UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C.  20549





FORM 10-Q/A


Mark One





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended September 30, 2008








o
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from__________ to __________





Commission file number:          0-49638





INTERNATIONAL COMMERCIAL TELEVISION INC.


(Exact name of small business issuer as specified in its charter)





Nevada
76-0621102State or other jurisdiction of incorporation or organization
(IRS Employer Identification No.)








299 Madison Avenue N. Suite C Bainbridge Island, WA 98110


(Address of principal executive offices)





(206) 780-8203


(Issuer's telephone number)








Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes o   No x





Indicate by check-mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,” accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer o

Accelerated filer oNon - accelerated filer o  (Do not check if smaller reporting company)

Smaller reporting company x





Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes o   No x





APPLICABLE ONLY TO CORPORATE ISSUERS





State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of May 26, 2010, the Issuer had 14,505,912 shares of common stock, par value $0.001 per share, issued and outstanding.





Transitional Small Business Disclosure Format (Check one): Yes o    No x







Page 1


EXPLANATORY NOTE





On March 3, 2010, International Commercial Television Inc (“ICTV”) filed a Form 8-K/A on Non-Reliance on Previously Issued Financial Statements.  As disclosed in that report, the Company found certain errors in the bad debt and return reserves amounts in our financial statements for the year ended December 31, 2007 as filed in the Form 10-K/A on March 31, 2009.  On April 13, 2010, the Company filed a second restatement of the December 31, 2007 financial statements in the Form 10-K for the years ended December 31, 2008 and 2007.Certain adjustments were made during the course of our 2008 year-end audit that had an impact on previously reported restated amounts for the period ended September 30, 2007.  As such, the September 30, 2007 amounts reflected in this report have been restated to reflect the impact of the adjustments.


Page 2




TABLE OF CONTENTS








PART I - FINANCIAL INFORMATIONITEM 1.
FINANCIAL STATEMENTS
4ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
24ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
29ITEM 4.
CONTROLS AND PROCEDURES
29PART II - OTHER INFORMATIONITEM 1.
LEGAL PROCEEDINGS
30ITEM 1A.
RISK FACTORS
30ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
30ITEM 3.
DEFAULTS ON SENIOR SECURITIES
30ITEM 4.
(REMOVED AND RESERVED)
30ITEM 5.
OTHER INFORMATION
30ITEM 6.
EXHIBITS
31SIGNATURES
32


Page 3
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PART I - FINANCIAL INFORMATION








ITEM 1.
FINANCIAL STATEMENTSConsolidated Balance Sheets as of September 30, 2008 Restated (unaudited), December 31, 2007 Restated, and September 30, 2007 Restated (unaudited)
5Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007 Restated (unaudited)
6Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 Restated and 2007 Restated (unaudited)
7Notes to the Consolidated Financial Statements
8-23


Page 4
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  INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


AS OF





September 30, 2008


December 31, 2007


September 30, 2007(Unaudited)


(Restated)


(Unaudited)

(Restated)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
805,476


$
3,725,225


$
662,262Restricted cash


103,403



63,719



70,583Accounts receivable, net of doubtful account reserves of $17,251, $33,245 and $9,938, respectively


488,238



151,726



469,581Inventories, net


2,456,442



703,120



531,551Prepaid expenses and deposits


453,962



247,841



201,888Total current assets


4,307,521



4,891,631



1,935,865Furniture and equipment


182,005



120,169



120,169Less accumulated depreciation


117,233



110,330



108,741Furniture and equipment, net


64,772



9,839



11,428Total assets

$
4,372,293


$
4,901,470


$
1,947,293LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable and accrued liabilities

$
2,986,022


$
1,279,836


$
1,434,435Accounts payable - related parties


32,815



127,473



120,097Note Payable to Shareholder


590,723



590,723



590,723Total current liabilities


3,609,560



1,998,032



2,145,255COMMITMENTS AND CONTINGENCIESSHAREHOLDERS’ EQUITY (DEFICIT):Preferred stock 20,000,000 shares authorized, no shares issued and outstanding


-



-



-Common stock, $0.001 par value, 100,000,000 shares authorized, 14,505,912, 14,279,287 and 12,796,787 issued and outstanding as of September 30, 2008, December 31, 2007, respectively and September 30, 2007 respectively


4,407



4,181



2,698Additional paid-in-capital


5,089,596



4,823,073



1,568,638Subscriptions received in advance (receivable)


-



100,750



(27,500
)Accumulated deficit


(4,331,270
)


(2,024,566
)


(1,741,798
)Total shareholders’ equity (deficit)


762,733



2,903,438



(197,962
)Total liabilities and shareholders’ equity (deficit)

$
4,372,293


$
4,901,470


$
1,947,293





See accompanying notes to consolidated financial statements.


Page 5
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(Unaudited)





For the three months ended


For the nine months endedSeptember 30, 2008


September 30, 2007


September 30, 2008


September 30, 2007(restated)





(restated)NET SALES

$
4,957,959


$
2,594,087


$
12,028,870


$
6,097,814COST OF SALES


1,542,418



854,844



3,752,489



2,030,108GROSS PROFIT


3,415,541



1,739,243



8,276,381



4,067,706OPERATING EXPENSES:General and administrative


1,026,639



390,713



2,830,205



964,611Selling and marketing


3,671,617



1,433,273



7,788,207



3,906,627Total operating expenses


4,698,256



1,823,986



10,618,412



4,871,238OPERATING LOSS


(1,282,715
)


(84,743
)


(2,342,031
)


(803,532
)INTEREST INCOME


3,181



1,102



35,326



4,312NET LOSS


(1,279,534
)


(83,641
)


(2,306,705
)


(799,220
)BASIC AND DILUTED NET LOSS  PER SHARE


(0.09
)


(0.01
)


(0.16
)


(0.07
)





See accompanying notes to consolidated financial statements.


Page 6
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(Unaudited)





2008


2007(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(2,306,705
)

$
(799,220
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


6,903



4,768Change in assets and liabilitiesAccounts receivable


(336,512
)


85,613Inventories


(1,753,322
)


(292,864
)Prepaid expenses and deposits


(206,121
)


(113,388
)Accounts payable and accrued liabilities


1,763,168



523,925Net cash used in  operating activities


(2,832,589
)


(591,166
)CASH FLOWS FROM INVESTING ACTIVITIES:Additions to furniture and equipment


(61,836
)


-Net cash  used in investing activities


(61,836
)


-CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from the issuance of common stock, net of issuance costs


166,000



1,078,514Advances from related parties


178,379



295,895Payments to related parties


(330,019
)


(435,872
)Net cash provided by financing activities


14,360



938,537NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS


(2,880,065
)


347,371CASH AND CASH EQUIVALENTS, beginning of the period


3,788,944



385,474CASH AND CASH EQUIVALENTS, end of the period

$
908,879


$
732,845SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid

$
730


$
4,476Income taxes paid

$
-


$
-NON CASH TRANSACTIONS:Issuance of common stock as finder’s fee

$
163,075


$
295,200Issuance of common stock for subscription received in prior year

$
100,750


$
-





See accompanying notes to consolidated financial statements.


Page 7
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INTERNA TIO NAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 1 - Summary of significant accounting policies





Organization and Nature of Operations





International Commercial Television Inc., (the “Company” or “ICTV”) was organized under the laws of the State of Nevada on June 25, 1998.





Strategic Media Marketing Corp. (“SMM”) was incorporated in the Province of British Columbia on February 11, 2003 and has a December 31 fiscal year-end.





The Company sells various consumer products.  The products are primarily marketed and sold throughout the United States and internationally via infomercials.  Although our companies are incorporated in Nevada and British Columbia, operations are currently run from Washington State, Pennsylvania, and British Columbia.





Liquidity and Going Concern





The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  The Company generated negative cash flows from operating activities in the nine month period ended September 30, 2008 of approximately $2,833,000, and the Company, for the most part, has experienced recurring losses from operations. The Company had working capital of approximately $698,000 and an accumulated deficit of approximately $4,331,000 as of September 30, 2008.





Although we currently sell products through infomercials, the goal of our business plan is to use the brand awareness we create in our infomercials so that we can sell the products featured in our infomercials, along with related families of products, under distinct brand names in traditional retail stores.  Our goal is to have these families of products sold in the traditional retail environment in shelf-space dedicated to the product category.  We are developing the infrastructure to create these brands of products so that we can implement our business plan.  There is no guarantee that the Company will be successful in bringing our products into the traditional retail environment.  If the Company is unsuccessful in achieving this goal, the Company will be required to raise additional capital to meet its working capital needs.  If the Company is unsuccessful in completing additional financings, it will not be able to meet its working capital needs or execute its business plan. In such case the Company will assess all available alternatives including a sale of its assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result should the Company be unable to continue as a going concern.


Page 8
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 1 - Summary of significant accounting policies (continued)





Principles of consolidation





The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary SMM.  All significant inter-company transactions and balances have been eliminated.





Reclassifications


Certain reclassifications have been made to the prior year data to conform with the current year presentation.





Use of estimates





The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent.  Actual results could differ from these estimates.





Concentration of credit risk





Financial instruments, which potentially subject the Company to concentrations of credit risk, include cash and trade receivables.  The Company maintains cash in bank accounts that, at times, may exceed federally insured limits.  As of September 30, 2008, the Company did exceed the federally insured limit by approximately $661,000 in its investment savings. The Company has not experienced any losses and believes it is not exposed to any significant risks on its cash in bank accounts. As of September 30, 2008 and September 30, 2007, 94% and 74% of the Company’s accounts receivable were due from various individual customers to whom our products had been sold directly via Direct Response Television; the remaining 6% and 26% of the Company’s accounts receivable were due from three and four wholesale infomercial operators, respectively.





Fair value of financial instruments





Fair value estimates, assumptions and methods used to estimate fair value of the Company’s financial instruments are made in accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The Company has used available information to derive its estimates. However, because these estimates are made as of a specific point in time, they are not necessarily indicative of amounts the Company could realize currently. The use of different assumptions or estimating methods may have a material effect on the estimated fair value amounts.  The carrying values of   financial   instruments   such as cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short settlement period for these instruments.  It is not practicable to estimate the fair value of the Note Payable to Shareholder due to its related party nature.





Cash and cash equivalents





The Company considers all unrestricted highly liquid investments with an original maturity of three months or less to be cash equivalents.


Page 9
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 1 - Summary of significant accounting policies (continued)





Restricted Cash





Transfirst ePayment Services (“Transfirst”), ICTV’s credit card processing vendor for VISA and Mastercard transactions in the United States, maintains a reserve fund within our processing account to cover all fees, charges, and expenses due them, including those estimated for possible customer charge backs. These reserves are updated periodically by Transfirst and maintained for a rolling 180 days of activity. Based upon established levels of risk, this normally represents approximately 2% of transaction volume for the period, and is considered as “Restricted Cash”.  At September 30, 2008 the amount of Transfirst reserves was $103,403, at December 31, 2007 the reserve balance was $63,719 and at September 30, 2007 (restated) the reserve balance was $70,583.




Accounts receivable







In addition to reserves for returns on accounts receivable, an accrual is made for returns of product that have been sold to customers 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 $152,000 and $221,000 at September 30, 2008 and 2007 (restated) and $166,000 at December 31, 2007 (restated), 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.  The Company adjusts inventory for estimated obsolescence when necessary based upon demand and market conditions. Included in inventory is approximately $65,000 and $20,000 of consigned product as of September 30, 2008 and 2007 (restated), and $55,000 for the year ended December 31, 2007 (restated) 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.





Furniture and equipment





Furniture and equipment are carried at cost and depreciation is computed over the estimated useful lives of the individual assets ranging from 3 to 7 years.  Depreciation is computed using the straight-line method. The related cost and accumulated depreciation of assets retired or otherwise disposed of are removed from the accounts and the resultant gain or loss is reflected in earnings.  Maintenance and repairs are expensed currently while major renewals and betterments are capitalized.





Depreciation expense amounted to $6,903 and $4,768 for the nine months ended September 30, 2008 and 2007 (restated), respectively.


Page 10
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)





Note 1 - Summary of significant accounting policies (continued)





Impairment of Long-Lived Assets





In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value. No impairment losses were identified or recorded in the fiscal quarters ended September 30, 2008 and 2007 (restated).





Revenue recognition




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





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





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





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





Shipping and handling





Amounts billed to a customer for shipping and handling are included in revenue; shipping and handling revenue approximated $976,000 and $574,000 for the nine months ended September 30, 2008 and 2007 (restated), respectively. Shipping and handling costs are included in cost of sales. Shipping and handling costs approximated $1,384,000 and $784,000 for the nine months ended September 30, 2008 and 2007 (restated), respectively.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 1 - Summary of significant accounting policies (continued)





Research and development





Research and development costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements. Research and development costs primarily consist of efforts to discover and develop new products and the testing and development of direct-response advertising related to these products.





Media costs





Media costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements.  The Company incurred $5,625,000 and $2,973,000 in such costs for the periods ended September 30, 2008 and 2007 (restated), respectively.





Income taxes





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





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





Stock options





The Company adopted a stock option plan (“Plan”).  The purpose of this Plan is to provide additional incentives to key employees, officers, directors and consultants of the Company and its subsidiaries in order to help attract and retain the best available personnel for positions of responsibility and otherwise promoting the success of the business activities.  It is intended that options issued under this Plan constitute nonqualified stock options. The general terms of awards under the option plan are that 10% will vest every 6 months. The maximum term of options granted is 10 years and the number of shares authorized for grants of options is 3,000,000.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 1 - Summary of significant accounting policies (continued)





The Company uses Financial Accounting Standards Board issued Statement Number 123 (“FAS 123 (R)”), Share-Based Payments, to account for stock-based compensation. The Company recognizes compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees over the requisite vesting period of the awards. Stock options granted to non-employees are remeasured at each reporting period.





For the quarter ended September 30, 2008 and 2007 (restated), the Company issued no options and recorded no stock compensation expense related to vesting of options previously granted.





The following is a summary of stock options outstanding under the existing stock option plan for the nine months ended September 30, 2008 and 2007 (restated):





Number of Shares


Weighted

AverageEmployee


Non-

Employee


Totals


Exercise

PriceBalance, January 1, 2007


-



1,161,000



1,161,000


$
1.41Granted during 2007


-



-



-



-Exercised during the year


-



-



-



-Cancelled during the year


-



(4,000
)


(4,000
)

$
0.50Balance, September 30, 2007


-



1,157,000



1,157,000


$
1.40






Number of Shares


Weighted

AverageEmployee


Non-

Employee


Totals


Exercise

PriceBalance, January 1, 2008


-



1,157,000



1,157,000


$
1.40Granted during 2008


-



-



-



-Exercised during the period


-



-



-



-Cancelled during the period


-



-



-



-Balance, September 30, 2008


-



1,157,000



1,157,000


$
1.40





There were no stock options granted during the period ended September 30, 2008 and 2007.   Of the stock options currently outstanding, 1,109,000 and 1,017,000 options are currently exercisable at a weighted average exercise price of $1.40 and $1.40 at September, 2008 and 2007 respectively.  These options expire at dates ranging between December 31, 2007 and September 28, 2011.  The aggregate intrinsic value for options outstanding and exercisable at September 30, 2008 was immaterial.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 1 - Summary of significant accounting policies (continued)





New Accounting Pronouncements




In October 2008, the FASB issued FSP No. 157-3. “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” ("FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 will be effective for the Company on September 30, 2008 for all financial assets and liabilities recognized or disclosed at fair value in our Consolidated Financial Statements on a recurring basis (or at least annually) and is not expected to have material impact on the Company’s results of operations, financial condition or liquidity.





In June 2008, the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.” EITF 07-5 provides guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of SFAS 133, Accounting For Derivative Instruments and Hedging Activities” and/or EITF 00-19, Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF 07-05 will be effective as of the beginning of our 2009 fiscal year. The Company is evaluating the impact of adoption of this EITF on its financial statements.





Effective January 1, 2008, the Company adopted SFAS No. 157; “Fair Value Measurements”. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 157-2. “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The adoption of this Statement did not have a material impact on the Company’s consolidated results of operations and financial condition.





In February, 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  The Company adopted SFAS No. 159  for our fiscal year ended December 31, 2008. The adoption of this Statement did not have a material impact on the Company’s consolidated results of operations and financial condition.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 2  - Restatement





On March 3, 2010, management and the Board of Directors concluded that our audited consolidated financial statements as of and for the year ended December 31, 2007 should no longer be relied upon and will be restated due to correction of an error in revenue recognition with respect to customer returns and bad debts.  On April 13, 2010, the Company filed a second restatement of the December 31, 2007 financial statements in the Form 10-K for the years ended December 31, 2008 and 2007.





We had previously restated our consolidated financial statements for the year ended December 31, 2007 in connection with our revenue recognition policies. Specifically, we restated our prior financial statements with respect to underestimating customer returns for our infomercial products sales and the timing of recognizing revenues on product sales prior to the completion of those sales.





In connection with performing the audit of our 2008 consolidated financial statements, we obtained information from our order fulfillment contractor beyond that which we had previously obtained. The additional information brought into question the adequacy of our reserves for product returns and bad debts for the periods ended December 31, 2007 and September 30, 2007 as originally restated in the Forms 10-Q/A and 10-K/A for the year ended December 31, 2007. We have used the additional information to restate the product returns and bad debts reserves. We also re-evaluated our revenue recognition policy with respect to sales of our products with a free trial period and determined that revenue was not properly stated. As a result, we identified that certain revenue from 30-day risk free trial period should not have been recognized until customer acceptance and collectability are assured which we determine to be when the trial period ends.





In addition, certain adjustments were made during the course of our 2008 year-end audit that had an impact on previously reported restated amounts for the periods ended September 30, 2007.  As such, the September 30, 2007 amounts reflected in this report have been restated to reflect the impact of the adjustments as follows.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)





Note 2 - Restatement (continued)





For the three

months ended

September 30, 2007


For the nine

months ended

September 30, 2007Accounts receivable:As previously reported

$
792,714


$
792,714Adjustment

$
(323,133
)

$
( 323,133
)As restated

$
469,581


$
469,581Inventories:As previously reported

$
459,815


$
459,815Adjustment

$
71,736


$
71,736As restated

$
531,551


$
531,551Accounts payable and accrued liabilities:As previously reported

$
1,157,922


$
1,157,922Adjustment

$
276,513


$
276,513As restated

$
1,434,435


$
1,434,435Net sales:As previously reported

$
2,341,093


$
6,379,624Adjustment

$
252,994


$
(281,810
)As restated

$
2,594,087


$
6,097,814Cost of sales:As previously reported

$
866,861


$
2,101,844Adjustment

$
(12,017
)

$
(71,736
)As restated

$
854,844


$
2,030,108Operating expenses:As previously reported

$
1,665,815


$
4,553,403Adjustment

$
158,171


$
317,835As restated

$
1,823,986


$
4,871,238Net income/(loss):As previously reported

$
(190,481
)

$
(271,311
)Adjustment

$
106,840


$
(527,909
)As restated

$
(83,641
)

$
(799,220
)Net income/(loss) per share:As previously reported

$
(0.01
)

$
(0.02
)Adjustment

$
-


$
(0.05
)As restated

$
(0.01
)

$
(0.07
)




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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)





Note 3 - License and reconveyance agreements





Effective April 1, 2000, the Company entered into a License and Reconveyance Agreement with WSL and RJML.  These agreements are royalty-free.  WSL and RJML owned or had rights in certain intellectual properties that were transferred or assigned to ICTV during 2003.  Accordingly, WSL and RJML granted all production rights, proprietary rights, inventory, development rights, tangible assets, licenses and any assets or rights to the Company.  The Company has the right to further develop and enhance the intellectual properties as the Company sees fit.


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INTERNATIONAL COMMERCIAL TELEVISION INC.





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)





Note 4 - Commitments and contingencies




Leases




As of September 30, 2008, the Company had three active leases related to the office space rented in three locations: Bainbridge Island, Washington, Wayne, Pennsylvania, and Vancouver, British Columbia.  Total rent expense incurred for the three months ended September 30, 2008 and 2007 (restated) totaled $24,257 and $7,606, and for the nine months ended September 30, 2008 and 2007 (restated) totaled $51,623 and $23,334, respectively.  The schedule below details the future financial obligations under these three leases.




(remaining three months)

2008


2009


2010


2011


2012


2013


TOTAL OBLIGATIONBainbridge Island , WA

$
4,800


$
19,350


$
4,950


$
-


$
-


$
-


$
29,100Wayne , PA

$
8,606


$
34,956


$
35,594


$
8,925


$
-


$
-


$
88,081West Vancouver, BC

$
8,210


$
13,566


$
-


$
-


$
-


$
-


$
21,776Total Lease Obligations

$
21,616


$
67,872


$
40,544


$
8,925


$
-


$
-


$
138,957





Cell RXTM




During 2007, the Company and Info Marketing Group Inc. (“IMG”) entered into a Exclusive License Letter Agreement  (“Agreement”) granting an exclusive license to ICTV with respect to Cell RX and associated products (”Product”).




IMG granted to the Company an exclusive license to manufacture, market and sell Cell RX and associated products anywhere in the world.  With respect to marketing and selling assistance to be provided by IMG, such assistance shall include making best efforts to obtain commitments from all of the talent who have in the past or are presently endorsing the Product to continue to do so. IMG shall assign to ICTV all of its rights with respect to intellectual property, tangible property, and agreements related to Product.





DermaWandTM





On October 15, 1999, WSL entered into an endorsement agreement with an individual for her appearance in a DermaWand infomercial.  On July 11, 2001, the agreement was amended to include a royalty payment for each unit sold internationally, up to a maximum royalty payment for any one calendar quarter.  Further, if the infomercial is aired in the United States, then the airing fee will revert back to the same flat rate per calendar quarter.  The initial term of the agreement is five years starting October 15, 1999.  The agreement automatically and continually renews for successive additional five-year terms unless RJML is in material default and is notified in writing at least thirty days prior to the end of the then current term that the individual intends to terminate the agreement.





The Company assumed any and all responsibilities associated with the agreements noted above on April 1, 2000, pursuant to the license and reconveyance agreement disclosed in Note 3.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 4 - Commitments and contingencies (continued)





On January 5, 2001, WSL entered into a marketing and royalty agreement with Omega 5.  WSL shall have worldwide nonexclusive rights to manufacture, market and distribute DermaWandTM.  In consideration of these rights, WSL shall pay a royalty for each unit sold of DermaWand depending on various scenarios as defined in the agreement.  The agreement is silent as to its duration.





During 2007, the Company entered into an exclusive license agreement with Omega 5 wherein ICTV was assigned all of the trademarks and all of the patents and pending patents relating to the DermaWandTMand was granted exclusive license with respect to the commercial rights to the DermaWandTM. The geographical scope of the license granted is the entire world consisting of the United States of America and all of the rest of the world.   The license remains exclusive to ICTV provided ICTV pays to Omega 5 a minimum annual royalty of $250,000 in the initial 18 month term of the agreement and in each succeeding one-year period. If the Company fails to meet the minimum requirements as outlined in the agreement, it may be forced to assign the trademarks and patents back to Omega 5. After the initial term, the exclusive license granted shall renew automatically for a three year period, and thereafter automatically at three-year intervals.





The amount of royalty expenses incurred for sales of the DermaWandTM were approximately $414,000 and $249,000 for the nine month periods ended September 30, 2008 and 2007 (restated) and $215,000 and $98,000 for the three months ended September 30, 2008 and 2007 (restated) respectively.





Other matters





Product Liability Insurance





For certain products, the Company was (and is) listed as an additional insured party under the product manufacturers’ insurance policy. On February 20, 2007, the Company purchased its own liability insurance to cover all direct to consumer product sales in the US and worldwide; this annual policy was renewed on February 20, 2008.





The Company extended its liability insurance policy, scheduled for expiration on February 20, 2009, to April 20, 2009. It then renewed the policy for an additional year from the revised expiration date, with a scheduled expiration of April 20, 2010.





At present, management is not aware of any claims against the Company for any products sold.





Note 5 - Related party transactions





The Company has received short-term advances from a shareholder.  These advances amounted to approximately $178,000 and $296,000 during the nine months ended September 30, 2008 and 2007 (restated), respectively. The advances are offset by repayments which amounted to approximately $330,000 and $436,000 during the nine months ended September 30, 2008 and 2007, respectively.  These advances are non-interest bearing and without specific terms of repayment.  These advances are included in accounts payable – related parties, on the accompanying consolidated balance sheets.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 5 - Related party transactions (continued)




The Company has a note payable to a shareholder in the amount of $590,723. This loan is interest-free and has no specific terms of repayment.





Note 6 - Capital transactions





During the nine months ended September 30, 2008, the Company issued 226,625 shares of common stock. 70,000 shares were issued at $2.20 per share, for a total of $154,000 as part of a private placement. Investors will also receive a warrant to purchase one additional share of the Company’s stock. The exercise price of the warrant will be $3.00 per share and is valid and exercisable from the date of issue and thereon for a 2 year period. During the nine months ended September 30, 2008, approximately 74,000 shares were issued as part of the finder’s commissions related to the August 13, 2007 private placement at a fair market value of $2.20 per share. 40,000 options were exercised at $0.30 per share, for a total of $12,000.  During the nine months ended September 30, 2008, 42,500 shares of common stock were issued for subscriptions received in 2007 totaling $100,750.





During the nine months ended September 30, 2007, the Company issued 2,103,599 shares of common stock. 1,480,999 shares were issued at $0.75 per share, for a total of $1,110,749 as part of a private placement. Investors will also receive a warrant to purchase one additional share of the Company's stock. The exercise price of the warrant will be $1.00 per share and is valid and exercisable from the date of issue and thereon for a 2 year period. 4,000 options were cancelled at $0.50 per share, for a total of $2,000. 475,000 shares were issued at $0.05 per share, for a total of $23,750 as part of a private placement. 147,600 shares were issued as part of the commissions for the private placement on April 13, 2007 at a market value of $2.00 per share.


Note 7 - Basic and diluted loss per share





Statement of Financial Accounting Standards No. 128 (SFAS 128), “Earnings Per Share” requires presentation of basic earnings per share and dilutive earnings per share.





The computation of basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of outstanding common shares during the period.  Diluted earnings per share gives the effect to all dilutive potential common shares outstanding during the period.  The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on losses.


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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 7 - Basic and diluted loss per share (continued)





The computations for basic and fully diluted earnings per share are as follows:





For the 3-month ended September  30, 2008:

Income

(Numerator)


Shares

(Denominator)


Per Share

AmountBasic and diluted earnings per shareLoss to common shareholders

$
(1,279,534
)


14,478,086


$
(0.09
)For the 3-month ended September  30, 2007:

Income

(Numerator)


Shares

(Denominator)


Per Share

AmountBasic and diluted earnings per shareLoss to common shareholders

$
(83,641
)


12,696,891


$
(0.01
)For the 9-month ended September  30, 2008:

Income

(Numerator)


Shares

(Denominator)


Per Share

AmountBasic and diluted earnings per shareLoss to common shareholders

$
(2,306,705
)


14,379,567


$
(0.16
)For the 9-month ended September  30, 2007:

Income

(Numerator)


Shares

(Denominator)


Per Share

AmountBasic and diluted earnings per shareLoss to common shareholders

$
(799,220
)


11,749,201


$
(0.07
)


Page 21
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)




Note 8 - Segment reporting





The Company operates in one industry segment and is engaged in the selling of various consumer products primarily through direct marketing infomercials and televised home shopping.  The Company evaluates performance and allocates resources based on several factors, of which the primary financial measure is operating income (loss) by geographic area.  Operating expenses are primarily prorated based on the relationship between domestic and international sales.




Information with respect to the Company’s operating loss by geographic area is as follows:





For the three months ended September 30, 2008


For the three months ended September 30, 2007

(Restated)Domestic


International


Totals


Domestic


International


TotalsNET SALES

$
4,694,057


$
263,902


$
4,957,959


$
2,248,134


$
345,953


$
2,594,087COST OF SALES


1,440,839



101,579



1,542,418



751,705



103,139



854,844Gross profit


3,253,218



162,323



3,415,541



1,496,429



242,814



1,739,243Operating expenses:General and administrative


861,591



165,048



1,026,639



281,398



109,315



390,713Selling and marketing


3,662,073



9,544



3,671,617



1,430,641



2,632



1,433,273Total operating expense


4,523,664



174,592



4,698,256



1,712,039



111,947



1,823,986Operating income (loss)

$
(1,270,446
)

$
(12,269
)

$
(1,282,715
)

$
(215,610
)

$
130,867


$
(84,743
)








For the nine months ended September 30, 2008


For the nine months ended September 30, 2007

(Restated)Domestic


International


Totals


Domestic


International


TotalsNET SALES

$
11,384,275


$
644,595


$
12,028,870


$
5,201,792


$
896,022


$
6,097,814COST OF SALES


3,516,903



235,586



3,752,489



1,724,250



305,858



2,030,108Gross profit


7,867,732



409,009



8,276,381



3,477,542



590,164



4,067,706Operating expenses:General and administrative


2,439,261



391,304



2,830,205



774,551



190,060



964,611Selling and marketing


7,771,043



17,164



7,788,207



3,898,495



8,132



3,906,627Total operating expense


10,210,304



408,468



10,618,412



4,673,046



198,192



4,871,238Operating income (loss)

$
(2,342,572
)

$
541


$
(2,342,031
)

$
(1,195,504
)

$
391,972


$
(803,532
)


Page 22
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INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2008 and September 30, 2007 (Restated)


(Unaudited)





Note 9 - Income taxes





Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has provided a full valuation allowance on the net deferred tax asset because of uncertainty regarding its realization.  This asset primarily consists of net operating losses.  For the most part, the Company has experienced operating losses since inception. Therefore the Company has accumulated approximately $3,700,000 and $3,600,000 of net operating loss carryforwards for federal and state purposes, respectively, which expire twenty years from the time of incurrence for federal purposes. Expiration for the state net operating carryforwards may vary based on different state rules.





The Company’s policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations. The Company recorded zero interest and penalties for the quarters ended September 30, 2008 and 2007 (restated).





The Company has not filed income tax returns since inception; therefore, the statute for all years remains open and any of these years could potentially be audited.





In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No.109 (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No.  48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition and defines the criteria that must be met for the benefits of a tax position to be recognized. The cumulative effect of the change in accounting principle must be recorded as an adjustment to opening retained earnings. Effective January 1, 2007, the Company adopted FIN No. 48 and determined that such adoption did not have a material impact on its consolidated financial statements.








Note 10 - Subsequent Events





On February 25, 2010, we issued a press release on Marketwire that announced the cancellation of our plans to distribute the “Cell RX” product line.




On March 15, 2010, we issued a press release on Marketwire that announced the termination of our distribution arrangement with Allstar Marketing Group for our DermaWand product in the United States, with an effective date of March 13, 2010.


Page 23
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ITEM 2.  MANAGEMENT DISCUSSION AND ANALYSIS AND PLAN OF OPERATION





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




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





EXPLANATORY NOTE





On March 3, 2010, International Commercial Television Inc (“ICTV”) filed a Form 8-K/A on Non-Reliance on Previously Issued Financial Statements.  As disclosed in that report, the Company found certain errors in the bad debt and return reserves amounts in our financial statements for the year ended December 31, 2007 as filed in the Form 10-K/A on March 31, 2009.  On April 13, 2010, the Company filed a second restatement of the December 31, 2007 financial statements in the Form 10-K for the years ended December 31, 2008 and 2007.Certain adjustments were made during the course of our 2008 year-end audit that had an impact on previously reported restated amounts for the period ended September 30, 2007.  As such, the September 30, 2007 amounts reflected in this report have been restated to reflect the impact of the adjustments.





Overview





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





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





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


Page 24
 Table of Contents




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





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





Results of Operations





The following discussion compares operations for the three and nine months ended September 30, 2008 with the three and nine months ended September 30, 2007 (restated).





Revenues





Our revenues increased to approximately $4,958,000 and $12,029,000 for the three and nine months ended September 30, 2008, up from approximately $2,594,000 and $6,098,000 recorded during the comparative three and nine months in 2007, a 91% and 97% increase respectively. In 2008, our revenue was generated solely from the sale of our DermaWand product simply because this product has received the highest amount of interest from our international and domestic infomercial operators and is also selling very well in the United States through our direct response television and televised home shopping campaigns. All revenues recorded during the three and nine months ended September 30, 2008 were generated by our own products, as was the case during the comparative period in 2007.





Gross Margin





Gross margin percentage was approximately 69% and 69% for the three and nine months ended September 30, 2008, up from approximately 67% and 67% during the comparative three and nine months in September 30, 2007 (restated).  Gross margin percentage increase was primarily due to the revenues generated from sales of our Derma Wand product directly to consumers in the US. During the three and nine months ended September 30, 2008, we generated gross margins of approximately $3,415,000 and $8,276,000 for Derma Wand, and in the three and nine months ended September 30, 2007 (restated), we generated gross margins of $1,739,000 and $4,068,000 for Derma Wand.





Operating Expenses





Total operating expenses increased to approximately $4,698,000 and $10,618,000 during the three and nine months ended September 30, 2008, from approximately $1,824,000 and $4,871,000 during the three and nine months ended September 30, 2007 (restated), up approximately $2,862,000 and $5,747,000, or 158% and 118% respectively.  This increase is attributed primarily to four factors; $2,533,000 and $5,625,000 in media costs were incurred during the three and nine months ended September 30, 2008 as compared to $1,088,000 and $2,973,000 during the three and nine months ended September 30, 2007 (restated), $368,000 and $776,000 in fulfillment charges were charged during the three and nine months end September 30, 2008  compared to $181,000 and $403,000 during the three and nine months ended September 30, 2007 (restated), bad debt expense was $443,000 and $1,048,000 for the three and nine months ending September 30, 2008 as compared  to $151,000 and $353,000 during the three and nine months ended September 30, 2007 (restated), and finally $308,000 and $701,000 in answering service charges in relation to product sales were incurred during the three and nine months period as compared to $95,000 and $309,000 during the three and nine months ended September 30, 2007 (restated).


Page 25
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Net Loss





The Company incurred a net loss of approximately $1,280,000 and $2,307,000 for the three and nine months ended September 30, 2008, compared with a net loss of approximately $84,000 and $799,000 for the three and nine months ended September 30, 2007 (restated).  This increased loss is attributed primarily to expenses incurred for marketing the DermaWand product on U.S. infomercials.





Plan of Operation, Liquidity and Capital Resources





At September 30, 2008, we had approximately $909,000 in cash on hand, compared to approximately $733,000 at September 30, 2007 (restated).  Of the cash on hand, approximately $103,000 and $71,000 was restricted at September 30, 2008 and 2007 (restated) respectively.We generated negative cash flows from operating activities of approximately $2,833,000 in the third quarter of 2008 compared to a negative cash flow from operating activities of approximately $591,000 for the same period in 2007.  The negative cash flow from operating activities was a result of the increase to accounts receivable, inventories and prepaid expenses, and increase to accounts payable.





We have a note payable to The Better Blocks Trust (“BB Trust”) in the amount of approximately $591,000.  This loan is interest-free and has no specific terms of repayment.





The Company has outstanding 1,157,000 stock options at a weighted average exercise price of $1.40 per share.  All option grants vest over a five-year period.  To date, a total of 74,000 stock options have been exercised, and 34,000 options at $0.50 for proceeds of $17,000 and 40,000 options at $0.30 for proceeds of $12,000. If the optionees exercise the remainder of these options as they vest, we will receive approximately $1,500,000 in capital.





The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  The Company generated negative cash flows from operating activities during the quarter ended September 30, 2008, of approximately $2,833,000, and the Company, for the most part, has experienced recurring losses from operations. As of September 30, 2008, the Company had working capital of approximately $698,000, compared to a negative working capital of approximately $209,000 at September 30, 2007 (restated), and an accumulated deficit of approximately $4,331,000 as of September 30, 2008.





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





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





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


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Fair value of financial instruments





Fair value estimates, assumptions and methods used to estimate fair value of the Company’s financial instruments are made in accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The Company has used available information to derive its estimates. However, because these estimates are made as of a specific point in time, they are not necessarily indicative of amounts the Company could realize currently. The use of different assumptions or estimating methods may have a material effect on the estimated fair value amounts.  The carrying values of   financial   instruments   such as cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short settlement period for these instruments.  It is not practicable to estimate the fair value of the Note Payable to Shareholder due to its related party nature.





Accounts receivable





Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $96,000 and $82,000 for the quarters ended September 30, 2008 and 2007 (restated) and $55,000 for the year ended December 31, 2007 (restated) respectively.  The allowances are calculated based on historical customer returns and bad debts.





In addition to reserves for returns on accounts receivable, an accrual is made against returns for product that have been sold to customer and had cash collections, while the customer still has the right to return the product.   The amounts of these accruals included in accounts payable and accrued liabilities in our consolidated Balance Sheets were approximately $152,000 and $221,000 at September 30, 2008 and 2007, and $166,000 at December 31, 2007 (restated) 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.  The Company adjusts inventory for estimated obsolescence when necessary based upon demand and market conditions. Included in inventory is approximately $65,000 and $20,000 of consigned product as of September 30, 2008 and 2007 (restated), and $55,000 for the year ended December 31, 2007 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.





Impairment of Long-Lived Assets





In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets, are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value. No impairment losses were identified or recorded in the fiscal quarters ended September 30, 2008 and 2007 (restated).





Revenue recognition





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


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





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





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





Income taxes





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





The Company’s policy is to recognize interest and penalties related to tax matters in general and administrative expenses in the Consolidated Statements of Operations. The Company recorded zero of interest and penalties for the quarters ended September 30, 2008 and 2007 (restated), respectively.





New Accounting Pronouncements





In October 2008, the FASB issued FSP No. 157-3. “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” ("FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 will be effective for the Company on September 30, 2008 for all financial assets and liabilities recognized or disclosed at fair value in our Consolidated Financial Statements on a recurring basis (or at least annually) and is not expected to have material impact on the Company’s results of operations, financial condition or liquidity.





In June 2008, the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock.” EITF 07-5 provides guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of SFAS 133, Accounting For Derivative Instruments and Hedging Activities” and/or EITF 00-19, Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF 07-05 will be effective as of the beginning of our 2009 fiscal year. The Company is evaluating the impact of adoption of this EITF on its financial statements.


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Effective January 1, 2008, the Company adopted SFAS No. 157; “Fair Value Measurements”. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 157-2. “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities only. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The adoption of this Statement did not have a material impact on the Company’s consolidated results of operations and financial condition.





In February, 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  The Company adopted SFAS No. 159 for our fiscal year ended December 31, 2008. The adoption of this Statement did not have a material impact on the Company’s consolidated results of operations and financial condition.





ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS





Not applicable





ITEM 4.   CONTROLS AND PROCEDURES





The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time frames specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and its Chief Financial Officer, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) and 15d-15(e).





As of September 30, 2008, the Company carried out an evaluation, under the supervision and within the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures.  During the Company’s internal review of its financial statements for the third quarter of 2008, the Company discovered that it was understating customer returns and bad debts for its infomercial product sales. In conjunction with this discovery, the Company also reviewed its timing for recognizing revenues on product sales and determined that certain revenues were being recorded before completion of the sale. As a result, the Company determined that it was necessary to restate its financial statements for the quarterly periods ended March 31, 2007, June 30, 2007, September 30, 2007, March 31, 2008, June 30, 2008 and the annual period ended December 31, 2007 which have previously been restated.  As a result, the Company’s Chief Executive Officer and Chief Financial Officer have since concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2008.


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Management is committed to improving its internal controls and will (1) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities, (2) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel, (3) prepare and implement sufficient written policies and checklists for financial reporting and closing processes and (4) may consider appointing outside directors and audit committee members in the future. The Company cannot predict when it will be able to appropriately address such weaknesses.





As of September 30, 2008, there had been no change in the Company's internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fiscal quarter ended September 30, 2008 that materially affected, or is reasonably likely to materially affect our internal control over financial reporting. However, as a result of the issues noted above, the Company has since reviewed its revenue recognition policies and revised its internal procedures and controls to ensure that such transactions are recorded properly, and the company has restated its financial statements in this report for the applicable period.





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements.








PART II – OTHER INFORMATION








IT EM   1.  LEGAL PROCEEDINGS





None





IT EM   1A.  RISK FACTORS





Not required for smaller reporting company





I TE M 2.  UNREGISTERED SALES OF EQUITY SECURITIES





None





I TE M 3.  DEFAULTS UPON  SENIOR SECURITIES





None





I TE M 4.  (REMOVED AND RESERVED)






I TE M 5.  OTHER INFORMATION





None


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ITEM 6.  EXHIBITS





ExhibitNumber
Description2 *
Share and Option Purchase Agreement (incorporated by reference from Form SB-2 (No.  333-70878) filed with the Securities and Exchange Commission on October 3, 2001)3.1 *
Amended and Restated Articles of Incorporation (incorporated by reference from Form SB-2 (No.  333-70878) filed with the Securities and Exchange Commission on October 3, 2001)3.2 *
Amended and Restated Bylaws3.3 *
First Amendment to Amended and Restated Bylaws10.1 *
2001 Stock Option Plan10.2 *
Promissory Note by Moran Dome Exploration Inc. payable to the Trustees of the Better Blocks Trust, in the amount of $590,723.2710.3 *
Extension of Promissory Note dated August 23, 2001, by and between the Trustees of the Better Blocks Trust and International Commercial Television Inc.10.4 **
Second Extension of Promissory Note dated March 25, 2002, by and between the Trustees of the Better Blocks Trust and International Commercial Television  Inc.10.5 ***
Assignment of Trademark by Dimensional Marketing Concepts, Inc.31.1   ****
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer31.2   ****
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer32   ****
Section 1350 Certifications





* Incorporated by reference from Form SB-2 filed with the Securities and Exchange Commission on October 3, 2001.




** Incorporated by reference from Post-Effective Amendment No. 1 to Form SB-2 filed with the Securities and Exchange Commission on April 12, 2002.




*** Incorporated by reference from Amendment No. 1 to Form SB-2 filed with the Securities and Exchange Commission on December 24, 2001.




**** Filed herewith


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SIGNATURES





In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





INTERNATIONAL COMMERCIAL TELEVISION INC.RegistrantDate: May 28, 2010
By:
/s/ Kelvin ClaneyName:
Kelvin ClaneyTitle:
Chief Executive OfficerDate: May 28, 2010
By:
/s/ Richard RansomName:
Richard RansomTitle:
Chief Financial Officer







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