
(20) Includes 3,529,412 shares of common stock being sold in this offering. Assuming all the shares in this offering are sold, Ms. Pessin will own 2,166,667 shares, or 4.2%, after the offering.

 

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Changes in Control

 

There are no arrangements known to us, including any pledge by any person of securities of our company, the operation of which may at a subsequent date result in a change in control of our company.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Transactions with Officers and Directors

 

Except as described below and other than the employment agreements described above in “Executive Compensation,” since January 1, 2015, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

 

  in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years; and
     
  in which any director, executive officer, stockholder who beneficially owns more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

 

On January 23, 2017, we sold 8,823,530 shares of common stock at a price of $0.34 per share, for aggregate gross proceeds of $3,000,000 in a private placement and, thereafter, we sold an additional 11,764,713 shares of common stock at a price of $0.34 per share, for aggregate gross proceeds of $4,000,000 in the second closing of the private placement. The spouse and mother-in-law of our director, Diana Pessin, participated in the private placement and purchased a total of 4,411,765 shares at a price of $0.34 per share for a total purchase price of $1,500,000. Kelvin Claney, our Chief Executive Officer, participated in the private placement and purchased a total of 500,000 shares at a price of $0.34 per share for a total purchase price of $170,000.

 

During the year ended December 31, 2016, we had one sale of products for approximately $14,000 with an international third party distributor affiliated with one of our Board of Director members. The pricing and terms of the sale are similar to other international third party sales.

 

Our board of directors conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. Our board of directors has not adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. However, our board of directors generally reviews related party transactions to ensure that they are fair and reasonable to our company and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by our board of directors.

 

Director Independence

 

A majority of our directors are independent, as determined in accordance with the definition of independent in the NYSE Listed Company Manual. Our independent directors are Mssrs. Jarvis, Kinnear, McDonald, Jr. and Mses. Pessin.

 

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SELLING STOCKHOLDERS

 

The following table sets forth:

 

  The name of each of the selling stockholders.
     
  The number of shares of common stock beneficially owned by each selling stockholder that may be offered for the account of such selling stockholder under this prospectus; and
     
  The number of shares of common stock beneficially owned by each such selling stockholder upon completion of the offering.

 

Information on beneficial ownership of securities is based upon a record list of our stockholders and we have determined beneficial ownership in accordance with the rules of the SEC. Unless indicated otherwise, we believe based on the information furnished to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. Based on the information provided to us by or on behalf of the selling stockholders, no selling stockholder, and no entity listed in the footnotes to the table below, is a broker-dealer or an affiliate of a broker-dealer.

 

The selling security holders may sell some or all the securities owned by them, and there are currently no agreements, arrangements or understandings with respect to the sale of any of the securities. The table below assumes that the selling stockholders sell all the shares offered for sale. The business address of each person listed is in care of ICTV Brands Inc., 489 Devon Park Drive, Suite 306, Wayne, PA 19087.

 

Name of Beneficial Owner  

No. of Shares Beneficially Owned

Prior to the Offering

    No. of Shares Being Offered     No. of Shares Beneficially Owned After the Offering    

Percentage

of Shares Beneficially Owned After the Offering (4)

 
LeoGroup Private Equity Facility, L.P. (1)     5,786,765       4,411,765       1,375,000       2.6 %
Sandra F. Pessin (2)     5,696,079       3,529,412       2,166,667       4.2 %
Brian L. Pessin (2)     1,989,651       882,353       1,107,298       *  
Abigail Investments     220,589       220,589       0       *  
Robert A. Ayerle     828,185       294,118       534,067       1.0 %
Penelope A. Barnes     20,883       20,883       0       *  
Cahr 1999 Dynastic Trust Michael E. Cahr, Trustee     735,295       735,295       0       *  
Kelvin and Robin Claney (3)     500,000       500,000       0       *  
Martin Cohn     294,118       294,118       0       *  
Daniel Greenberg, Trustee of the Daniel Greenberg Revocable Living Trust Dated October 14, 1997     735,295       735,295       0       *  

 

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DG Value Partners, LP     890,528       890,528       0       *  
DG Value Partners II Master Fund, LP     3,911,235       3,911,235       0       *  
Stephen Dreier     393,268       294,118       99,150       *  
Edwin A. Levy Revocable Trust     1,279,462       514,706       764,756       1.5 %
H. Irvin Evans     73,530       73,530       0       *  
FMTC FBO H. IRVIN EVANS SEP IRA     73,530       73,530       0       *  
John C. Lipman     294,118       294,118       0       *  
Michael Steven Miller     14,706       14,706       0       *  
Milton K. Morgan, III & Doreen K. Morgan, JROS     294,120       294,120       0       *  
Rahul Nimmagadda     14,706       14,706       0       *  
Angelica A. Politarhos     30,000       30,000       0       *  
Peter A. Politarhos     15,000       15,000       0       *  
Lloyd B. Solomon     377,000       250,000       127,000       *  
U Drive Investment Group LP     294,118       294,118       0       *  
Barry N. Wish     2,000,000       2,000,000       0       *  

 

* Less than 1% of the outstanding common stock

 

(1) The shares reported herein are held directly by LeoGroup Private Debt Facility, L.P., or LeoGroup LP. LeoGroup Management, LLC, or LeoGroup Management, is the General Partner of LeoGroup LP. LeoGroup Management is 100% owned by The Leo Group, LLC, or LeoGroup. Matthew J. Allain is the principal owner of LeoGroup. The shares directly owned by LeoGroup LP may be deemed indirectly owned by LeoGroup Management, Leo Group and Mr. Allain; however, each of LeoGroup Management, Leo Group and Mr. Allain disclaims beneficial ownership of these securities except to the extent of its respective pecuniary interest therein, if any, and the inclusion of these shares herein shall not be deemed an admission of beneficial ownership of all of the shares for purposes of Section 16 or any other purpose.

 

(2) Sandra Pessin is the mother-in-law, and Brian Pessin is the husband, of Diana Pessin, our director.

 

(3) Kelvin Claney is the Chief Executive Officer and Chairman of the Board of Directors of our company. In addition to the shares of common stock held jointly with Robin Claney, Mr. Claney owns options to purchase 533,333, which are exercisable within 60 days. Additionally, Mr, Claney is a joint trustee of The Better Block Trust, which owns 6,668,660 shares of common stock. Mr. Claney disclaims beneficial ownership of the shares and options owned or controlled by The Better Blocks Trust beyond the extent of his pecuniary interest.

 

(4) Percentage ownership is based on 52,053,725 shares of common stock outstanding as of March 31, 2017.

 

DESCRIPTION OF COMMON STOCK

 

The following description of our capital stock is based upon our amended and restated articles of incorporation, our amended and restated bylaws and applicable provisions of law, in each case as currently in effect. This discussion does not purport to be complete and is qualified in its entirety by reference to our amended and restated articles of incorporation and our amended and restated bylaws, copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part.

 

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Authorized Capitalization

 

We are authorized, pursuant to action by our board of directors, to issue up to (i) 100,000,000 shares of common stock, par value $0.001 per share, and (ii) 20,000,000 shares of preferred stock, par value $0.001 per share.

 

Dividends

 

Our company, acting through its board of directors, may declare and pay distributions on the common shares of our company. Any distributions so declared will be paid to the holders of record of the common shares as of the record date designated by our board of directors in proportion to the number of common shares held by such holder of common shares.

 

Voting and Consent Rights

 

The holders of the common stock are entitled to one vote per share on all matters submitted to a vote, including the election of directors. There is no right to cumulate votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights.

 

Anti-Takeover Effect of Certain of Our Amended and Restate Articles of Incorporation and our Amended and Restate Bylaws

 

Our amended and restated articles of incorporation permit only our board of directors to call a special meeting of the stockholders, thereby limiting the ability of stockholders to effect a change in control of our company.

 

Our amended and restated articles of incorporation and amended and restated bylaws provide that our board of directors be divided into three classes, with one class being elected each year by the stockholders. This generally makes it more difficult for stockholders to replace a majority of directors and obtain control of the board.

 

Preferred stock may be issued in series from time to time with such designation, rights, preferences and limitations as our board of directors determines by resolution and without stockholder approval. This is an anti-takeover measure. The board of directors has exclusive discretion to issue preferred stock with rights that may trump those of common stock. The board of directors could use an issuance of preferred stock with dilutive or voting preferences to delay, defer or prevent common stockholders from initiating a change in control of our company or reduce the rights of common stockholders to the net assets upon dissolution. Preferred stock issuances may also discourage takeover attempts that may offer premiums to holders of our common stock.

 

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2011 Incentive Stock Option Plan

 

In December 2011, our Board of Directors approved our 2011 Incentive Stock Option Plan. The 2011 plan is designed for our employees, officers, and directors and is intended to advance the best interests of the Company by providing personnel who have substantial responsibility for the management and growth of the Company and its subsidiaries with additional incentive by increasing their proprietary interest in our success, thereby encouraging them to remain in the employment of the Company or its subsidiaries. The plan is administered by the Board of Directors of the Company, and authorizes the issuance of stock options not to exceed 6,000,000 shares. The terms of any awards under the Plan are determined by the Board of Directors, provided that no options may be granted at less than the fair market value of the stock as of the date of the grant.

 

PLAN OF DISTRIBUTION

 

The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or quoted or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

ordinary brokerage transactions and transactions in which the broker-dealer solicits investors;
   
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
   
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
   
an exchange distribution in accordance with the rules of the applicable exchange;
   
privately negotiated transactions;
   
through the writing of options on the shares;
   
to cover short sales made after the date that this Registration Statement is declared effective by the SEC;
   
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
   
a combination of any such methods of sale; and
   
any other method permitted by applicable law.

 

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The selling stockholders may also sell shares under Rule 144 of the Securities Act, if available, rather than under this prospectus. The selling stockholders have the sole and absolute discretion not to accept any purchase offer or make any sale of common stock if they deem the purchase price to be unsatisfactory at any particular time.

 

The selling stockholders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. The selling stockholders have not entered into any agreement with a prospective underwriter and there is no assurance that any such agreement will be entered into.

 

The selling stockholders may, from time to time, pledge or grant a security interest in some or all the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders or their respective pledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both in amounts to be negotiated. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then existing market price. We cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholders. The selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, may be deemed to be “underwriters” as that term is defined under the Securities Act, the Exchange Act and the rules and regulations of such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

In connection with the sale of our common stock, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

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The selling stockholders and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Exchange Act, and the rules and regulations under such act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling stockholders or any other such person. If any of the selling stockholders are deemed an affiliated purchaser or distribution participant within the meaning of Regulation M, then the selling stockholders will not be permitted to engage in short sales of common stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. In addition, if a short sale is deemed to be a stabilizing activity, then the selling stockholders will not be permitted to engage in a short sale of our common stock. All of these limitations may affect the marketability of the shares.

 

If a selling stockholder notifies us that it has a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholder and the broker-dealer.

 

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

 

We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the selling stockholders, but excluding brokerage commissions or underwriter discounts.

 

We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

 

To comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

LEGAL MATTERS

 

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Sherman & Howard LLC.

 

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INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No “expert” or “counsel” as defined by Item 509 of Regulation S-K promulgated pursuant to the Securities Act, whose services were used in the preparation of this Form S-1, was hired on a contingent basis or will receive a direct or indirect interest in our company, nor was any of them a promoter, underwriter, voting trustee, director, officer or employee of our company.

 

Neither legal counsel nor experts have any interest in this registration statement other than normal legal and accounting fees.

 

EXPERTS

 

The consolidated balance sheets of ICTV Brands, Inc. as of December 31,  2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, have been audited by EisnerAmper LLP, independent registered public accounting firm, as stated in their report which is incorporated herein. Such financial statements have been incorporated herein in reliance on the report of such firm given upon their authority as experts in accounting and auditing.

 

The audited consolidated financial statements of PhotoMedex, Inc. included in this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the report of Fahn Kanne & Co. Grant Thornton Israel, independent registered public accountants upon the authority of said firm as experts in auditing and accounting.

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this offering. This prospectus does not contain all of the information set forth in the registration statement. For further information with respect to the common stock offered in this offering and our company, we refer you to the registration statement and to the attached exhibits. With respect to each such document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matters involved.

 

You may inspect our registration statement and the attached exhibits and schedules without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of our registration statement from the SEC upon payment of prescribed fees. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.

 

Our SEC filings, including the registration statement and the exhibits filed with the registration statement, are also available from the SEC’s website at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

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INDEX TO FINANCIAL STATEMENTS

 

ICTV Brands Inc. and Subsidiaries

 

    Page
     
Report of Independent Registered Public Accounting Firm   F-2
     
Consolidated Balance Sheets as of December 31, 2016 and 2015   F-3
     
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015   F-4
     
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2016 and 2015   F-5
     
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015   F-6
     
Notes to the Consolidated Financial Statements   F-7

 

PHOTOMEDEX, INC. AND SUBSIDIARIES

  

    Page
     
Report of Independent Registered Public Accounting Firm   F-23
     
Consolidated Balance Sheets, December 31, 2016 and 2015   F-24
     
Consolidated Statements of Comprehensive Loss, Years ended December 31, 2016 and 2015   F-25
     
Consolidated Statements of Changes in Equity (Deficit), Years ended December 31, 2016 and 2015   F-26
     
Consolidated Statements of Cash Flows, Years ended December 31, 2016 and 2015   F-27
     
Notes to Consolidated Financial Statements   F-29

 

F- 1  
   

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

ICTV Brands Inc.

 

We have audited the accompanying consolidated balance sheets of ICTV Brands Inc. and Subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ICTV Brands Inc. and Subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ EisnerAmper LLP  
   
Philadelphia, Pennsylvania  
March 28, 2017  

 

F- 2  
   

 

ICTV BRANDS INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2016 and 2015

 

    2016     2015  
ASSETS                
CURRENT ASSETS:                
Cash and cash equivalents   $ 1,390,641     $ 1,334,302  
Accounts receivable, net of $123,109 and $118,653, respectively     506,337       301,726  
Inventories, net     1,499,270       2,205,726  
Prepaid expenses and other current assets     254,303       417,057  
Total current assets     3,650,551       4,258,811  
                 
Furniture and equipment     74,098       72,008  
Less accumulated depreciation     (58,099 )     (50,492 )
Furniture and equipment, net     15,999       21,516  
                 
Other assets – long-term, net of accumulated amortization of $290,951     872,864       -  
                 
Total assets   $ 4,539,414     $ 4,280,327  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
CURRENT LIABILITIES:                
Accounts payable and accrued liabilities   $ 1,644,899     $ 1,516,250  
Severance payable – short-term     -       45,995  
Deferred revenue – short-term     377,445       444,066  
Other liabilities – short-term, net of discount     288,525       -  
Total current liabilities     2,310,869       2,006,311  
                 
Deferred revenue – long-term     274,374       405,746  
Other liabilities – long-term, net of discount     665,713       -