UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K





ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934





FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008





Commission File Number 0-49638





INTERNATIONAL COMMERICAL TELEVISION INC.


(Name of Registrant as Specified in Its Charter)





Nevada

76-0621102(State or Other Jurisdiction of Incorporation or Organization)

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





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


(Address of Principal Executive Offices) (Zip Code)





(206) 780-8203


(Registrant’s Telephone Number, Including Area Code)








Securities registered under Section 12(b) of the Exchange Act: NONE.





Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE, $0.001





Indicate by checkmark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  o Yes   T No





Indicate by checkmark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o Yes    T No





Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    o Yes    T No





Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K.  T





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





Larger Accelerated Filer o

Accelerated Filer oNon-Accelerated Filer o

Small Reporting Company T





Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of the Securities Act).  o Yes    T No





The aggregate market value of the voting common stock held by non-affiliates on June 30, 2009 (the last business day of our most recently completed second fiscal quarter) was $2,372,126 using the closing price of $0.30 on June 30, 2009.





As of April 7, 2010, the registrant had issued and outstanding 14,505,912 shares of common stock.





Documents Incorporated by Reference:  None.













INTERNATIONALCOMMERCIAL TELEVISION INC.





Index to


Annual Report on Form 10- K


For the Year Ended December 31, 2008





Part I



PageItem 1.

Description of Business

1Item 1A.

Risk Factors

8Item 1B.

Unresolved Staff Comments

12Item 2.

Description of Property

12Item 3.

Legal Proceedings

12Item 4.

Submission of Matters to a Vote of Security Holders

12Part IIItem 5.

Market for Common Equity, Related Stockholder Matters and Issuer’s Purchases of Equity Securities

12Item 6.

Selected Financial Data

14Item 7.

Management’s Discussion and Analysis of Financial Condition and Result of Operation

14Item 7A.

Market Risk Disclosures

19Item 8

Financial Statements

19Item 9

Changes in and Disagreements with Accountants on Auditing and Financial Disclosure

19Item 9A

Controls and Procedures

20Item 9B

Other Information

22Part IIIItem 10.

Directors, Executive Officers and Corporate Governance

22Item 11.

Executive Compensation

24Item 12.

Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters

25Item 13.

Certain Relationships and Related Transactions and Director Independence

26Item 14.

Principal Accountant Fees and Services

26Part IVItem 15.

Exhibits and Financial Statement Schedules

26





Index








Part I





FORWARD-LOOKING STATEMENTS





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





ITEM1.  DESCRIPTION OF BUSINESS





Overview





We produce long-form infomercials and short-form advertising spots and sell our proprietary brands of advertised products directly to our viewing audience. In addition, we sell products via televised shopping networks, the internet, and retail distribution channels.





The goal of our business plan is to create brand awareness through our infomercial and spot advertising so that these brands and their families of products may be sold in dedicated shelf-space areas by product category in traditional retail stores.  We acquire the rights to the products that we market via licensing agreements, acquisition and in-house development.  We currently sell these products domestically and internationally via infomercials.  Our success is dependent, in part, on our ability to source suitable direct response television products; produce profitable infomercials that attract and retain viewer interest; create brand awareness through our infomercials; and capitalize on the brand awareness we create in our infomercials to sell the products featured in our infomercials, along with related families of products, in traditional retail stores under our established brands.





A short-form spot is a 30-second, 60-second, or 120-second commercial, while a long-form infomercial is a 281⁄2-minute direct response commercial.  Short-form spots generally feature products that can be explained or demonstrated in two minutes or less, with a selling price of $29 or less.  Long-form infomercials generally feature products with a selling price of $30 - $300 and are usually unique, with more benefits and features, and thus require a lengthier demonstration and explanation.





Our domestic division has been our primary revenue source for the fiscal years ended December 31, 2008 and December 31, 2007.   95% of our product sales for the year ended December 31, 2008 were generated from products sold domestically, as compared to 88% for the same period in 2007.  In 2008 we received a high demand for our infomercial products through our direct response television (DRTV) campaign.  In addition, we expanded our sales arrangement with the Home Shopping Network (HSN) who began selling our DermaWand product in June 2007.





Our International business represented 5% of our sales volume for the year ended December 31, 2008, as compared to 12% for the same period in 2007. International revenues resulted primarily from the sale of products to international distributors who in turn marketed our products to their respective markets via direct response and retail marketing channels.





In addition to products that we own or have the exclusive license to market (which we refer to as “our products” or “our own products”), we sometimes act as the international distributor for products owned by third parties (which we refer to as “third-party products”).  For third-party products, we locate international infomercial operators to sell the product, and we receive either a royalty or the difference between the price at which we sell the product to the international infomercial operator and the price at which we acquire the product.  In most instances, there are previously existing infomercials for the third-party products.  For the year ended December 31, 2008, we generated no revenue from third-party products as was the case for the year ended December 31, 2007.





1
 Index





We are a Nevada corporation, and our headquarters are located at 299 Madison Avenue N. Suite C, Bainbridge Island, WA 98110.








The ICTV Strategy





We have noticed that many of our competitors who produce successful infomercials fail to capitalize on that success by associating the products featured in their infomercials with a particular brand.  We think that there is a unique opportunity to do so.  Our goal is to create several brands of products and to introduce our brands of products to the market by airing infomercials featuring one or a few anchor products for each particular brand.  As our brands achieve recognition through the infomercial of the anchor product(s), we plan to sell the anchor product(s) and related families of products under those brands in traditional retail stores.  Our objective is to have our brands of proprietary products sold in retail stores in dedicated shelf space areas by product category.  We are currently developing the infrastructure we will need to develop our brands and to take families of products under those brands to the traditional retail environment.





Our Proposed Brands and Current Products





We continually seek to develop, acquire or obtain the license to consumer products that we believe can be distributed and marketed profitably, especially in the retail environment.  Our success depends, in part, on our ability to market products that appeal to viewers and that can be easily associated with a particular brand.  In order to succeed, we are also aware of the need to identify new products to supplement and possibly replace our existing product lines as they mature through product life cycles.





Our product development and marketing department is the backbone of our Company.  We put forth extensive effort to research and develop new products that are unique and that will be suitable both for direct response marketing in infomercials and for sale in traditional retail stores.  Our development of new product ideas stems from a variety of sources, including inventors, trade shows, strategic alliances with manufacturing and consumer product companies, industry conferences, and the continuous review of new developments within targeted brand and product categories.  In addition, we also receive unsolicited new product proposals from independent parties.





The Company also internally generates ideas for new products that it wishes to develop.  If the Company has an idea for a product, it will present prototype specifications to one of its manufacturers to develop a prototype, and the Company will then evaluate the feasibility of selling the product through an infomercial.





When we evaluate a product for its suitability for an infomercial, we consider how appropriate it is for television demonstration and explanation and how consumers will perceive the value of the product.  Part of our selection criteria for new products is 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 4 – 5 times mark-up from landed cost while still representing good perceived value to the consumer;


§
Must have a unique “hook” to be able to catch the attention of the viewer - infomercials simply portray the consumer’s problem and the solution provided by the product and usually present a significant before and after state - the bigger the problem solved by the product, the greater the sales potential;


§
Easily and effectively promoted through sustained television branding;


§
Supports a margin sufficiently high enough to maintain profitability to us when sold through conventional retailers;


§
Has high volume sales potential, to ensure retailer interest;





2
 Index





§
Exhibits potential for “back-end” sales either through traditional retail or by company-run “auto ship” continuity programs - the more related products that are available for upsell/back-end campaigns, the wider the advantage in the infomercial marketplace;


§
Should have the potential to be turned into a long-term retail item – a product can drive retail sales by capitalizing on awareness advertising that is created with a successful infomercial; and


§
Must be relatively easy to ship.





Our primary product categories are Health and Beauty and Diet and Fitness.  These categories have performed well in DRTV campaigns and they move smoothly to retail sales channels.  Retail buyers seek out new and better products in these categories, especially branded products that have gained a high profile through television.





The following is a list of products we own or have certain rights to and that we are currently marketing or plan to market over the next twelve months.





Health and Beauty Products





The Health and Beauty category is a strong and proven DRTV category as products in this category demonstrate well on television with before and after clinicals, possess high profit margins, and are aimed at the highly motivated “Fountain of Youth” markets.





DermaWandTM





We have a worldwide exclusive license to sell the DermaWand, a skin care appliance that reduces fine lines and wrinkles and improves overall skin appearance.  The price consumers pay for DermaWandTM varies from country to country, however, it generally ranges from approximately $90-$120.





The DermaWand is sold and marketed with DermaVital skin care products which are offered with a monthly continuity  program.  The DermaWand show has now been airing continuously in the U.S. market since 2006, and as expected, the corresponding Internet sales have increased.





DermaVital Hydra Infusion Treatment





DermaVital is a product that allows water to penetrate the skin's surface, thus re-hydrating the deeper layers.  Medical experts, including dermatologists, agree that dehydration or lack of water is a major cause of skin problems.  The problem is that the skinby itself is virtually waterproofand water cannot penetrate its resilient surface.  This moisturizing formula has the ability to send water into the deeper layers of the skin where it is most needed.  The result is a deeper moisturization that softens, cleanses and hydrates the skin in a way that enhances and supports the skin's own natural functions.





DermaVital has been offered to DermaWand buyers through U.S. DRTV and Internet distribution channels as a monthly continuity program, and to HSN customers as an “add on” product to their DermaWand purchase.





Additional Products – Various Categories





Cell RXTM





Cell RX is a skin care product that through a process called nanotechnology, includes high-quality Vitamin C contained in a powder form. This powder turns to a cream as you rub in onto your face, so your skin can absorb the Vitamin C more effectively, without it oxidizing in its liquid form. Until this product was developed, there was no effective way to apply Vitamin C directly to the skin; Vitamin C in liquid form quickly deteriorates and becomes oxidized. Cell RX contains UVA and UVB protection to stop sun damage before it starts. It is fragrance-free and hypoallergenic and is shipped in an airless chamber, to ensure its freshness and that it remains at full potency. It has been tested using the most advanced skin-research equipment. In clinical studies, those who used Cell RX saw a 50%-70% reduction in fine lines and wrinkles.





3
 Index








None of our total revenue for the year ended December 31, 2008, came from the sale of Cell RX, as was the case for the year ended December 31, 2007.





In March of 2010, we chose to terminate our licensing agreement to sell Cell RX, and no longer have plans to distribute the product line.





BetterBlocksTM





In April 2000 we acquired the exclusive, royalty-free worldwide license to manufacture market and distribute BetterBlocksTM, a patented plastic toy building system, under the Share and Option Purchase Agreement with The Better Blocks Trust.  Prior to our acquisition of BetterBlocksTM sales of BetterBlocksTM had been impressive, more than 5 billion individual blocks having been sold since the first short-form infomercial ran on Nickelodeon.  BetterBlocksTM has been sold mainly through DRTV, mail order catalogues, retail and the television shopping channel QVC.





The Company tested the Better Blocks product line on televised shopping in the Fall of 2009, and intends on marketing similar related toy block products during 2010.





Marketing, Sales, Production and Distribution





We use infomercials to build brand awareness and identity.





Infomercials are designed to motivate the viewer to purchase the product immediately (or in the case of lead-generation DRTV, to inquire about the product).  As a result, where brand TV spots generally focus on one key benefit, infomercials give the viewer all the information they need to make a purchasing decision, including presenting multiple features and benefits, and providing price and quality comparisons.  Most infomercials also include a special time-sensitive offer designed to induce immediate response.





Infomercials are characterized by benefit-driven copy, captivating demonstrations and attractive offers.  A typical infomercial consists of two or three "pods" that each last from 6 -12 minutes.  Each pod contains product and benefit information for consumers to make a decision on whether or not to purchase.  The pod concludes with a call-to-action (CTA) during which the seller asks for the order.





More importantly, we feel that infomercials build brand awareness.  Viewers of a long-form infomercial are exposed to the name and features of a particular brand and product for nearly thirty minutes.  We think that this brand recognition will make it easier to market the featured product in the retail environment, because consumers who have seen our infomercials will already have been exposed to the brand.  We expect other products within the featured product’s family to benefit from brand association in the retail environment.  We believe this introduction of product family brands through infomercials will save much time, money and effort that we would otherwise have to spend on marketing if we were to introduce our products to traditional retail without airing the infomercials first.





We also think infomercials are an easy means by which to measure the success of our marketing efforts.  We can measure how successful an infomercial is or will be by doing a media test.  If the product performs well during test marketing, we can increase the media time for the infomercial.  We can also target certain markets by buying media time in particular locations or cities.  The products we sell via our infomercials may do well in some markets, but not in others.  When orders are placed, we gather demographic information about the purchaser and use this information to determine our future target markets.





We contract with several independent companies to manufacture our products.  In general, we place an order with the manufacturer and we pay the manufacturer cash upon shipment of the goods.  In some instances, we provide the manufacturer with an advance payment to cover a portion of the manufacturers’ costs, and we pay the balance after the goods are shipped.





We contract with telemarketing firms to answer phones and capture orders for products sold through our infomercials.  Our storage of inventory, customer service, order processing, and order shipping functions are performed by an outside third party contracted fulfillment company. In September 2008, we moved our fulfillment services from Christopher Morgan in New Berlin, Wisconsin to Motivational Fulfillment in Chino, California.





4
 Index








We generally fulfill our orders within one to five days of the date customers order our products.  If for some reason we are unable to fulfill an order within five days of the date of a customer’s order, then we provide the customer with a letter explaining the reason for the delay.  The letter will also provide the customer with a revised shipping date not to exceed thirty days, and will offer the customer an option to either consent to the delay in shipping or to cancel their order and receive a prompt refund.





Infomercial Production





In the past, we have produced our infomercials with internal management resources, but we also have utilized independent production companies to produce our infomercials.  We have relationships with several independent producers, and we contract out such functions as a way to keep our overhead to a minimum. We, along with the owner or inventor of the product (as the case may be) will always have input in the production process.  Even when we out-source production, we utilize a company specialist to oversee all scripting, filming and editing of the infomercial, and we take great care to ensure that the infomercial is produced in such a way that it can easily be adapted to international markets.





Media Testing





Once the infomercial is produced, we acquire a minimal amount of inventory and purchase $10,000-$20,000 worth of media time through one of our preferred direct response television specialist media agencies to test the infomercial in select target markets.  The agencies generally have comprehensive records of the markets and time slots in which certain product categories have historically sold well.  The agencies also have comprehensive tracking and analyzing programs to test and track the sales response in the markets where we air our infomercials.  The agencies will provide us with a report showing the amount of revenue generated from the infomercial as a ratio to media dollars spent.  For example, a 2.5:1 ratio means that for every $1.00 spent on media, $2.50 was generated in sales.  We take this information, along with other things such as cost of goods, fulfillment charges, telemarketing costs, insurance, returns, credit card commissions and shipping costs and generate our own reports to assess the success of the infomercial in our target markets.





Product Rollout





If a positive result is achieved during media testing, we will begin to build up inventory of the product and “roll out” the infomercial on a wider scale by increasing media spending on a weekly basis until a point just before returns diminish.  When we roll out infomercials, we generally begin with a media spend of $75,000-$100,000 per week for media time for a long-form infomercial and a minimum of $50,000 per week for a short-form infomercial or spot.  We monitor results, payoffs and profitability of our infomercials on a daily basis and aim to be very cautious as to when and how we go about rolling out our infomercials.





In our experience, a “good average” infomercial, which we define as having a media ratio of 2.5:1, will have a life span of eight to twelve months and will, at its peak, sustain $150,000-$200,000 in media spending per week.  A “hit” infomercial, which we define as having a media ratio of 4:1 or greater, will have a life span of 12 to 24 months, and at its peak, will sustain $600,000-$700,000 in media spending per week.





International Sales





The goal of our international division is to establish solid distribution relationships in each country where we air infomercials.  By doing so, we can tailor our products and production for each individual region, and develop relationships with local experts and established companies that are intimate with the marketplace.  When a product that was domestically sold in an infomercial is prepared for international distribution, the international infomercial operator will dub the infomercial, develop product literature in the appropriate foreign language and review the infomercial’s compliance with local laws.  The international infomercial operator will then test the infomercial and roll it out on a larger scale if the test marketing is successful.  We believe that many well-produced infomercials can produce profitable margins somewhere internationally, even if they have failed in the United States.





5
 Index








For the year ended December 31, 2008, international product sales contributed to about 5% of our revenue as compared to 12% for the previous year.  Although we do not expect international sales to be our primary source of revenue in the future, we do expect to continue to devote attention to the international market and to have our infomercials aired internationally on a daily basis to millions of people through our strategic alliances that we have and will continue to develop throughout the world.  We are working to leverage our line of products that we market internationally and test which shows sell best in each country and region.





Traditional Retail Sales





We aim to capitalize on the brand and product awareness we create through our infomercials by selling our proprietary brands of products and related families of products under those brands in dedicated shelf-space areas by product category in traditional retail stores.  We believe that traditional retail sales are a logical step to take after we create brand and product awareness through our infomercials, because we will not have to incur any significant marketing costs and expenses that consumer product companies would otherwise have to incur when introducing their products to the traditional retail environment.





We are currently working toward creating the infrastructure that we will need in order to take our brands and products to the traditional retail environment. The objective of the DRTV strategy is to build brands that are attractive to our main target market - national retailers.





During Fall 2008, we planned on an introduction of our DermaWand product in U.S. national retail outlets. Our DRTV advertising spending was significantly increased to support this effort. Unfortunately, due to the major downturn in the U.S. economy, our retail efforts had to be minimized and postponed until a future (yet to be determined) date.





Other Direct Response Sales Methods





Once we have rolled out a product in an infomercial, we prepare to distribute the product via other direct response methods, such as mail order catalogs, direct mail, credit card statement inserts and live appearances on television home shopping channels, such as QVC.  We believe that this is an additional means by which to use the brand awareness we create in our infomercials, and to reach consumers who might not watch television.  These other direct response methods also extend the time period during which each of our products can generate revenue.





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.  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 similar to 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, who include Thane International Inc. and Guthy-Renker Corp., have substantially greater financial, marketing and other resources than us.





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 fairly low, but there are many difficult hurdles for young entrants to overcome if they are to be successful 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 particular 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 via their infomercials.





6
 Index




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 BetterBlocksTM in countries throughout the world.  We have also registered trademarks in the United States for DermaWandTM and DermaVitalTM .





·
Patents





We have patents for the toy building elements of BetterBlocksTM in several countries throughout the world.  We also have the exclusive right to the use of the worldwide patent for DermaWandTM, as is necessary to manufacture, market and distribute DermaWandTM .





·
Copyrights





We have copyright registrations for all versions of our infomercials for DermaWandTM and BetterBlocksTM.




·
Registered Designs





We have registered designs for BetterBlocksTM in several countries throughout the world.





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 through the use of 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.





Royalty Agreements





In April 2000, we assumed from R.J.M. Ventures Limited and Better Blocks International Limited, by virtue of the Share and Option Purchase Agreement we signed with The Better Blocks Trust, the obligation to pay royalties on the sales of the DermaWandTM under the following agreements:




DermaWandTM





·
Under a marketing and royalty agreement with the developer of DermaWandTM, we are obligated to pay them a royalty at a fixed rate per unit sold.  The agreement is silent as to its duration.


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


·
In March of 2010, we chose to terminate our licensing agreement to sell Cell RX, and no longer have plans to distribute the product line.





7
 Index





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 and the FDA 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 time 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.





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





In 2008 we employed a total of eight employees, all of whom were full-time.  We consider our labor relations to be good.  None of our employees are covered by a collective bargaining agreement.





As of April 2010, the Company employs a total of seven employees; six full-time employees and one part-time employee.





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.





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.





ITEM1A.  RISK FACTORS





Shareholders and prospective purchasers of our common stock should carefully consider the following risk factors in addition to the other information appearing in this Annual Report on Form 10-K.





There is no assurance that our strategy to leverage brand awareness created by our infomercials into the retail market will work, and the value of your investment may decline if we do not attain retail sales.





The goal of our business plan is to create brand awareness through infomercials so that we can use this brand awareness to sell our products under our brands in traditional retail stores in dedicated shelf-space areas.  Our success will depend on our ability to associate our products with particular brands to create consumer awareness and to enter the traditional retail market.  If our strategy to leverage brand awareness created by our infomercials into the retail market does not work and we do not attain retail sales, the value of your investment may decline.





8
 Index





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 a number of 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 $15,000-$40,000 to produce, while production costs for a long-form infomercial are generally around $120,000-$180,000.  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.





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.  In particular, the success of our business depends to a great extent on Kelvin Claney, our President and Chief Executive Officer and a member of our Board of Directors.  Mr. Claney has extensive experience in the infomercial industry, and his 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 the services of Mr. Claney.  We do not have an employment agreement with Mr. Claney, and as a result, there is no assurance that he will continue to stay with our Company in the future.  We have not obtained key man insurance with respect to Mr. Claney or any of our executive officers.  The loss of Mr. Claney 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.





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 to a great extent on our ability to develop or acquire new innovative products under particular 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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Our shares are classified as “penny stock,” which will make it more difficult to sell than exchange-traded stock.





Our securities are subject to the Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers that sell such securities to other than established customers or accredited investors.  For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets exceeding $5,000,000 or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, combined with a spouse’s income, exceeds $300,000).  For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale.  Consequently, the rule may affect the ability of purchasers of our securities to buy or sell in any market that may develop.





In addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks”.  A “penny stock” is any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and Exchange Act of 1934, as amended.  The rules may further affect the ability of owners of our shares to sell their securities in any market that may develop for them.  Shareholders should be aware that, according to the Securities and Exchange Commission Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse.  Such patterns include:





·
control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;


·
manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;


·
“boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;


·
excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and


·
the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.





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





Any additional issuances of common stock by us from our authorized but unissued shares may have the effect of diluting the percentage interest of existing shareholders.  Out of our 100,000,000 authorized common shares, 85,725,713 shares, or approximately 86%, remain unissued.  The board of directors has the power to issue such shares without shareholder approval.  None of our 20,000,000 authorized preferred shares are issued.  We fully intend to issue additional common shares or preferred shares in order 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 shareholders 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 shareholder 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 the 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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Concentration of ownership of management and directors may reduce the control by other shareholders over ICTV.





Our executive officers and directors own or exercise full or partial control over approximately 47% of our outstanding common stock.  As a result, 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 ICTV.





Our board of directors is staggered, which makes it more difficult for a stockholder to acquire control of the 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 the 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 of 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 bringing suit against one of our officers or directors.  We have been advised that the SEC takes the position that this provision does not affect the liability of any director under applicable federal and state securities laws.





We face risk related to late tax filings.


The Company has not filed its mandatory tax filings since inception. Management believes that the potential income tax liability to the Company is not significant since the Company reported significant losses for most years since inception. Moreover, to the best of management’s knowledge, the Company does not believe that not filing tax returns is a violation of any of its contractual covenants. The Company is working to become current with its mandatory tax filings.





We face risk related to our accounting restatements and late SEC filings.


We have restated our Form 10-K for the year ended December 31, 2007, Forms 10-Q for the periods ended June 30, 2008 and 2007, March 31, 2008 and 2007, and September 30, 2007.  These restatements and delay in filing financial statements and periodic reports with the SEC for the fiscal years ending December 31, 2009 and 2008 may lead to litigation claims and/or regulatory proceedings against us. The defense of any such claims or proceedings may cause the diversion of management’s attention and resources, and we may be required to pay damages if any such claims or proceedings are not resolved in our favor. Any litigation or regulatory proceeding, even if resolved in our favor, could cause us to incur significant legal and other expenses. We also may have difficulty raising equity capital or obtaining other financing as a result of the restatements and delay in filing financial statements and periodic reports with the SEC and we may not be able to effectuate our current business strategy. Moreover, we may be the subject of negative publicity focusing on the financial statement errors and resulting restatement and delay in filing financial statements and periodic reports with the SEC and negative reactions from our stockholders, creditors or others with whom we do business. The occurrence of any of the foregoing could harm our business and reputation and cause the price of our securities to decline.





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ITEM1B.  UNRESOLVED STAFF COMMENTS





None





ITEM2.  DESCRIPTION OF PROPERTY





PROPERTIES





Our executive offices are located in Bainbridge Island, Washington with a monthly lease payment of $1,600.





In addition, we rent an office in North Vancouver, British Columbia for our international operations at a monthly lease rate of $2,400 (Canadian).  This office was closed in May of 2009.





On April 1,2008, we entered into a 3-year lease for our Operations Offices in Wayne, Pennsylvania. The rent for these premises is approximately $2,900 per month.





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 both the Bainbridge Island and Wayne locations.





ITEM3.  LEGAL PROCEEDINGS





We are not a party to any material pending legal proceeding or litigation and none of our property is the subject of a pending legal proceeding.  Further, our officers and directors know of no material legal proceedings against us or our property contemplated by any entity including any governmental authority.





ITEM4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





No matters were submitted to a vote of our Company’s shareholders during the year ended December 31, 2008.





PART II




ITEM5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER’S PURCHASES OF EQUITY SECURITIES





MARKET FOR COMMON EQUITY





Until May 2009, our common stock was traded on the OTC Bulletin Board under the symbol “ICTL”.  On October 31, 2008, we filed a report on Form 8-K, reporting our discovery that certain revenues were improperly recognized during the third and fourth quarters of 2007, and the first and second quarters of 2008.  Since that time we have been performing a detailed review of our records to determine the precise amounts of revenue improperly recognized, and have discovered and corrected additional errors in our accounting policies, as reported in subsequent reports on Forms 8-K and 8-K/A.  Until we completed our review, we were unable to file accurate financial statements.  As a  result, we were removed from the OTC Bulletin Board inMay 2009.  Since then, our common stock has traded only in the “pink sheets,” which does not constitute an “established trading market”.  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 Stockwatch is set forth below.  These quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.





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 Index


Quarter ended
High
Low

Quarter ended
High
Low$
$


$
$December 31, 2008
1.01
0.16

December 31, 2007
2.65
2.55September 30, 2008
2.22
0.65

September 30, 2007
2.80
2.75June 30, 2008
2.90
1.95

June 30, 2007
2.79
2.60March 31, 2008
2.74
2.11

March 31, 2007
1.67
1.52





HOLDERS





As of April 7, 2010, there were 14,505,912 shares of common stock outstanding.   We estimate these shares are held by approximately 300 shareholders of record.





DIVIDENDS





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.





SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





On February 26, 2001, our shareholders approved our 2001 Stock Option Plan (the “Plan”).  The Plan is designed for selected employees, officers, directors and key consultants to the Company and its subsidiaries, 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 the success of the Company, thereby encouraging them to remain in the employ 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 a total of 3,000,000 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.





The following table presents information as to the number of shares of our common stock which are authorized for issuance under the Plan as of December 31, 2008.





(a)
(b)
(c)Plan Category
Number of securities to be issued upon exercise of outstanding options
Weighted-average exercise price of outstanding options
Number of securities remaining available for future issuance under the Plan (excluding securities reflected in column (a))Equity compensation plans approved by security holders
1,117,000
$1.39
1,825,000Equity compensation plans not approved by security holders
n/a
n/a
n/aTotal
1,117,000
$1.39
1,825,000





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 Index





RECENT SALES OF UNREGISTERED SECURITIES





On May 14, 2008, the Company issued 70,000 shares of common stock at a price of $2.20 per share, for a total of $154,000  in a private placement to a limited number of accredited investors. The investors also received warrants to purchase an equal number of shares at an exercise price of $3.00 per share.  The warrants are exercisable for a 2 year period.





During 2008, the company issued 42,500 shares of common stock for subscriptions received in 2007 totaling $100,750.





On May 5, 2008, the Company issued 74,125 shares of common stock as part of the commissions payable in connection with a private placement made on April 13, 2007.  These shares were issued at a market value of $2.20 per share, for a total consideration of $163,075.





On September 28, 2008, the Company issued 40,000 shares of common stock upon the exercise of options at an exercise price of $0.30 per share, for a total of $12,000.





Each of the above stock issuances were made to accredited investors in transactions exempt under Section 4(2) of the Securities Act of 1933, as amended, and Regulation D, promulgated under that Act.  Restrictive legends were placed on all share certificates.








ITEM6.  SELECTED FINANCIAL DATANot applicable








ITEM7.  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 in Item 7.  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.  Factors that could cause or contribute to such differences include those discussed in the “Outlook: Issues and Uncertainties” section of this Form 10- K.








EXPLANATORY NOTE





On March 9, 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.  As such, the 2007 figures 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.





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





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





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





Results of Operations





The following discussion compares operations for the fiscal year ended December 31, 2008, with the fiscal year ended December 31, 2007(restated).




Revenues





Net sales increased to approximately $15,371,000 in 2008 from approximately $8,488,000 in 2007, an increase of $6,883,000 or 81.1%. In addition to an active DRTV campaign for the DermaWand in the U.S. and sales of the DermaWand on televised home shopping (HSN), we continue to maintain our relationships with our customers in the international market. In 2008, 5.4% of our revenue came from our international sales compared to 11.9% in 2007, and 94.6% of our revenue were generated by our domestic sales as compared to 88.1% in 2007.   The product that provided the majority of our revenue in 2008 was our own product, DermaWandTM. 100% of net sales were generated by the sale of our own products in 2008 and 2007.





Gross Margin





Gross margin percentage increased to approximately 68.2% in 2008 from approximately 66.7% in 2007.  In 2008, we generated approximately $10,481,000 in gross margin for DermaWandTM, compared to approximately $5,667,000 in 2007.





Operating Expenses





Total operating expenses increased to approximately $13,673,000 in 2008, up from approximately $6,760,000 in 2007, an increase of $6,913,000, or 102.3%.  Management’s efforts to increase operations and sales of DermaWandTM over the past 12 months are one of the reasons for the increase in operating expenses.  A large portion of operating expenses, approximately $4,724,000, can be attributed to an increase in media costs and fulfillment costs associated with the domestic marketing campaign of our DermaWandTM product.  In addition, in March 2008 the Company opened a new operational office in Wayne, Pennsylvania and increase staff by approximately 4 full-time employees.





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Net Loss





Our net loss for the year ended December 31, 2008 was $3,156,000, compared to a 2007 net loss of $1,082,000.    The major reason for the 2008 net loss was the expansion of the U.S. DRTV distribution channel, which was designed to support the launch of the DermaWand product brand in U.S. retail store locations in the fall of 2008. The retail channel launch did not occur as the U.S. economy suffered a major downturn in 2008.





Liquidity and Capital Resources





At December 31, 2008, we had approximately $392,000 in cash and cash equivalents, compared to approximately $3,789,000 at December 31, 2007. We incurred a negative cash flow from operations of approximately $3,408,000 in 2008, compared to a negative cash flow from operations of approximately $822,000 in 2007. In addition to the approximately $3,156,000 net loss, the Company’s negative cash flow from operations can be attributed to an increase in inventory on hand of approximately $1,771,000 and an increase in accounts receivable of approximately $358,000.   These amounts are partially offset by the increase in accounts payable of approximately $1,767,000.





The Company has 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 1,117,000 stock options at a weighted average exercise price of $1.39 per share.  All option grants vest over a five-year period.  To date, a total of 74,000 stock options have been exercised, 34,000 options at $0.50 for proceeds of $17,000 and 40,000 options at $0.30 for proceeds of $12,000. If the optionees exercise the remainder of these options as they vest, we will receive approximately $1,500,000 in capital.





In 2008, the Company recorded stock-based compensation of $10,546 in connection with options granted on November 8, 2005 and recorded stock-based compensation of $11,795 in connection with options granted on May 31, 2004.





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 year ended December 31, 2008, of approximately $3,408,000, and the Company, for the most part, has experienced recurring losses from operations. As of December 31, 2008, the Company had working capital of approximately $(127,000), compared to approximately $2,894,000 at December 31, 2007, and an accumulated deficit of approximately $5,181,000 as of December 31, 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 3 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 $62,000 and $55,000 for the years ended December 31, 2008 and 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 $248,000 and $166,000 at December 31, 2008 and 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 $33,000 and $55,000 of consigned product as of December 31, 2008 and 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 years ended December 31, 2008 and 2007.





Revenue recognition





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





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




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 Index





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 approximately $280,000 and zero of interest and penalties for the years ended December 31, 2008 and 2007, 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 was 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 did not 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 is 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.





18
 Index





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.




Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements.








ITEM7A.  MARKET RISK DISCLOSURES





Not Applicable.








ITEM8.  FINANCIAL STATEMENTS





Financial statements are set forth on pages F-1 through F-19.








ITEM9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





We dismissed our current independent accountant, Dohan & Company CPA (Dohan), on September 4, 2009.  The decision to change accountants was approved by our Board of Directors.





Dohan’s reports on our financial statements for the two years ended December 31, 2007 and 2006 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except each report contained an explanatory paragraph regarding our ability to continue as a going concern.  During our two most recent fiscal years, and the subsequent interim periods during 2009 through the date of Dohan’s dismissal on September 10, 2009, there were no disagreements with Dohan on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Dohan, would have caused Dohan to make reference to the subject matter of the disagreements in connection with its reports on the Company’s financial statements during such periods. None of the events described in Item 304(a)(1)(iv) of Regulation S-K occurred during the two most recent fiscal years and any subsequent interim periods preceding the dismissal of Dohan.




19
 Index





We retained Amper, Politziner & Mattia, LLP (“Amper”) on September 10, 2009, as the Company’s new independent registered public accounting firm to provide audit services for the Company, beginning with the fiscal year ended December 31, 2008. During the period that Dohan served as the Company’s principal accountant, the Company did not consult with Amper regarding the application of accounting principles to a specific transaction, or type of audit opinion that might be rendered on the Company’s financial statements and no written or oral advice was provided by Amper that was a factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issues, and the Company did not consult with Amper on or regarding any of the matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.








ITEM9A.  CONTROLS AND PROCEDURES


Disclosure Controls and Procedures





We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2008 (the “Evaluation Date”). Management conducted an evaluation of the design and operation of the Company’s internal control over financial reporting as of December 31, 2008 based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date as a result of the material weaknesses in internal control over financial reporting discussed below.





Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.





On April 8, 2010, our independent registered public accounting firm Amper, Politziner & Mattia, LLP (AP&M), informed us and our Board of Directors that they had discovered conditions which they deemed to be material weaknesses in our internal controls (as defined by standards established by the Public Company Accounting Oversight Board) summarized as follows:





·
A lack of sufficient resources and an insufficient level of monitoring and oversight, which restricts the Company's ability to gather, analyze and report information relative to the financial statement assertions in a timely manner, including insufficient documentation and review of selection and application of generally accepted accounting principles.





·
The limited size of the accounting department makes it impracticable to achieve an appropriate segregation of duties.





·
There are no formal documented closing and reporting calendar and checklists.





·
There are no formal cash flow forecasts, business plans, and organizational structure documents to guide the employees in critical decision-making processes.





·
There are ineffective controls over accounting for revenue recognition and allowances for returns and bad debts.





20
 Index





·
Documentation (and retention thereof) of certain transactions was not completed on a timely basis.





·
Income and sales tax filings have not been made timely.





·
Material weaknesses identified in the past have not been remediated.





·
Lack of an audit committee which results in ineffective oversight over the Company’s financial reporting and accounting.





Management's Annual Report on Internal Control Over Financial Reporting





Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.





Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.





Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of the Evaluation Date.





A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.





Based on its evaluation, management identified certain material weaknesses listed below, some of which are included in the list of above material weaknesses reported by our independent public accounting firm.  As such, management has concluded that our internal control over financial reporting was not effective as of December 31, 2008.





Insufficient Resources: We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.





Inadequate Segregation of Duties:We have an inadequate number of personnel to properly implement control procedures.





Insufficient Written Policies & Procedures:We have insufficient written policies and procedures for accounting and financial reporting.





21
 Index





Lack of Audit Committee:We do not have a functioning audit committee resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.





The information set forth in this Item 9A(T) shall not be considered filed under the Exchange Act. This annual report does not include an attestation report of Amper, Politziner & Mattia, LLP, the Company’s independent registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by Amper, Politziner & Mattia, LLP pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Form 10-K.





Remediation of Material Weaknesses





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.





Changes in internal control over financial reporting





As of the Evaluation Date, there were no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2008 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.








ITEM9B.  OTHER INFORMATION





None.








PART III





ITEM10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE





The following table sets forth the name, age and position of each director and executive officer of ICTV.  The directors serve staggered terms of one, two, or three years and until their successors are elected and qualified.  Officers hold their positions at the pleasure of the board of directors, without prejudice to the terms of any employment agreement.








NAME
AGE
POSITIONKelvin Claney
58
President, Chief Executive Officer, Secretary and DirectorRichard Ransom
30
Chief Financial OfficerRichard Scheiner
53
Chief Operating OfficerWilliam R. Flohr

Stephen Jarvis
46
Director

Director





Kelvin Claney – President and Chief Executive Officer, Secretary, Director





Kelvin Claney has served as a director of the Company since January 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 2000TM, Dustmaster 2000, LeSnack, Iron Quick and Fatfree Express.  Since 1992, 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 the Company wants to become involved in, selecting production companies to produce infomercials and selecting media times to promote the infomercials.  The creation of the Smart StacksTM infomercial, which is now owned by ICTV, 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 BetterBlocksTM, which was then owned by The Better Blocks Trust.





22
 Index





William R. Flohr – Director





William R. Flohr served as a director of the Company from June 2000 until his resignation on December 10, 2009.  Mr. Flohr owns Info Marketing Group Inc., a vertically integrated infomercial company, where he has served as President since 1991.  In 1989, he co-created an infomercial series called “Amazing Discoveries”.  From 1989-1991, Mr. Flohr was a co-owner of Positive Response Television, Inc.  In the two years he was with Positive Response Television, Inc., he produced over thirty infomercials.  From 1982 to 1988, Mr. Flohr was a Senior TV Producer for the American Broadcasting Company Television Network (ABC), where he produced “Live with Regis and Kathie Lee” and “Geraldo” television talk shows.  Since 2000, Mr. Flohr has served as a Director of Amden Corp., a developer and marketer of oral care products, including CybersonicTM, an electronic sonic toothbrush that is presently sold via infomercials domestically and internationally.





Stephen Jarvis – Director





Stephen Jarvis has served as a director of the 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 approximately 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.





Richard Scheiner – Chief Operating Officer





Richard Scheiner joined ICTV in March, 2008 and was named the Company’s Chief Operating Officer on May 30, 2008. Mr. Scheiner is a 30 year veteran of the direct response industry, having held senior management posts at Time-Life Music, Guthy-Renker, The Walt Disney Company, and Sylmark Holdings.





Mr Scheiner is the former Chief Operating Officer and Chief Marketing Officer of Guthy-Renker Entertainment, where he managed the development of “The Dean Martin Celebrity Roasts” and other video and music properties. At Time-Life, he developed over 100 music albums and launched significant product brands such as the “Time-Life Rock N Roll Era” and “Time-Life Treasury of Christmas”. He also has served as a management consultant for many companies within the direct response industry, and is an active member of various Electronic Retailing Association Committees on behalf of ICTV.





Richard Ransom – Chief Financial Officer





Richard Ransom joined ICTV in July of 2008 as the Company’s Controller, and was appointed as Chief Financial Officer on December 8, 2008. Mr. Ransom joined the Company with eight years of experience in financial management roles at Traffic,Com, Hildebrandt International, and Grant Thorton. He is a graduate of Pennsylvania State University with a degree in Accounting, and received his MBA from Delaware Valley College in December, 2009.





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 of 1934, as amended (the “Exchange Act”), to report to the SEC their transactions in, and beneficial ownership of, the Company's common stock, including any grants of options to purchase common stock.  To the best of the Company's knowledge, the Company’s directors and executive officers timely filed all required reports with the SEC during the year ended December 31, 2008.





23
 Index





Audit Committee and Code of Ethics





We have not formally appointed an audit committee, and the entire Board of Directors (two persons) currently serves the function of an audit committee.  Because of the small number of persons involved in management of the Company, we do not have an audit committee financial expert serving on our Board.  We have not yet adopted a code of ethics applicable to our chief executive officer and chief financial officer, or persons performing those functions, because of the small number of persons involved in management of the Company.





ITEM11.  EXECUTIVE COMPENSATION





Compensation of Named Executive Officers





The following table sets forth all compensation paid or earned for services rendered to ICTV in all capacities during the years ended December 31, 2008 and 2007, by our chief executive officer and president, chief operating officer, and chief financial officer (the "Named Officers").    No options or SAR grants were made to the Named Officers in 2008, nor were any options or SAR’s exercised by the Named Officers in 2008.








Summary Compensation Table





NameAndPrincipalPosition
Year
Salary ($)
Bonus ($)Kelvin Claney (President and CEO)
2008
138,000
nil2007
84,000
nilRichard Scheiner (Chief Operating Officer)1
2008
198,800
50,000Richard Ransom  (Chief Financial Officer)2
2008
45,100
nilKarl Redekopp3(Chief FinancialOfficer)
2008
48,776
nil2007
78,000
nil





1  Mr. Scheiner joined the Company in March 2008.  As of December 31, 2008, he was paid an annual salary of $200,000.





2  Mr. Ransom joined the Company in July 2008.  As of December 31, 2008, he was paid an annual salary of $125,000.





3  Mr. Redekopp resigned from the Company in July 2008.








Compensation of Directors





Directors receive no compensation for their service as directors, although they do receive reimbursement for expenses.





24
 Index





Employment Contracts





We have no employment agreements with any of the Named Officers.





We may in the future create retirement, pension, profit sharing, insurance and medical reimbursement plans covering our executive officers and directors, and staff.  At the present time, no such plans exist.  No advances have been made or are contemplated by ICTV to any of its executive officers or directors.





ITEM12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS





The following table sets forth, as of April 7, 2010 our outstanding common stock owned of record or beneficially by (1) each person who owned of record, or was known by us to own beneficially, more than 5% of our common stock, (2) each executive officer, (3) each director and (4) the shareholdings of all executive officers and directors as a group.  As of April 7, 2010, we had 14,505,912shares of common stock issued and outstanding.





Name

Number of

Shares Owned


Percentage of

Shares OwnedKelvin Claney, President and Chief Executive Officer, Member of the Board of Directors (1)


6,598,826



45.5
%The Better Blocks Trust, declared January 1, 1994(2)


6,578,826



45.4
%Richard Scheiner, Chief Operating Officer(3)


17,600



0.1
%William Flohr, Member of the Board of Directors(4)


80,000



0.6
%ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP – 3 INDIVIDUALS(5)


6,696,426



46.2
%





Except as noted below, all shares are held of record and each record shareholder has sole voting and investment power.





(1)
Includes 6,078,826 shares owned by The Better Blocks Trust, of which Mr. Claney is a joint trustee and 500,000 options that are currently exercisable by The Better Blocks Trust.  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.  Mr. Claney’s business address is 10245 Sunrise Place NE, Bainbridge Island, Washington 98110.


(2)
Includes 500,000 options that are currently exercisable by The Better Blocks Trust.  The address for The Better Blocks Trust is 1 Kimberly Road, Epson, Auckland City, Auckland New Zealand, c/oBarry Stafford, Stafford Klaassen.


(3)
Mr. Scheiner’s business address is 487 Devon Park Dr. Suite 212, Wayne Pennsylvania 19087.


(4)
Mr. Flohr’s business address is 355 22nd Street, Santa Monica, California 90402.


(5)
Includes 500,000 options that are currently exercisable by The Better Blocks Trust.





There are no arrangements known to ICTV, the operation of which may result in a change of control of the Company.





25
 Index





ITEM13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE




The Company has received short-term advances from a shareholder.  These advances amounted to approximately $182,000 and $358,000 during the years ended December 31, 2008 and 2007 (restated), respectively. The advances are offset by repayments which amounted to approximately $276,000 and $596,000 during the years ended December 31, 2008 and 2007 (restated), respectively.  These advances are non-interest bearing and without specific terms of repayment.  These advances are included in Accounts Payable – Related Parties on the accompanying consolidated balance sheets.





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





We have two directors.  Under the definition of director independence found in NASD Rule 4200, Stephen Jarvis is our sole independent director.






ITEM14.  PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit Fees





The aggregate fees billed to the Company for professional services rendered for the audit of the Company's annual financial statements, review of the Company's quarterly financial statements, and other services normally provided in connection with statutory and regulatory filings or engagements was $104,000 in 2008 and approximately $38,000 in 2007.





All fees for audit and non-audit services, and any material fees for other services, are approved in advance by our Chief Financial Officer.






PART IV





ITEM15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





Reports of Independent Registered Public Accounting Firms

F-1 – F-2Consolidated Financial Statements:Consolidated Balance Sheets

F-3Consolidated Statements of Operations

F-4Consolidated Statements of Shareholders’ Equity (Deficit)

F-5Consolidated Statements of Cash Flows

F-6Notes to Consolidated Financial Statements

F-7 – F-22




31.1
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
 
 31.2
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer
 
 32
Section 1350 Certifications


26
 Index





SIGNATURES





In accordance with Section 13 or 15(d) 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.Date:
April 13, 2010

By:
/s/  Kelvin ClaneyName: Kelvin ClaneyTitle: President and Chief Executive Officer








In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.








By:
/s/ Kelvin Claney

Date:
April 13, 2010Name: Kelvin ClaneyTitle: Chief Executive Officer and DirectorBy:
/s/  Richard Ransom

Date:
April 13, 2010Name: Richard RansomTitle: Chief Financial Officer, Principle Accounting OfficerBy:
/s/  Stephen Jarvis

Date:
April 13, 2010Name: Stephen JarvisTitle: Director





27
 Index





INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





International Commercial Television Inc. and Subsidiaries





Report of Independent Registered Public Accounting Firm as to year ended December 31, 2008

F-1Report of Independent Registered Public Accounting Firm as to year ended December 31, 2007

F-2Consolidated Balance Sheets as of December 31, 2008 and 2007 (Restated)

F-3Consolidated Statements of Operations for the years ended December 31, 2008 and 2007(Restated)

F-4Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2008 and 2007 (Restated)

F-5Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007 (Restated)

F-6Notes to the Consolidated Financial Statements

F-7





Index




Report of Independent Registered Public Accounting Firm





To the Board of Directors and Stockholders of


International Commercial Television, Inc.





We have audited the accompanying consolidated balance sheet of International Commercial Television, Inc. and Subsidiary (the “Company”) as of December 31, 2008, and the related consolidated statements of operations, shareholders’ equity (deficit), and cash flows for the year 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 audit.





We conducted our audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Commercial Television, Inc. and Subsidiary as of December 31, 2008, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.





We also have audited the adjustments described in Note 2 that were applied to restate the 2007 financial statements to correct an error.  In our opinion, such adjustments are appropriate and have been properly applied.  We were not engaged to audit, review, or apply any procedures to the 2007 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2007 financial statements taken as a whole.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company’s recurring losses from operations and negative cash flows from operations raise substantial doubt about its ability to continue as a going concern.  Management’s plans considering these matters are also described in Note 1 to the consolidated financial statements.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.








/s/Amper, Politziner & Mattia LLP








Edison, New Jersey


April 8, 2010





F-1
 Index





Dohan and Company
7700 North Kendall Drive, 200Certified Public Accountants
Miami, Florida     33156-7564A Professional Association
Telephone      (305) 274-1366Facsimile      (305) 274-1368E-mail         info@uscpa.comInternet        www.uscpa.com
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Stockholders and Board of Directors
 International Commercial Television Inc. and Subsidiary
 Bainbridge Island, WA
 
 We have audited, before the effects of the adjustments for the correction of the error described in Note 2 to the consolidated financial statements, the accompanying consolidated balance sheets of International Commercial Television Inc. and Subsidiary as of December 31 2007, and the related consolidated statement of operations, shareholders’ equity and cash flows for the year then ended (the 2007 financial statements before the effects of the adjustments discussed in Note 2 are not presented herein).  The consolidated 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 of America).  Those standards require that we plan and perform the audits 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 audits 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, except for the error described in Note 2, the 2007 consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Commercial Television Inc. and Subsidiary at December 31, 2007, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
 
 We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the error described in Note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.  Those adjustments were audited by Ampler, Politziner & Mattia, CPA.
 
 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company generated negative cash flows from operating activities during the past year. The Company had working capital of approximately $4,064,396 and deficit of approximately $1,444,492 (before the effects of the adjustments discussed in Note 2) for the year ended December 31, 2007.
 
 /s/ Dohan and Company, P.A.Certified Public Accountants
 Miami, Florida
 March 24, 2008 except as to Notes 1, 7, 8,
 9, 10 and 11 which is March 28, 2009
 F-2
 Index




INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEETS


AS OF DECEMBER 31, 2008 AND 2007








2008


2007(Restated)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
254,179


$
3,725,225Restricted cash


137,649



63,719Accounts receivable, net of doubtful account reserves of $29,869 and $33,245, respectively


509,367



151,726Inventories, net


2,474,344



703,120Prepaid expenses and deposits


168,652



247,841Total current assets


3,544,191



4,891,631Furniture and equipment


182,005



120,169Less accumulated depreciation


119,562



110,330Furniture and equipment, net


62,443



9,839Total assets

$
3,606,634


$
4,901,470LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable and accrued liabilities

$
3,046,412


$
1,279,836Accounts payable - related parties


33,965



127,473Note Payable to Shareholder


590,723



590,723Total current liabilities


3,671,100



1,998,032COMMITMENTS AND CONTINGENCIESSHAREHOLDERS’ EQUITY (DEFICIT):Preferred stock 20,000,000 shares authorized, no shares issued and outstandingCommon stock, $0.001 par value, 100,000,000 shares authorized, 14,505,912 and 14,279,287 issued and outstanding as of December 31, 2008 and December 31, 2007, respectively


4,407



4,181Additional paid-in-capital


5,111,937



4,823,073Subscriptions received in advance


-



100,750Accumulated deficit


(5,180,810
)


(2,024,566
)Total shareholders’ equity (deficit)


(64,466
)


2,903,438Total liabilities and shareholders’ equity (deficit)

$
3,606,634


$
4,901,470








See accompanying notes to consolidated financial statements.





F-3
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 20072008


2007(Restated)NET SALES

$
15,370,765


$
8,488,209COST OF SALES


4,890,260



2,821,447GROSS PROFIT


10,480,505



5,666,762OPERATING EXPENSES:General and administrative


4,134,010



1,250,708Selling and marketing


9,538,493



5,509,466Total operating expenses


13,672,503



6,760,174OPERATING LOSS


(3,191,998
)


(1,093,412
)OTHER INCOME (EXPENSES):Interest income (expense)


35,754



11,424Total other expenses


35,754



11,424LOSS INCOME BEFORE INCOME TAXES


(3,156,244
)


(1,081,988
)Income tax expense


- .



- .NET LOSS


(3,156,244
)


(1,081,988
)BASIC AND DILUTED NET LOSS PER SHARE

$
(0.22
)

$
(0.09
)








See accompanying notes to consolidated financial statements.





F-4
 Index








INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)





FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007





Common Stock $0.001 par valueShares


Amount


Additional Paid-In Capital


Accumulated Deficit


SubscriptionsReceived


TotalsBalances, January 1, 2007


10,693,188


$
594


$
464,728


$
(942,578
)

$
-


$
(477,256
)Issuance of common stock


3,586,099



3,587



4,687,614



-



-



4,691,201Subscriptions received in advance


-



-



-



-



100,750



100,750Stock issuance costs


-



-



(329,269
)


-



-



(329,269
)Net loss (Restated)


-



-



-



(1,081,988
)


-



(1,081,988
)Balance at December 31, 2007


14,279,287


$
4,181


$
4,823,073


$
(2,024,566
)

$
100,750


$
2,903,438(restated)Net Loss


-



-



-



(3,156,244
)


-



(3,156,244
)Issuance of common stock


70,000



70



153,930



-



-



154,000Issuance of common stock for subscriptions received in 2007


42,500



42



100,708



-



(100,750
)


-Stock issuance costs










(163,075
)


-



-



(163,075
)Issuance of common stock


74,125



74



163,001



-



-



163,075in lieu of issuance costsExercise of stock options


40,000



40



11,960



-



-



12,000Stock based compensation


-



-



22,340



-



-



22,340Balance at December 31, 2008


14,505,912


$
4,407


$
5,111,937


$
(5,180,810
)

$
-


$
(64,466
)








See accompanying notes to consolidated financial statements.





F-5
 Index




INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 20072008


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

$
(3,156,244
)

$
(1,081,988
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


9,231



6,357Stock based compensation


22,340



-Change in assets and liabilitiesAccounts receivable


(357,641
)


403,468Inventory


(1,771,223
)


(464,433
)Prepaid expenses and deposits


79,191



(159,343
)Accounts payable and accrued liabilities


1,766,575



474,292Net cash used in  operating activities


(3,407,771
)


(821,647
)CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property 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 issuance costs


165,999



4,361,932Advances from related parties


182,183



358,077Payments to related parties


(275,691
)


(595,642
)Subscriptions received in advance


--



100,750Net cash provided by financing activities


72,491



4,225,117NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS


(3,397,116
)


3,403,470CASH AND CASH EQUIVALENTS, beginning of the year


3,788,944



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

$
391,828


$
3,788,944SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest income (expense)

$
730


$
4,793Income 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.





F-6
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Note 1 -  Organization, Business of the Company and Liquidity





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 past fiscal year of approximately $3,408,000, and the Company, for the most part, has experienced recurring losses from operations. The Company had negative working capital of approximately $127,000 and an accumulated deficit of approximately $5,181,000 as of December 31, 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.





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.





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.





F-7
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Note 2 – Restatement(continued)





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 year ended December 31, 2007 as originally restated in the Form 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 overstated in 2007.  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.





The changes in our consolidated balance sheet and consolidated statement of operations for the year ended December 31, 2007 are as follows:








Accounts receivable:As previously reported

$
620,254Adjustment


(468,528
)As restated

$
151,726Inventory:As previously reported

$
648,286Adjustment


54,834As restated

$
703,120Accounts payable and accrued liabilities:As previously reported

$
1,113,457Adjustment


166,379As restated

$
1,279,836Net sales:As previously reported

$
9,088,809Adjustment


(600,600
)As restated

$
8,488,209





F-8
 Index




INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2008 and 2007





Cost of sales:As previously reported

$
2,876,281Adjustment


(54,834
)As restated

$
2,821,447Operating expenses:As previously reported

$
6,725,865Adjustment


34,309As restated

$
6,760,174Income/ (loss) for the year:As previously reported

$
(501,914
)Adjustment


(580,074
)As restated

$
(1,081,988
)Net income /(loss) per shareAs previously reported

$
(0.04
)Adjustment


(0.05
)As restated

$
(0.09
)





Note 3 - Summary of significant accounting policies





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.





F-9
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Reclassifications





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





Note 3 - Summary of significant accounting policies (continued)





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 December 31, 2008, the Company did exceed the federally insured limit by approximately $72,000 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 December 31, 2008 and December 31, 2007, 89% and 97% 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 11% and 3% 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.





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 December 31, 2008 the amount of Transfirst reserves was $137,649 and at December 31, 2007 the reserve balance was $63,719.





F-10
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 3 - Summary of significant accounting policies (continued)





Accounts receivable





Accounts receivable are recorded net of allowances for returns and doubtful accounts of approximately $62,000 and $55,000 for the years ended December 31, 2008 and 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 $248,000 and $166,000 at December 31, 2008 and 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 $33,000 and $55,000 of consigned product as of December 31, 2008 and 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.





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 approximately $9,200 and $6,400 for the years ended December 31, 2008 and 2007, respectively.





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 years ended December 31, 2008 and 2007.





F-11
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Note 3 - Summary of significant accounting policies (continued)





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 years presented have been offset against gross sales.





Shipping and handling





Amounts billed to customers for shipping and handling are included in revenue; shipping and handling revenue approximated $1,383,000 and $780,000 for the years ended December 31, 2008 and 2007, respectively. Shipping and handling costs are included in cost of sales. Shipping and handling costs approximated $1,406,000 and $1,108,000 for the years ended December 31, 2008 and 2007, respectively.





Research and development





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





Media costs





Media costs are expensed as incurred and are included in selling and marketing expense in the accompanying consolidated financial statements.  The Company incurred approximately $6,790,000 and $4,136,000 in such costs for the years ended December 31, 2008 and 2007.





F-12
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 3 - Summary of significant accounting policies (continued)





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 approximately $280,000 and zero of interest and penalties for the years ended December 31, 2008 and 2007, respectively.





Stock options





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





The Company uses 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 year ended December 31, 2008, the Company issued no options and recorded approximately $22,000 in stock compensation expense related to vesting of options previously granted.





F-13
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 3 - Summary of significant accounting policies (continued)





Stock options (continued)





The following is a summary of stock options outstanding under the existing stock option plan for the years ended December 31, 2008 and 2007:





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, December 31, 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 year


-



(40,000
)


(40,000
)


0.30Cancelled during the year


-



- .



-



-Balance, December 31, 2008


-



1,117,000



1,117,000


$
1.39





There were no stock options granted during the year ended December 31, 2008 and 2007.  Of the stock options currently outstanding, 1,052,000 options are currently vested and exercisable at exercise prices ranging from $0.35 to $2.00. The weighted average exercise price of these options was $1.39.These options expire at dates ranging between May 31, 2009 and September 28, 2011.  The aggregate intrinsic value for options outstanding and exercisable at December 31, 2008 was immaterial.








The following assumptions are used in the Black-Scholes option pricing model for the years ended December 31, 2008 and 2007 to value the stock options outstanding:





2008


2007Risk-free interest rate

3.810-4.490


3.810-4.490Expected dividend yield

0.00


0.00Expected life

5.41-6.85


6.41 - 7.85Expected volatility

125.81 - 191.49


104.93 – 110.21





F-14
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 3 - 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 was 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 did not 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 is 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.





F-15
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 3 - Summary of significant accounting policies (continued)




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.





Note 4 - License and reconveyance agreements





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





Note 5 - Commitments and contingencies





Leases





As of December 31, 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 during 2008 and 2007 totaled $70,371 and $33,241, respectively.  The schedule below details the future financial obligations under these three leases.





2009


2010


2011


2012


2013


TOTAL OBLIGATIONBainbridge Island - Corporate HQ

$
19,350


$
4,950


$
-


$
-


$
-


$
24,300Wayne - Operations Office

$
34,956


$
35,594


$
8,925


$
-


$
-


$
79,475West Vancouver, BC - International

$
13,566


$
-


$
-


$
-


$
-


$
13,566Total Lease Obligations

$
67,872


$
40,544


$
8,925


$
-


$
-


$
117,341





F-16
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Note 5 - Commitments and contingencies (continued)





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 4.





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 $497,000 and $363,000 for the years ended December 31, 2008 and 2007 (restated) respectively.





F-17
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 5 - Commitments and contingencies (continued)





Other matters


Product Liability Insurance





For certain products, the Company was (and is) listed as an additional insured party under the product manufacturers’ insurance policy. 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 6 - Related party transactions





The Company has received short-term advances from a shareholder.  These advances amounted to approximately $182,000 and $358,000 during the years ended December 31, 2008 and 2007 (restated), respectively.The advances are offset by repayments which amounted to approximately $276,000 and $596,000 during the years ended December 31, 2008 and 2007 (restated), respectively.  These advances are non-interest bearing and without specific terms of repayment.  These advances are included in accounts payable – related parties, on the accompanying consolidated balance sheets.





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





Note 7 - Capital transactions





During the year ended December 31, 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 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 2008, 42,500 shares of common stock were issued for subscriptions received in 2007 totaling $100,750.





During the year ended December 31, 2007, the Company issued 3,586,099 shares of common stock. 1,480,999 shares were issued at $0.75 per share, for a total of $1,110,750 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.1,482,500 shares were issued at $2.20 per share for a total of





F-18
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Note 7 - Capital transactions (continued)





$3,261,500 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.





Note 8 - Basic and diluted earnings 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.





For the purposes of obtaining future capital to finance the Companies’ operations and to fund future expansion of the Companies’ Direct Response Television campaign certain shareholders are able to purchase additional stock with stock warrants attached to common stock issued. At December 31, 2008, there were 3,262,624 warrants outstanding and exercisable. Of this total, 1,480,999 warrants are exercisable at $1.00 per share expiring April 23, 2009. The remaining 1,781,625 warrants are exercisable at $3.00 per share expiring December 3, 2010. At December 31, 2008 there were 1,117,000 stock options outstanding.  Of the stock options outstanding at December 31, 2008, 1,052,000 options were vested and exercisable at exercise prices ranging from $0.35 to $2.


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





For the year ended December 31, 2008:

Income (Numerator)


Shares (Denominator)


Per Share AmountBasic and diluted earnings per shareLoss to common shareholders

$
(3,156,244
)


14,411,413


$
(0.22
)





For the year ended December 31, 2007:

Income (Numerator)


Shares (Denominator)


Per Share AmountBasic and diluted earnings per shareLoss to common shareholders

$
(1,081,988
)


11,937,565


$
(0.09
)





F-19
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007


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.





Significant components of the Company’s deferred tax assets are approximately as follows as of December 31, 2008:





Net operating loss

$
1,454,000Accrued returns & allowances


99,000Accumulated depreciation


42,000Other


44,000Total deferred tax assets

$
1, 639,000Valuation allowance


(1,639,000
)Net deferred tax assets

$
-





A valuation allowance for all of our net deferred tax assets has been provided as we are unable to determine, at this time, that the generation of future taxable income against which the net operating loss (“NOL”) and carryforwards could be used can be predicted to be more likely than not.  Net change to our valuation allowance for the year ended December 31, 2008 was a reduction of approximately $1,521,000.





Current United States Federal tax law limits the use of net operating loss carry forwards after there has been a substantial change in ownership, as defined in Internal Revenue code Section 382, during a three year period. The Company has not evaluated whether a change in ownership has occurred over the last three years.  The Company’s use of net operating losses for United States and state tax purposes may be limited under the Internal Revenue Code if it is determined that a change in ownership has occurred.





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.





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 approximately $280,000 and zero of interest and penalties for the years ended December 31, 2008 and 2007, respectively.





F-20
 Index








INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007





Note 10 - Segment reporting





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





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





For the year ended December 31, 2008


For the year ended December 31, 2007 (Restated)Domestic


International


Totals


Domestic


International


TotalsNET SALES

$
14,536,305


$
834,460


$
15,370,765


$
7,473,922


$
1,014,287


$
8,488,209COST OF SALES


4,614,870



275,390



4,890,260



2,449,145



372,302



2,821,447Gross profit


9,921,435



559,070



10,480,505



5,024,777



641,985



5,666,762Operating expenses:General and administrative


3,769,215



364,795



4,134,010



958,872



291,836



1,250,708Selling and marketing


9,513,221



25,272



9,538,493



5,500,308



9,158



5,509,466Total operating expense


13,282,436



390,067



13,672,503



6,459,180



300,994



6,760,174Operating income (loss)

$
(3,361,001
)

$
169,003


$
(3,191,998
)

$
(1,434,403
)

$
340,991


$
(1,093,412
)





F-21
 Index





INTERNATIONAL COMMERCIAL TELEVISION INC. AND SUBSIDIARY





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2008 and 2007








Note 11 – 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.







F-22