UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 _________________________________________
 Form
10-KSB
 Amendment No. 3
 (Mark
One)
 T  Annual
report under section 13 or 15(d) of the Securities Exchange Act of
1934
 For the
fiscal year ended December
31, 2007
 OR
 £  Transition
report under section 13 or 15(d) of the Securities Exchange Act of
1934
 For the
transition Period from  to
 
 Commission
file number: 0-49638
 
 International Commercial Television Inc.(Name
      of small business issuer in its charter)
 
 Nevada
              
              76-0621102(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)10245
      Sunrise Place NE
                Bainbridge Island, WA
              
              98110(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 Issuer’s
telephone number: (206)
842-3729
 
 Securities
registered under Section 12(b) of the Exchange Act:
 
 None
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common Stock, $0.001 par
value
 (Title of
class)
 
 Check
whether the Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.           Yes  T  No
£
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. T
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act
 Yes £   No
T
 
 Issuer’s
revenues for its most recent fiscal year: $11,323,505
 
 The
aggregate market value of the common stock held by non-affiliates of the issuer
on February 13, 2008, based on the average bid and asked price on that date,
being $2.43, was approximately $34,543,000, assuming solely for purposes of this
calculation that all directors and executive officers of the issuer are
“affiliates.”  This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
 
 On March
30, 2008, the issuer had 14,274,287 shares of common stock, $0.001 par value per
share, issued and outstanding.
 
 Documents
Incorporated by Reference:  None
 Transitional Small Business
Disclosure Format (Check one):  Yes £   No
T
  
 
  INTERNATIONAL COMMERCIAL TELEVISION INC.
 
 Index
to
 Annual
Report on Form 10-KSB
 For
the Year Ended December 31, 2007
 
 Part
      I
              
              PageItem
      1.
              Description of Business
              1Item
      2.
              Description of Property
              13Item
      3.
              Legal Proceedings
              13Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              13Part
      IIItem
      5.
              Market for Common Equity and Related Stockholder
      Matters
              13Item
      6.
              Management’s Discussion and Analysis or Plan of
      Operation
              15Item
      7.
              Financial Statements
              21Item
      8.
              Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure
              21Item
      8A
              Controls and Procedures
              21Item
      8B
              Other Information
              22Part
      IIIItem
      9.
              Directors,
      Executive Officers, Promoters and Control Persons; Compliance WithSection 16(a) of the Exchange Act
              23Item
      10.
              Executive Compensation
              25Item
      11.
              Security Ownership of Certain Beneficial Owners and
      Managementand
      Related Stockholder Matters
              25Item
      12.
              Certain Relationships and Related
      Transactions
              27Item
      13.
              Exhibits
              28Item
      14.
              Principal Accountant Fees and Services
              28Signatures
              29Financial Statements
              F-1
  Index
  Part
I
 
 FORWARD-LOOKING
STATEMENTS
 
 The
matters discussed in this Form 10-KSB 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.
 
 ITEM
1. DESCRIPTION OF BUSINESS
 
 Overview
 
 We
produce long-form and short-form infomercials and sell our proprietary brands of
advertised products directly to our viewing audience.  The goal of our
business plan is to create brand awareness through our infomercials 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 infomercial is a 30-second, 60-second, or 120-second spot, while a
long-form infomercial is a 281⁄2-minute direct response
commercial.  Short-form infomercials 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 year ended
December 31, 2007, while our international division was our primary revenue
source for the fiscal year ended December 31, 2006. 91% of our product sales for
the year ended December 31, 2007, were generated from products sold
domestically, as compared to 55% for the same period in 2006.  In 2007
our focus shifted to the domestic market for several reasons.  First,
we received a high demand for our infomercial products through our direct
response television (DRTV) campaign.  Second, we have entered into a
sales arrangement with the Home Shopping Network (HSN) who began selling our
Derma Wand product in June 2007. Finally, many of our infomercials for our
primary products are awaiting editing for either rollout or testing, and the
funds required for production will come from additional financing or cash flow.
During 2007, our domestic marketing campaign was fully operational, as was our
arrangement with HSN. Management has plans to devote more time and resources in
developing our strategies to focus on the lucrative US market. Although we plan
to continue to devote attention to and to expand our international operations,
we expect the vast majority of our revenue in the future to come from domestic
sales.
 
 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 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, 2007, we generated no revenue from third-party products as was the
case for the year ended December 31, 2006.
  1
 Index
  We are a
Nevada corporation, and our headquarters are located at 10245 Sunrise Place NE,
Bainbridge Island, WA 98110.
 
 Corporate
History
 
 Our
predecessor, The Gun Store, Inc., was incorporated in Montana on February 11,
1993.  On June 25, 1998, The Gun Store, Inc. reincorporated in Nevada
under a voluntary share exchange with Moran Dome Exploration, Inc., a Nevada
corporation.  Moran Dome was incorporated on June 25,
1998.  Under the exchange, The Gun Store’s 100 issued and outstanding
shares of common stock were exchanged pro rata for 1,000,000 shares of Moran
Dome Exploration, Inc. common stock.  At the same time, Moran Dome
entered into an agreement with Canadex Ventures Inc. for the rights to market,
manufacture and use oxygen-enriched water for mining and mineral extraction in
Alaska.  The agreement with Canadex terminated on or about December
1998.  Moran Dome entered into a similar agreement with David R.
Mortenson & Associates in April 1999, for the license to manufacture and use
a product known as Biocatalyst for mining, mineral extraction and ore
processing.  Moran Dome did not adequately exploit the rights granted
by David R. Mortenson & Associates, and those rights lapsed.
 
 In April
2000, Moran Dome entered into and closed a share and option purchase agreement
with Kelvin Claney, Robin Jan Claney and William Ainslie Reece, in their
capacity as trustees of The Better Blocks Trust, which owned or controlled all
of the equity interest in Windowshoppc.com Limited (“WSL”), R.J.M. Ventures
Limited (“RJML”) and Better Blocks International Limited.  Under the
agreement, Moran Dome purchased all of the equity interest in Windowshoppc.com
Limited and R.J.M. Ventures Limited and an option to purchase all of the equity
in Better Blocks International Limited, as well as a license to all of the
assets owned by Better Blocks International Limited.  The purchase
price under the agreement was 8,000,000 shares of Moran Dome’s common stock and
a $590,723 promissory note.  The option exercise price is the issuance
of another 500,000 shares of our common stock.
 
 Following
the transaction with The Better Blocks Trust, our objective has been to acquire
products by either licensing arrangement or acquisition that are suitable for
profitable direct response television advertising.
 
 In March
2001, we amended and restated our articles of incorporation and changed our name
from Moran Dome Exploration, Inc. to International Commercial Television Inc.
(“ICTV”).
 
 Strategic
Media Marketing Corp. (“SMM”) was incorporated in the Province of British
Columbia on February 11, 2003.  SMM is 100% wholly-owned by
ICTV.  SMM  purchases media time for ICTV.
 
 During
2003, we transferred all assets and commitments of WSL and RJML directly to
ICTV.  We concurrently had WSL and RJML removed from the New Zealand
Registrar of Companies.
 
 Industry
Overview
 
 In 1984,
the Federal Communications Commission (FCC) repealed its limitations on
advertising minutes per hour, which permitted the sale of 30-minute blocks of
television advertising and the birth of the infomercial
industry.  Prior to 1984, it was virtually impossible to produce a
television infomercial, because the maximum allowable minutes of commercial
messages per hour was only 16 minutes under FCC standards.  By the
1980s, the cable television industry was no longer regulated, which resulted in
a rapid abundance of cable channels.  The increase in cable channels
meant there was more available media time.  The producers of
infomercials capitalized on this by purchasing media time from cable channels to
air their infomercials.  The infomercials combined the concepts of
retail marketing and direct response marketing into a talk-show-type
format.  In the 1980s, increased attention from the Federal Trade
Commission, as well as from federal and state consumer protection agencies, led
to more stringent regulation of the industry and the development of the National
Infomercial Marketing Association (now the Electronic Retailing Association) as
a self-regulatory organization.  Infomercials and home shopping
channels soon became a widely accepted manner by which to obtain information
regarding products and services and to purchase products and services from
home.  As time has progressed, the infomercial industry has grown
steadily to include a greater variety and quantity of products marketed through
infomercials.
  2
 Index
  Market
Opportunity
 
 Direct Response
Industry
 
 Direct
response marketing has enjoyed dramatic growth in the last five
years.
 
 The most
comprehensive and current review of the direct response market is the Power of
Direct Marketing 2007-2008 Edition published by the Direct Marketing Association
('DMA') .
 
 Evidence
of growing consumer acceptance of direct response is readily apparent from the
DMA study of the US market:
 
  —
                Marketers,
      in 2007,  spent an estimated $173.2 billion for direct marketing
      promotions which will, in turn, generate an estimated $2.0 trillion in US
      sales
 
 —
                Direct
      marketing Return on Investment for health and personal care products is
      high. For 2007, an investment of $1 in direct marketing returned $16.38
      revenue on average.
 
 —
                Sales
      driven by direct marketing are projected to grow by 6.6% through 2012; by
      comparison, overall U.S. sales are projected to grow 4.8% in that same
      period.
 
 —
                Direct
      response television (DRTV) advertising has pulled down about $156.6
      billion in sales in 2007
   According
to the report, 16.9 percent of  direct marketing purchases are coming
from the Internet. Half the people watching TV are simultaneously online, and
more than half of the online audience now has access to high-speed Internet
connections. This has fueled the growth of DRTV sales on the Internet. It also
has allowed for streaming video of TV commercials on the Web. This has helped to
reinforce the DRTV message online, which has translated into more online
business for DRTV advertisers.
 
 Traditional US Retail
Market
 
 According
to Plunkett Research Ltd’s “Plunkett’s Retail Industry Almanac
2008”,  the total estimated value of U.S. retail sales for the year
2007 was $4.50 trillion, of that figure $131.0 billion was from e-commerce
retail sales.  Census data from the U.S Census Bureau provides that
retail sales of automotive parts and accessories (including tire stores) in 2006
amounted to $901 billion; sales of electronics and household appliances amounted
to $109 billion; and sales of health and personal care products amounted to $224
billion.
 
 The
ICTV Solution
 
 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  cognizant of the need to identify new products to supplement and
possibly replace our existing product lines as they mature through product life
cycles.
  3
 Index
  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.
 
 Our Chief
Executive Officer, Kelvin Claney, has been sourcing products since 1984 and has
made contacts over the years with trading companies, manufacturers and
manufacturers’ representatives in Hong Kong, Taiwan, United Kingdom, Israel,
South Africa, Australia, New Zealand, Canada and the United
States.  These parties often forward newly developed products to Mr.
Claney to promote and bring them to the marketplace through direct response
marketing.
 
 Mr.
Claney and his personal representatives have also attended consumer trade and
home shows throughout the world, including England, Italy, Germany, France,
Israel, Finland, Australia, New Zealand, Canada and the United
States.  Over the years on such visits, Mr. Claney has established
contacts with persons who actively sell and promote various new products and
look to have a direct response company market them.
 
 Individual
inventors looking to find a direct response marketer to help launch their
product are also referred to us by persons Mr. Claney and our management team
have come to know over the years through working in the direct response
marketing industry.
 
 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;
 
 —
                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.
 4
 Index
  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.
 
 Derma WandTM
 
 We have a
worldwide exclusive license to sell the Derma Wand, a skin care appliance that
reduces fine lines and wrinkles and improves overall skin
appearance.  We own a long-form infomercial which to date has been
placed in weekly media schedules in Canada, the Philippines, South Africa,
Finland, Sweden, Denmark, Holland and the UK.
 
 We have a
distribution agreement with Creative Nations International to supply the Derma
Wand to international operators in the previously untested areas in the
Southeast Asian market.
 
 For the
years ended December 31, 2007 and 2006, we generated approximately $1,014,000
and $1,640,000 in revenue from international sales of Derma WandTMand
$10,309,000 and $1,176,975 from domestic sales of Derma WandTM.The
price consumers pay for Derma WandTM varies
from country to country, however, it generally ranges from approximately
$90-$120.
 
 The Derma
Wand and associated DermaVital skin care products are long-term continuity
products.  The show has now been airing in the U.S. market throughout
2007, and as we 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 been granted a U.S. Government patent for its 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.
 
 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 CellRX saw a 50%-70% reduction in fine lines and wrinkles.
 
 For the
years ended December 31, 2007 and 2006, we generated approximately $94,000 and
$0 in revenue from domestic sales of Cell RXTM.The
price consumers pay for Cell RXTM is
$99.
  5
 Index
  Additional Products –
Various Categories
 
 Air-O–Space 5-in-1
SofaBed
 
 AIR-O-SPACE
Bed is a inflatable bed system that has five different furniture
configurations.  It is a sofa, lounger, recliner, bed, and a
children’s high-rise sleeper all-in-one product.  Made to exacting
standards, this quality inflatable product comes with its own turbo action
inflatable/deflatable pump, an emergency repair kit and a travel bag for easy
portability.  After a series of tests in the United States market, we
determined that the long-term viability of this project, in what has become an
overcrowded market, was limited.  As a result, we sold off our
remaining inventory and no longer carry the product.
 
 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.  In 1999, in one 24-hour period on QVC, $1.3
million worth of BetterBlocksTM were
sold.
 
 We also
own a long-form infomercial.  This infomercial was  edited
and tested successfully late 2003 in Europe.  As a result of this test
there is now strong interest in international infomercial operators to run
BetterBlocksTM in
their various markets including Japan.  Japan is second only to the US
market in the sales of children’s building blocks and our associate there is
particularly strong in the toy market.
 
 Smart StacksTM
 
 We
acquired the rights to exclusively manufacture and market an innovative storage
system known as “Smart StacksTM”.  Since
the long-form infomercial was first aired in October 1998, one million Smart
StacksTM storage
systems have been sold worldwide, of which 400,000 of those were sold on QVC in
triple pack form.
 
 A new
range of larger size Smart StacksTM has
just been completed and prototypes were shown to a large US home shopping
channel who has indicated a willingness to sell them on their network subject to
their approval of the final product.  We had intended to re-edit the
Smart StacksTM
infomercial, but elected to test the new configuration on a major US shopping
channel beforehand.  The results have confirmed our intention to
re-edit the current show, however, increased product costs will require us to
reconfigure the entire product offer.
 
 Our
marketing efforts to date with regard to Smart StacksTM have
focused on the international market.
 
 Other
 
 TwinTechTM
 
 TwinTechTM
is a two-in-one engine treatment that combines the benefits of both an oil
additive and a fuel additive in one product, delivered via the gas
tank.  In 2003 we secured an exclusive international distribution
agreement with Chevron Oronite Company LLC (“COC”) to market and distribute
TwinTechTM, and began infomercial production in June 2003.  In
September 2004, we received final approval from COC to broadcast the infomercial
in the United States.  At that time COC expressed interest in buying
out our rights to TwinTechTM and in
March 2005, we terminated our relationship with COC in exchange for $800,000
US.  As a result of this buyout from COC we have surrendered our
rights to advertise, promote, market, sell or otherwise distribute TwinTechTM.
  6
 Index
  Third-party
Products
 
 We also
have the rights to sell the following third-party products, both domestically
and internationally: Ab Away, Aussie Nads, CybersonicTM, Mojave
Sunglasses, and Perfect Pancake.  Our rights to these third-party
products are in the form of informal licenses from the owners of the products to
act as the international distributor.  As the international
distributor, we locate international infomercial operators to air the
infomercials, and we receive either royalties from the sales of the products 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.  None of our total revenue for the year ended December 31,
2007, came from the sale of third-party products, as was the case for the year
ended December 31, 2006.
 
 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 and
fulfillment of orders is performed in house and by contracted fulfillment
companies as needed.
 
 We
generally fulfill our orders within 1-5 days of the date customers order our
products.  If for some reason we are unable to fulfill an order within
5 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 30 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.
  7
 Index
  Infomercial
Production
 
 We
contract with 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.  The production companies generally work for cost plus a
royalty of between one to two percent of sales, not including shipping and
handling.  Such royalties are usually paid out over the sales life of
the product.  In the case of our own products, we are responsible for
paying the royalties to our production companies, whereas in the case of
third-party products, the owner of the third-party product is responsible for
paying royalties to the company that produced its infomercial.  We,
along with the owner or inventor of the product, as the case may be, will
generally have input in the production process.  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 8 to 12 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 forge 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 almost every well-produced infomercial
will produce profitable margins somewhere internationally, even if it has failed
in the United States.
 
 For the
year ended December 31, 2007, international product sales contributed to about
9% of our revenue as compared to 59% 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.
  8
 Index
  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.
 
 Television
advertising will continue during the transition from DRTV marketing to full
retail placement.  Television promotion at this point usually takes
the form of 30-second and 15-second “brand-burster” commercials.  From
these messages, consumers learn that the product already introduced to them
through infomercials is now available in retail stores.  A “super
special” dial-800 offer will be featured to strengthen the message.
 
 These
“brand-burster” advertisements are placed on cable channels, selected because of
their reach or because the nature of the product coincides with the known
interests of a particular audience [e.g. an automotive product infomercial
appears on Speedvision, a cable channel drawing car buffs].
 
 The
objective of the DRTV strategy is to build brands that are attractive to our
main target market - national retailers.
 
 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.  We have not performed any such investigations because
our return ratios have been acceptable, in the range of 11 to 17 percent.
Anything above 22 percent (the industry average on DRTV sales, per HSN) would be
considered an unacceptable level of returns.
 
 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.  Our competitors also include companies
that make imitations of our products at substantially lower
prices.  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.
  9
 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 Derma WandTM, Cell
RXTM
, Smart StacksTM
..
 
 —
                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 Derma WandTM, as is
necessary to manufacture, market and distribute Derma WandTM
..
 
 —
                Copyrights
 
 We have
copyright registrations for all versions of our infomercials for Derma WandTM
,BetterBlocksTM and
Smart StacksTM.
 
 —
                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 Smart
StacksTM and
Derma WandTM under
the following agreements:
 
 Smart StacksTM
 —
                  Under
      a manufacturing, marketing and distribution agreement with the inventor of
      Smart StacksTM,
      we are obligated to pay her royalties based on a certain percentage of the
      net sales of Smart StacksTM.  The
      current term of the agreement terminates in May 2008.  The
      agreement will thereafter automatically and continually renew for
      successive additional 5-year terms, unless we are in material default, and
      are notified in writing of her intent to terminate the
      agreement.
  10
 Index
  —
                  Under
      a production agreement with the Broadcast Arts Group (“BAG”), we are
      obligated to pay BAG royalties based on a certain percentage of adjusted
      gross revenues from the sale of Smart StacksTM.  We
      may terminate the contract with written notice if we elect not to air the
      infomercial and market the product.
 
 Derma WandTM
 
 —
                  Under
      a marketing and royalty agreement with the developer of Derma WandTM,
      we are obligated to pay them a royalty at a fixed rate per unit
      sold.  The agreement is silent as to its
    duration.
 
 —
                  Under
      a production agreement with BAG, we are obligated to pay royalties to BAG
      based on adjusted revenues or units sold depending on various scenarios as
      defined in the agreement.  This agreement terminated on August
      31, 2005.
 
 —
                  Under
      an endorsement agreement with an individual for her appearance in a Derma
      WandTM
      infomercial, we are obligated to pay her 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 current term of the agreement terminates
      in October 2009, and thereafter will automatically and continually renew
      for successive and additional 5-year terms unless we are in material
      default and are notified of her intent to terminate the
      agreement.
 
 During
the past three years we entered into the following agreements in connection
with  SprintR, BondzalotTM  and
Cell RXTM with
the obligation to pay royalties as follows:
 
 
 SprintR
 
 —
                  Under
      an exclusive license and marketing agreement with Land Surfer Scooter
      Company Ltd. (“LSSC”), we are obligated to pay LSSC a royalty per unit
      sold depending on various scenarios.  The initial term of the
      agreement terminates in June 2007.  The agreement will
      thereafter automatically and continually renew for successive additional
      5-year terms, unless we are in material
default.
 
 BondzalotTM
 
 —
                  Under
      an non-exclusive marketing and distribution agreement with an individual,
      we are obligated to pay him a royalty per unit sold at a price to be
      determined.  The initial term of the agreement terminates in
      July 2007.  The agreement automatically and continually renews
      for successive additional five years unless either party is in breach of
      the agreement and the breach is not remedied within 30 days of written
      notice.
 
 
 Cell RXTM
 
 —
                  During
      2007, our 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 the
Product.
 
 —
                  ICTV
      shall pay royalties to IMG, up to a maximum amount of $1,000,000, as
      follows.  ICTV shall make payments on a monthly basis in an
      amount equal to 2% (two percent) of the gross sales of Product in the
      preceding month.  ICTV shall make payments in this manner until
      it has paid a total of $400,000 in royalties.  Thereafter, ICTV
      shall make payments on a monthly basis in an amount equal to 1.5% (one and
      one-half percent) of the gross sales of Product in the preceding month,
      until it has paid a total of $1,000,000 in royalties, after which no
      further royalties shall be due.
  11
 Index
  —
                  Upon
      the Company’s purchase and payment of IMG’s entire inventory of the
      Product, IMG shall convey to ICTV ownership of all of the intellectual and
      tangible property related to the Product.  Upon conveyance of
      such property, the Company’s exclusive license shall terminate, and
      thereafter ICTV shall be the sole owner of the Product, with all attendant
      rights to manufacture, market and sell the Product anywhere in the
      world.
 On a
limited basis, we receive royalties from international sales of third-party
products that we market, which are usually based on oral
agreements.
 
 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
 
 We
currently employ a total of three employees, all of whom are
full-time.  We consider our labor relations to be
good.  None of our employees are covered by a collective bargaining
agreement.  If our business grows as we project, we anticipate hiring
another two employees in the next fiscal year.
 
 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.  In 2003 we started production on our
TwinTechTM
infomercial.  Under an arrangement made with a shareholder, the
shareholder agreed to pay the entire infomercial production fee in return for a
per kit royalty.  In March 2005, we terminated our relationship with
Chevron Oronite Company LLC (“COC”).  In exchange for a buyout of
$800,000 US from COC we have surrendered our rights to advertise, promote,
market, sell or otherwise distribute TwinTechTM.  As
a result, we agreed to repay the production cost for the infomercial to the
shareholder out of the proceeds received from COC.
 
 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.
  12
 Index
  ITEM
2.  DESCRIPTION OF PROPERTY
 
 PROPERTIES
 
 Our
executive offices are located in Bainbridge Island, Washington and are provided
to the Company at a month to month rate of $350 per month by Kelvin Claney,
President of the Company.  In addition, we rent an office in North
Vancouver, British Columbia for our international operations, where we have
entered into a three-year lease commencing January 1, 2006 for approximately
$2,400 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.  We also believe our
property is adequately covered by insurance.
 
 
 ITEM
3.LEGAL PROCEEDINGS
 
 We are
not a party to any 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 legal proceedings against us or our property
contemplated by any entity including any governmental authority.
 
 
 ITEM
4.  SUBMISSIONOF 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, 2007.
 
 
 PART
II
 
 
 ITEM
5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
 
 MARKET
FOR COMMON EQUITY
 
 Our
common stock trades on the OTC Bulletin Board under the symbol
“ICTL”.  The OTCBB constitutes a limited and sporadic trading market
and does not constitute an “established trading market”.  An
established trading market for our securities does not exist.  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.
 
 Quarter
      ended
              High
              Low
              
              Quarter
      ended
              High
              Low$
              $
              
              
              $
              $December 31, 2007
              2.65
              2.55
              
              December 31, 2006
              1.00
              0.94September 30, 2007
              2.80
              2.75
              
              September 30, 2006
              0.70
              0.70June 30, 2007
              2.79
              2.60
              
              June 30, 2006
              0.75
              0.60March 31, 2007
              1.67
              1.52
              
              March 31, 2006
              1.25
              1.09
  13
 Index
  HOLDERS
 
 As of
March 29, 2008, there were 14,274,287 shares of common stock outstanding, held
by approximately 264 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.
 
 RECENT
SALES OF UNREGISTERED SECURITIES
 
 Set forth
below is information regarding the issuance and sales of our securities without
registration during the past three years.  No such sales involved the
use of an underwriter.
 
 On May
31, 2004, the Company granted options to purchase up to 300,000 shares of our
common stock to consultants under our Stock Option Plan at $0.35 per
share.  The offer and sale of the options was exempt from registration
under Rule 701 under the Act.  If Rule 701 under the Act is not
available as an exemption, we believe the offer and sale of the options was
exempt under Rule 506 of Regulation D under the Act and Section 4(2) under the
Act.  In addition, the offer and sale of 300,000 options granted with
an exercise price of $0.35 per share were also exempt under Regulation S under
the Act, due to the foreign nationality of the relevant purchasers.
 
 During
the year ended December 31, 2004, 2,000 options were exercised at $0.50 per
share, for a total of $1,000.
 
 On
November 8, 2005, the Company granted options to purchase up to 160,000 shares
of our common stock to a consultant under our Stock Option Plan at $0.36 per
share.  The offer and sale of the options was exempt from registration
under Rule 701 under the Act.  If Rule 701 under the Act is not
available as an exemption, we believe the offer and sale of the options was
exempt under Rule 506 of Regulation D under the Act and Section 4(2) under the
Act.  In addition, the offer and sale of 160,000 options granted with
an exercise price of $0.36 per share were also exempt under Regulation S under
the Act, due to the foreign nationality of the relevant purchasers.
 
 During
the year ended December 31, 2006, 8,000 options were exercised at $0.50 per
share, for a total of $4,000. 50,000 shares were also issued from treasury as
compensation for services rendered by a consultant; the shares were valued at
$1.05 per share the market value of the shares on the date of the
transaction.
 
 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 $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
  14
 Index
  ITEM
6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
 
 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-KSB.
 
 Overview
 
 ICTV was
incorporated as Moran Dome Exploration, Inc. on June 25, 1998.  We had
limited operations and assets until April 2000, when we entered into and closed
a Share and Option Purchase Agreement with Kelvin Claney, Robin Jan Claney and
William Ainslie Reece, in their capacity as trustees of The Better Blocks
Trust.  When the share and option purchase agreement with The Better
Blocks Trust closed, we began our operations as an infomercial company selling
products directly to consumers via long-form and short-form infomercials, both
domestically and internationally.  We now market products that we own
or have the exclusive license to market (which we refer to as “our products” or
“our own products”), and we also act as the international marketing distributor
for products owned by third parties (which we refer to as “third-party
products”).  As the international marketing distributor for the
third-party products, we take previously existing infomercials for third- party
products, locate international infomercial operators to sell the products
featured in the infomercials, 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.
 
 Although
we currently sell products through infomercials, the goal of our business plan
is to use the brand awareness we create in our infomercials so that we can sell
the products featured in our infomercials, along with related families of
products, under distinct brand names in traditional retail
stores.  Our goal is to have these families of products sold in the
traditional retail environment in shelf-space dedicated to the product
category.  We are developing the infrastructure to create these brands
of products so that we can implement our business plan.
 
 Fluctuations
in our revenue are driven by changes in our product mix.  Revenues may
vary substantially from period-to-period depending on our product
line-up.  A product that generates revenue in one quarter may not
necessarily generate revenues in each quarter of a fiscal year for a variety of
reasons, including, seasonal factors, the product’s stage in its life-cycle, the
public’s general acceptance of the infomercial and other outside factors, such
as the general state of the economy.
 
 Just as
fluctuations in our revenues are driven by changes in our product mix, our gross
margins from period to period depend on our product mix.  Our gross
margins vary according to whether the products we are selling are primarily our
own products or third-party products.  As a general rule, the gross
margins for our own products are considerably higher based on proportionately
smaller cost of sales.  For third-party products, our general
experience is that our gross margins are lower, because we record as cost of
sales the proportionately higher cost of acquiring the product from the
manufacturer.  Within each category (i.e., our own products versus
third-party products), gross margins still tend to vary based on factors such as
market price sensitivity and cost of production.
 
 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,
2007, with the fiscal year ended December 31, 2006.
 
 Revenues
 
 Net sales
increased to approximately $11,300,000 in 2007 from approximately $2,970,000 in
2006, an increase of $8,330,000 or 280%. For our infomercial products, in 2007,
our domestic DRTV marketing campaign in the U.S.  was fully engaged;
however we still maintained our relationship with the international market. In
2007, 9% of our revenue came from our international sales compared to 55% in
2006, and 91% of our revenue were generated by our domestic sales as compared to
45% in 2006.   The product that provided the majority of our
revenue in 2007 was our own product, Derma WandTM. 100%
of net sales were generated by the sale of our own products in 2007, 99% of
which was attributed to the Derma WandTM, as
compared to 100% in 2006
  15
 Index
  Derma
WandTM sales
reached a new high in 2007 and with stronger acceptance both domestically and
internationally; we expect sales to continue to grow in 2008.
 
 Gross
Margin
 
 Gross
margin percentage increased to approximately 72% in 2007 from approximately 59%
in 2006.  The increase in gross margin percentage was primarily due to
the fact that we received 99% of our total revenues in 2007 from the sales of
our own Derma WandTM product
where we generally have a lower cost of sales than we do for other
products.  In 2007, we received approximately $8,094,000 in gross
margin for Derma WandTM,
compared to approximately $1,767,000 in 2006.
 
 Operating
Expenses
 
 Total
operating expenses increased to approximately $6,700,000 in 2007, up from
approximately $1,400,000 in 2006, an increase of $5,300,000, or
378%.  Management’s efforts to increase operations and sales of Derma
WandTM over
the past 12 months are one of the reasons for the increase in operating
expenses.  The majority of operating expenses , approximately
$4,720,000, can be attributed to an increase in media costs and fulfillment
costs associated with the domestic marketing campaign of our Derma WandTM
product.
 
 Net
Income
 
 Over the
past two fiscal years, we have managed to achieve profitability on an annualized
basis.  Our net income of over $1,475,000 for the year ended December
31, 2007, follows up a 2006 net income of over $343,000.  Although we
expect continued strong sales from our Derma Wand product over the next fiscal
year, we will continue to operate at or near break-even, as we reinvest all
available funds into new products.  Market acceptance of the products
we launch will also be a determining factor as to whether we will continue to
operate profitably or at a loss.
 
 Stock
Options
 
 In
December 2004, the FASB issued SFAS No. 123 (revised 2004) Share-Based Payment.
This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees. This statement requires that the cost resulting
from all share-based payment transactions be recognized in the financial
statements. Pro forma disclosure is no longer an alternative. This statement
establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement method in accounting for share-based payment
transactions with employees. This statement uses the terms compensation and
payment in their broadest senses to refer to the consideration paid for goods or
services, regardless of whether the supplier is an employee.
 
 Upon
adoption of SFAS No. 123R, we began recognizing the cost of stock options using
the modified prospective application method whereby the cost of new awards and
awards modified, repurchased or cancelled after the required effective date and
the portion of awards for which the requisite service has not been rendered
(unvested awards) that are outstanding as of the required effective date shall
be recognized as the requisite service is rendered on or after the required
effective date. SFAS No. 123R became effective on January 1, 2006.
 
 Plan
of Operation; Liquidity and Capital Resources
 
 At
December 31, 2007, we had approximately $3,788,000 in cash and equivalents,
compared to approximately $385,000 at December 31, 2006. We incurred a negative
cash flow from operations of approximately $821,000 in 2007, compared to a
positive cash flow from operations of approximately $537,000 in 2006. In 2007,
increases in accounts receivable, inventory and prepaid expenses of
approximately $2,589,000 offset the increase in accounts payable and accrued
liabilities of $285,400 and net income.  In 2006, increases in
accounts payable and accrued liabilities of approximately $476,000 and expenses
of $52,500 paid through the issuance of common stock added to the income
(approximately $416,000) and offset the increase in receivables, inventories and
prepaid expenses (approximately $361,000).
  16
 Index
  The
Company has a note payable to The Better Blocks Trust (“BB Trust”) in the amount
of approximately $591,000.  In 2003, the BB Trust agreed to forego all
interest owed in connection with this note and the Company and BB Trust have
amended the promissory note to reflect this.  A gain of $148,483 was
recorded in connection with the amount of accrued interest forgiven on the note.
As we have been legally released as the primary obligor under the accrued
interest liability, such liability has been extinguished based on paragraph
16(b) of SFAS 140. As such, the forgiveness of interest represents the
extinguishment of a liability between related entities, as contemplated by
footnote 1 to paragraph 20 of APB 26. Thus we have revised our original
accounting treatment of this transaction and have now classified it as a capital
transaction.
 
 The
Company has granted 1,175,000 stock options; 900,000 at $0.35, 160,000 at $0.36,
60,000 at $0.50, 35,000 at $1.50 and 20,000 at $2.00.  All option
grants vest over a five-year period.  To date, a total of 34,000 stock
options have been exercised at $0.50 for proceeds of $17,000. If the optionees
exercise the remainder of these options as they vest, we will receive $452,560
in capital.  The options granted on September 28, 2001, resulted in a
deferred non-cash compensation expense of approximately $32,000. During 2005,
$16,000 of this deferred non-cash compensation expense was amortized; the
remaining $16,000 was amortized during 2006. This assumes an estimated fair
value of $1.50 per share, based on the price of our offering of $1.50 per share
at the time. No options were granted, but 4,000 options were cancelled during
the period ended December 31, 2007. In 2005 we recorded stock-based compensation
of $29,880 in connection with options granted on November 8, 2005 and in 2004 we
recorded stock-based compensation of $14,637 in connection with options granted
on May 31, 2004.
 
 The
Company has a net income from operations, but has negative cash flows from
operating activities for the year ended December 31, 2007.  The
Company has working capital of approximately $6,042,000 and retained income of
approximately $533,000 as of December 31, 2007.  Although we have
negative cash flow from operations at this time, this is due primarily to the
decrease of our outstanding liabilities and an increase in our accounts
receivable. During this period, we have obtained additional capital of
approximately $4,361,000 through the issuance of common stock; since our current
operations have reached a profitable level, this capitalization will be used to
develop new products and expand our business. In an effort to reach consistent
profitability and become less dependent on the requirement to finance continuing
operations, we are working to increase revenues and profit margins by continuing
the trend of generating revenues by selling our own products where our margins
are much higher than our third-party products.
 
 
 Off-Balance
Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements.
 
 OUTLOOK:
ISSUES AND UNCERTAINTIES
 
 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-KSB.
 
 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.
  17
 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-$18,000 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.
 
 We do not have liability
insurance for all of our products, which means the burden of paying for damages
for liabilities falls solely on us, and you could lose your entire
investment.
 
 Not all
of our products are covered by liability insurance against claims for
damages.  In particular, we do not have liability insurance for Smart
StacksTM and
BetterBlocksTM, but we
do  have direct insurance for Derma WandTM.   We
have not directly procured liability insurance policies for the third-party
products we market.  Without insurance to cover damages resulting from
liability claims stemming from our products, or if the manufacturer’s insurance
for third-party products is inadequate to cover damages, we may be held
responsible for product liability damages.  If the damage award is
substantial, our business operations would be significantly affected, and you
could lose your entire investment.
  18
 Index
  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.
 
 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.
  19
 Index
  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.
 
 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.
  20
 Index
  ITEM
7. FINANCIAL STATEMENTS
  Financial
statements are set forth on pages F-1 through F-19.
 
 ITEM
8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
 
 None.
 
 ITEM
8A.  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, 2007 (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, 2007 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.
 
 Notwithstanding
the assessment that our internal control over financial reporting was not
effective and that there were material weaknesses as identified in this report,
we believe that our financial statements contained in our Annual Report on Form
10-K for the quarter ended December 31, 2007 fairly present our financial
condition, results of operations and cash flows in all material
respects.
 
 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.
 
 Internal
control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of our assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of its management and directors; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
 
 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.
  21
 Index
  A
material weakness is a significant deficiency, or combination of significant
deficiencies, that results in there being a more than remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.
 
 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.
 
 Based on
its evaluation, management concluded that our internal control over financial
reporting was not effective as of the Evaluation Date.
 
 Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of Evaluation Date and identified the following material
weaknesses:
 
 
 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.
 
 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.
 
 
 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 and (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.
 
 Management,
including our Chief Executive Officer and the Chief Financial Officer, has
discussed the material weakness noted above with our independent registered
public accounting firm. Due to the nature of this material weakness, there is a
more than remote likelihood that misstatements which could be material to the
annual or interim financial statements could occur that would not be prevented
or detected.
 
 This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.
 
 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, 2007 that have
materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
 
 Limitations
on the effectiveness of controls and procedures
 
 Our
management, including our Chief Executive Officer and the Chief Financial
Officer, do not expect that our controls and procedures will prevent all
potential errors or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.
  ITEM
8B.  OTHER INFORMATION
 
 None.
  22
 Index
  PART
III
 
 ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 
 The
following table sets forth the name, age and position of each director and
executive officer of ICTV:
 
 NAME
              AGE
              POSITIONKelvin Claney
              58
              President, Chief Executive Officer, Secretary and
      DirectorKarl Redekopp
              37
              Chief Financial OfficerWilliam R. Flohr
              45
              Director
 
 William
Flohr was appointed to the Board of Directors on June 3, 2000.  Kelvin
Claney was appointed to the Board of Directors on January 22, 2001.
 
 On
February 14, 2003, Kelvin Claney assumed the duties of President in addition to
his Chief Executive Officer and Secretary duties.
 
 Each
director will serve staggered terms of one, two, or three years and until their
successors are elected and qualified.  Officers will hold their
positions at the pleasure of the board of directors, without prejudice to the
terms of any employment agreement.
 
 There are
no arrangements or understandings between the directors and officers of ICTV and
any other person under which any director or officer was or is to be selected as
a director or officer.  In addition, there are no agreements or
understandings for the officers or directors to resign at the request of another
person and the above-named officers and directors are not acting on behalf of
nor acting at the direction of any other person.
 
 Kelvin
Claney – President and Chief Executive Officer, Secretary, Director
 
 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.
 
 Karl
Redekopp – Chief Financial Officer
 
 In July
2005, Mr. Redekopp was appointed Chief Financial Officer of ICTV.
 
 Karl
Redekopp has over 15 years experience in the areas of corporate finance and the
financial administration of public companies.  He began working in
public practice in 1992 specializing in accounting and auditing for a variety of
different types of corporations.  In November 1997, Mr. Redekopp began
working for the Loewen Group Inc. as a senior Accounting Manager; a position in
which he utilized his knowledge and experience to help streamline certain
financial control procedures and practices.  In 1999, he accepted a
position with inTRAVELnet.com inc., a public company listed on the OTC-BB, as
controller. In 2000 he was appointed chief financial officer of the company; as
chief financial officer, Mr. Redekopp was responsible for all matters relating
to the financial administration of a public company, including compliance,
auditing, control, treasury and compensation.
 
 From July
2002 to July 2005, Mr. Redekopp provided consulting services to a number of
different companies for which he held senior level positions.
  23
 Index
  Mr.
Redekopp is qualified as a certified general accountant (CGA) and has a
background in corporate finance, business and administration.
 
 William
R. Flohr – Director
 
 Mr. Flohr
presently 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.
 
 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, 2007.
 
 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.
  24
 Index
  ITEM
10.  EXECUTIVECOMPENSATION
 
 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, 2007, 2006 and
2005, by our chief executive officer and president (the "Named
Officers").  No executive officer received total annual salary, bonus
and other compensation in excess of $100,000 in those periods.  No
options or SAR grants were made to the Named Officers in 2007, nor were any
options or SAR’s exercised by the Named Officers in 2007.
 
 
 Summary
Compensation Table
 
 Long
      Term CompensationAnnual
      Compensation
              
              Awards
              
              PayoutsName
      And Principal Position
              
              Year
              
              Salary
      ($)
              
              Bonus
      ($)
              
              Other
      Annual Compen- sation ($)
              
              Restricted
      Stock Award(s) ($)
              
              Securities
      Underlying Options/ SARs (#)
              
              LTIP
      Payouts ($)
              
              All
      Other Comp-ensation ($)Kelvin
      Claney
              
              2007
              
              
              84,000
              
              nil
              
              nil
              
              nil
              
              nil
              
              nil
              
              nil(President
      and CEO)
              
              2006
              
              
              72,000
              
              nil
              
              nil
              
              nil
              
              nil
              
              nil
              
              nil2005
              
              
              72,000
              
              nil
              
              nil
              
              nil
              
              nil
              
              nil
              
              nil
 
 Compensation
of Directors
 
 Directors
receive no compensation for their service as directors, although they do receive
reimbursement for expenses.
 
 Employment
Contracts
 
 We have
no employment agreements with our executive officer.
 
 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.
 
 
 ITEM
11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
 The
following table sets forth, as of February 16, 2007, 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 March 30, 2008, we had
14,274,287 shares 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
              
              
              
              46.2
              %The Better Blocks Trust, declared January 1,
      1994(2)
              
              
              6,578,826
              
              
              
              46.1
              %William Flohr, Member of the Board of
      Directors(3)
              
              
              80,000
              
              
              
              0.6
              %ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP –
      3 INDIVIDUALS(4)
              
              
              6,678,826
              
              
              
              46.8
              %
  25
 Index
  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 Level 4, 9
      High Street, Auckland New Zealand, c/o William Ainslee Reece, Trustee,
      Reece & Co.
 (3)
              Mr.
      Flohr’s business address is 355 22nd
      Street, Santa Monica, California
90402.
 (4)
              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.
  26
 Index
  Equity
Compensation Plan Information
 
 The
following table sets forth information regarding our 2001 Stock Option Plan as
of the year ended December 31, 2007:
 
 (a)
              
              
              (b)
              
              
              (c)Plan Category
              
              Number of securities to be issued upon exercise of
      outstanding options, warrants and rights
              
              
              Weighted-average exercise price of outstanding
      options, warrants and rights
              
              
              Number of securities remaining available for
      future issuance under equity compensation plans (excluding securities
      reflected in column (a))Equity compensation plans approved by security
      holders(1)
              
              
              1,175,000
              
              
              $
              0.43
              
              
              
              1,825,000Equity compensation plans not approved by security
      holders
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/aTotal
              
              
              1,175,000
              
              
              $
              0.43
              
              
              
              1,825,000
 
 (1)
              The
      2001 Stock Option Plan was approved by the shareholders on February 26,
      2001.
 
 In
connection with the Share and Option Purchase Agreement with the Trustee of The
Better Blocks Trust, we purchased all of the equity interest in Windowshoppc.com
Limited and R.J.M. Ventures, an option to purchase all of the equity in Better
Blocks International Limited, and a license to all of the assets owned by Better
Blocks International Limited.  The purchase price under the agreement
was 8,000,000 shares of our common stock and a $590,723 promissory
note.  The option exercise price under the agreement is the issuance
of another 500,000 shares of our common stock.  The option has an
initial term of ten years.  During the first five years of the term,
the option may be exercised by the mutual agreement of the Trustee of The Better
Blocks Trust and us.  At the end of the first five years and each year
after the first five years, the Trustee of The Better Blocks Trust may extend
the term of the option by one year, and the option may be exercised by the
mutual agreement of the Trustee of The Better Blocks Trust and
us.  Once less than five years remain in the term of the option, we
may exercise the option in our sole discretion.  We may terminate the
option term at any time in our sole discretion.
 
 
 ITEM
12.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
 
 Transactions
with Management and Others
 
 We have
received short-term advances from Kelvin Claney.  The outstanding
balance of the advances received from Mr. Claney was approximately $57,000 as of
December 31, 2007, and approximately $222,000 as of December 31, 2006. These
advances are non-interest bearing and without specific terms of
repayment.
 
 Our
director William Flohr is a director and greater than 10% beneficial owner of
Amden Corp., which owns CybersonicTM.  We
periodically purchased units of CybersonicTM from
Amden Corp. and acted as the international distributor for them up until May 9,
2003, at which time our relationship with Amden Corp. was
terminated.  During the year ended December 31, 2003, we recognized
approximately $37,000 in revenue from sales of CybersonicTM.
 
 The
Company's executive offices in Bainbridge Island, Washington, are provided to
the Company at a charge of $350 per month by Kelvin Claney, President of the
Company.
  27
 Index
  ITEM
13.  EXHIBITS
 
 EXHIBITS
 
 ExhibitNumber
              
              Description*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
 
 * Filed
herewith
 
 REPORTS
ON FORM 8-K
 
 n/a
 
 
 ITEM
14. PRINCIPAL ACCOUNTANT 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 $38,305 in
2006 and approximately $38,237 in 2007.
 
 Our Chief
Financial Officer reviewed the audit and non-audit services rendered by Dohan
and Company, CPA's, P.A. during the periods set forth above and concluded that
such services were compatible with maintaining the auditors' independence. All
audit and non-audit services, if any, performed by our independent accountants
are pre-approved by our Chief Financial Officer to assure that such services do
not impair the auditors' independence from us.
  Approximately
sixty-nine percent of the hours expended on the principal accountant's
engagement to audit our financial statements were attributed to work performed
by persons other than the principal accountant's full-time, permanent
employees.  The principal accountant reviewed all work done by such
individuals.
  28
 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:
              March 30, 2008
              
              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:
      March 30,
      2008Name:
              Kelvin
      ClaneyTitle:
              President
      and CEO,Secretary
      and Director,Chairman
      of the BoardBy:
              /s/
              Karl Redekopp
              
              Date:
      March 30,
      2008Name:
              Karl
      RedekoppTitle:
              Chief
      Financial Officer, Principle Accounting OfficerBy:
              /s/
              William Floor
              
              Date:
      March 30,
      2008Name:
              William
      FloorTitle:
              Board
      Member
  29
 Index
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 International
Commercial Television Inc. and Subsidiaries
 
 Report
      of Independent Registered Public Accounting Firm
              F-1Consolidated
      Balance Sheets as of December 31, 2007 and 2006
              F-2Consolidated
      Statements of Operations for the years ended December 31, 2007 and
      2006
              F-3Consolidated
      Statements of Shareholders’ Equity (Deficiency in Assets) for the
      years  ended December 31, 2007 and 2006
              F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2007 and
      2006
              F-5Notes
      to the Consolidated Financial Statements
              F-6
  Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC.
 AND
SUBSIDIARY
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 
 DECEMBER
31, 2007 and 2006
  Index
  Dohan and Company
              7700
      North Kendall Drive, 200Certified
      Public Accountants
              Miami,
      Florid      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 the accompanying consolidated balance sheets of International Commercial
Television Inc. and Subsidiaries as of December 31 2007 and 2006, and the
related consolidated statements of operations, shareholders’ equity and cash
flows for the years then ended.  These 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, the financial statements referred to above present fairly, in all
material respects, the financial position of International Commercial Television
Inc. and Subsidiaries at December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 10 to the
financial statements, the Company generated negative cash flows from operating
activities during the past year. The Company has working capital of
approximately $6,042,000 and retained income of approximately $ 533,000 for the
year ended December 31, 2007.
 
 /s/
      Dohan and Company, P.A.Certified
      Public Accountants
 
 Miami,
Florida
 March 24,
2008
  F-1
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 CONSOLIDATED
BALANCE SHEETS
 AS OF DECEMBER 31, 2007 AND
2006
 
 
 2007
              
              
              2006ASSETSCURRENT
      ASSETS:Cash
              
              $
              3,788,944
              
              
              $
              385,474Accounts
      receivable, net
              
              
              2,854,170
              
              
              
              555,194Inventories
              
              
              369,549
              
              
              
              238,687Prepaid
      expenses and deposits
              
              
              247,842
              
              
              
              88,499Deferred
      tax assets less valuation allowance of $2,781,000 (2006 -
      $3,058,000)
              
              
              -
              
              
              
              -Total
      current assets
              
              
              7,260,505
              
              
              
              1,267,854FURNITURE
      AND EQUIPMENT:Furniture
      and equipment
              
              
              120,169
              
              
              
              120,169Less
      accumulated depreciation
              
              
              110,330
              
              
              
              103,973Furniture
      and equipment, net
              
              
              9,839
              
              
              
              16,196Total
      assets
              
              $
              7,270,344
              
              
              $
              1,284,050LIABILITIES AND
      SHAREHOLDERS’ EQUITY (DEFICIENCY IN ASSETS)CURRENT
      LIABILITIES:Accounts
      payable and accrued liabilities
              
              $
              1,090,947
              
              
              $
              858,388Accounts
      payable – related parties
              
              
              70,490
              
              
              
              17,646Due
      to related parties
              
              
              56,983
              
              
              
              294,549Total
      current liabilities
              
              
              1,218,420
              
              
              
              1,170,583NOTE
      PAYABLE TO SHAREHOLDER
              
              
              590,723
              
              
              
              590,723COMMITMENTS
      AND CONTINGENCIES (Note 4 and 10)SHAREHOLDERS’
      EQUITY:Common
      stock, $0.001 par value, 100,000,000 Shares authorized, 14,274,287 and
      10,693,188 Issued and outstanding as of December 31, 2007 And December 31,
      2006, respectively
              
              
              4,181
              
              
              
              594Additional
      paid-in-capital
              
              
              4,823,073
              
              
              
              464,728Subscriptions
      received in advance
              
              
              100,750
              
              
              
              -Retained
      earnings (deficit)
              
              
              533,197
              
              
              
              (942,578
              )Total
      shareholders’ equity (deficiency in assets)
              
              
              5,461,201
              
              
              
              (477,256
              )Total
      liabilities and shareholders’ equity
              
              $
              7,270,344
              
              
              $
              1,284,050
 
 
 
 The
accompanying notes are an integral part of these consolidated
statements.
  F-2
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER
31, 2007 AND 2006
 
 
 2007
              
              
              2006NET
      SALESInfomercial
      products
              
              $
              11,323,505
              
              
              $
              2,977,074COST
      OF SALESInfomercial
      products
              
              
              3,155,017
              
              
              
              1,210,074GROSS
      PROFIT
              
              
              8,168,488
              
              
              
              1,767,000OPERATING
      EXPENSES:Depreciation
              
              
              6,357
              
              
              
              8,694General
      and administrative
              
              
              1,155,072
              
              
              
              489,447Selling
      and marketing
              
              
              5,509,466
              
              
              
              883,381Rent
              
              
              33,241
              
              
              
              26,669Total
      operating expenses
              
              
              6,704,136
              
              
              
              1,408,191OPERATING
      INCOME
              
              
              1,464,352
              
              
              
              358,809OTHER
      EXPENSES:Interest
      income (expense)
              
              
              11,423
              
              
              
              (15,273
              )Total
      other expenses
              
              
              11,423
              
              
              
              (15,273
              )INCOME  BEFORE
      INCOME TAXES
              
              
              1,475,775
              
              
              
              343,536INCOME
      TAXESIncome
      tax expense
              
              
              501,764
              
              
              
              116,802Tax
      benefit of net operating loss carry forward
              
              
              (501,764
              )
              
              
              (116,802
              )INCOME
      TAXES
              
              
              -
              
              
              
              -NET
      INCOME
              
              $
              1,475,775
              
              
              $
              343,536BASIC
      NET INCOME  PER SHARE
              
              $
              0.12
              
              
              $
              0.03FULLY
      DILUTED NET INCOME  PER SHARE
              
              $
              0.11
              
              
              $
              0.03
 
 
 
 The
accompanying notes are an integral part of these consolidated
statements.
  F-3
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY IN ASSETS)
 
 
 Common Stock
              
              
              Additional
              
              
              
              
              
              Subscriptions$0.001 par value
              
              
              Paid-In
              
              
              Retained
              
              
              Received inShares
              
              
              Amount
              
              
              Capital
              
              
              Earnings
              
              
              Advance
              
              
              TotalsBalances,
      January 1, 2006
              
              
              10,635,188
              
              
              $
              536
              
              
              $
              392,285
              
              
              $
              (1,286,114
              )
              
              $
              -
              
              
              $
              (893,293
              )Issuance
      of common stock
              
              
              58,000
              
              
              
              58
              
              
              
              56,443
              
              
              
              -
              
              
              
              
              
              
              
              56,501Amortization
      of deferred compensation under non-qualified stock option
    plan
              
              
              -
              
              
              
              -
              
              
              
              16,000
              
              
              
              -
              
              
              
              
              
              
              
              16,000Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              343,536
              
              
              
              
              
              
              
              343,536Balances,
      December 31, 2006
              
              
              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
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,475,775
              
              
              
              -
              
              
              
              1,475,775Balances,
      December 31, 2007
              
              
              14,279,287
              
              
              $
              4,181
              
              
              $
              4,823,073
              
              
              $
              533,197
              
              
              $
              100,750
              
              
              $
              5,461,201
  The
accompanying notes are an integral part of these consolidated
statements.
  F-4
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE
YEARS ENDED DECEMBER 31, 2007 AND 2006
 
 2007
              
              
              2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              1,475,775
              
              
              $
              343,536Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activities:Depreciation
              
              
              6,357
              
              
              
              8,694Amortization
      of deferred compensation under nonqualified stock option
    plan
              
              
              -
              
              
              
              16,000Expenses
      paid through issuance of common stock
              
              
              -
              
              
              
              52,500Change
      in assets and liabilitiesIncrease
      in accounts receivable
              
              
              (2,298,976
              )
              
              
              (123,450
              )Increase
      in inventory
              
              
              (130,862
              )
              
              
              (179,714
              )Increase
      in prepaid expenses
              
              
              (159,343
              )
              
              
              (57,343
              )Increase  in
      accounts payable and accrued liabilities
              
              
              285,403
              
              
              
              476,479Net
      cash provided by (used in)  operating activities
              
              
              (821,646
              )
              
              
              536,702CASH
      FLOWS FROM INVESTING ACTIVITIES:Additions
      to property and equipment
              
              
              -
              
              
              
              (9,300
              )Net
      cash  used in investing activities
              
              
              -
              
              
              
              (9,300
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the issuance of common stock, net of issuance costs
              
              
              4,361,932
              
              
              
              4,000Advances
      from related parties
              
              
              358,076
              
              
              
              176,855Payments
      to related parties
              
              
              (595,642
              )
              
              
              (343,833
              )Subscriptions
      received in advance
              
              
              100,750
              
              
              
              -Net
      cash provided by  (used in) financing activities
              
              
              4,225,116
              
              
              
              (162,978
              )NET
      INCREASE  IN CASH
              
              
              3,403,470
              
              
              
              364,424CASH,
      beginning of the year
              
              
              385,474
              
              
              
              21,050CASH,
      end of the year
              
              $
              3,788,944
              
              
              $
              385,474SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      income (expense)
              
              $
              11,423
              
              
              $
              (15,273
              )Income
      taxes paid
              
              $
              -
              
              
              $
              -
  The
accompanying notes are an integral part of these consolidated
statements.
  F-5
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
1 - Summary of significant accounting policies
 
 Nature of
operations
 
 The
Company sells various consumer products.  The products are primarily
marketed and sold throughout the United States and internationally via
infomercials.  Although the companies are incorporated in Nevada and
British Columbia, operations are currently run from Washington State and British
Columbia.
 
 These
consolidated financial statements have been prepared on a going concern basis,
which assumes that the Company will continue in operation for the foreseeable
future and be able to realize its assets and discharge its liabilities and
commitments in the normal course of business. Through December 31, 2004 the
Company incurred accumulated losses, and had a working capital
deficiency.
 
 Since
2005, the Company has been working to develop future profitable operations and
improve the working capital position of the Company. During the year ended
December 31, 2007, the Company redoubled its efforts towards operations and
profitability. As a result, the Company increased its sales and reduced its
proportionate costs.  In addition, the Company successfully
completed  private placements whereby it raised $4,361,000 which will
be used to develop new products and grow our existing business with new and
profitable product lines.  As a result of these efforts, the Company
has now reached profitable operations, and has positive working
capital.
 
 The
ability of the Company to continue as a going concern and to realize the
carrying value of its assets and discharge its liabilities when they become due
is dependent on the success of its operations. Management believes that the two
consecutive years of profitability and the successful financing has mitigated
the adverse conditions which raised substantial doubt on the Company’s going
concern.
 
 These
financial statements do not reflect adjustments that would be necessary if the
Company is unable to continue as a going concern. If the going concern
assumption is not appropriate for these financial statements, then adjustments
would be necessary to the carrying value of assets and liabilities, the reported
net income, and the balance sheet classifications used.
 
 Organization
 
 International
Commercial Television Inc., (the “Company” or “ICTV”) was organized under the
laws of the state of Nevada on June 25, 1998.
 
 On April
1, 2000, the Company entered into a Share and Option Purchase Agreement with the
trustees of The Better Block Trust (“BBT”), which owned or controlled all of the
equity interest in Windowshoppc.com Limited (“WSL”), R.J.M. Ventures Limited
(“RJML”) and Better Blocks International Limited (“BBIL”).  Under the
agreement, the Company purchased all of the equity interest in WSL and RJML, an
option to purchase all of the equity in BBIL and obtained a license to all of
the assets owned by BBIL.  The purchase price under the agreement was
8,000,000 shares of the Company’s common stock and a $590,723 promissory note.
In 2003, the BB Trust agreed to forego all interest owed in connection with this
note and the Company and BB Trust have amended the promissory note to reflect
this.  The gain of $148,483 was capitalized to additional paid in
capital in connection with the amount of accrued interest forgiven on the note.
The option exercise price is the issuance of an additional 500,000 shares of the
Company’s common stock.  For accounting purposes, the acquisition has
been treated as an acquisition of ICTV by WSL and RJML and as a recapitalization
of WSL and RJML.
 
 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.
 
 Windowshoppc.com
Limited was organized under the laws of New Zealand on June 25, 1999 and has a
fiscal year-end of March 31.  During the 1999 fiscal year, at the
direction of management, WSL was
  F-6
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
1 - Summary of significant accounting policies (continued)
 
 Organization
(continued)
 
 removed
from the New Zealand Registrar of Companies.  All assets and
commitments of WSL have been transferred or assigned directly to
ICTV.
 
 R.J.M.
Ventures Limited was organized under the laws of New Zealand on April 23, 1998
and has a fiscal year-end of March 31.  During the 1999 fiscal year,
at the direction of management, RJML was removed from the New Zealand Registrar
of Companies.  All assets and commitments of RJML have been
transferred or assigned directly to ICTV.
 
 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.
 
 Cash
equivalents
 
 The
Company considers all unrestricted highly liquid investments with an original
maturity of three months or less to be cash equivalents.
 
 Accounts
receivable
 
 No
allowance for uncollectible accounts has been provided. Any accounts receivable
that are considered doubtful have been written off by management as bad debt
expense. The amount of bad debt expense for 2007 is $ 430,384 and  for
2006 is $ 21,912. The amounts are included in general and administrative expense
in the accompanying consolidated financial statements. The Company’s management
has evaluated the remaining accounts receivable and believe they are all
collectible.
 
 Inventories
 
 Inventory
consists primarily of products held for resale, and are valued at the lower of
cost (first-in, first-out method) or market.  The Company adjusts
inventory for estimated obsolescence when necessary based upon demand and market
conditions.
 
 Furniture and
equipment
 
 Equipment
is 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.
 
 Long-term
assets are reviewed annually as to whether their carrying value has become
impaired.  Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related
operations.  Management also re-evaluates the periods of amortization
to determine whether subsequent events and circumstances warrant revised
estimates of useful lives.  As of December 31, 2007, management
expects these assets to be fully recoverable.
  F-7
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
1 - Summary of significant accounting policies (continued)
 
 Furniture and equipment
(continued)
 
 Depreciation
expense amounted to $6,357 and $8,694 for the years ended December 31, 2007 and
2006, respectively.
 
 Impairment of Long-Lived
Assets
 
 Long-lived
assets of the Company are reviewed annually as to whether their carrying value
has become impaired in accordance with FAS 144.  Management considers
assets to be impaired if the carrying value exceeds the future projected cash
flows from related operations.  Management also re-evaluates the
periods of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives.  As of December 31, 2007,
management expects these assets to be fully recoverable.
 
 Revenue
recognition
 
 For our
direct response television sales generated by our infomercials, product sales
revenue is recognized upon shipment of the product to the
customer.  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.  The Company provides an allowance
for returns based upon past experience.  All significant returns for
the years presented have been offset against gross sales. Revenue related to
sales to our wholesale customers is recognized when each of the following
conditions is met: Persuasive evidence of an arrangement exists, transfer of the
benefit of ownership of the products has occurred, our price to the customer is
fixed and determinable and collectibility is reasonably assured. Revenue related
to the sale of third party products is generally recorded at gross amounts with
a corresponding charge to cost of sales.  Certain third party products
are sold under a commission basis and only the commission income is recorded for
these sales.
 
 Shipping and
handling
 
 Amounts
billed to customers for shipping and handling are included in revenue; shipping
and handling revenue approximated $836,000 and $156,090 for the years ended
December 31, 2007 and 2006, respectively. Shipping and handling costs are
included in cost of sales. Shipping and handling costs approximated $520,000 and
$131,000 for the years ended December 31, 2007 and 2006,
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 $4,136,096 and $593,146 in such costs for the years ended December 31,
2007 and 2006.
  F-8
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Income
taxes
 
 The
Company uses the asset and liability method of accounting for income taxes,
which requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax bases and
financial reporting bases of assets and liabilities. A valuation allowance is
recorded for deferred tax assets when it is not more likely than not that this
future tax asset will be realized.
 
 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 20% of the
options granted will vest the month following the grant, and 10% will vest every
6 months thereafter. The maximum term of options granted is 10 years and the
number of shares authorized for grants of options is 3,000,000.
 
 Prior to
March 2006, the Company used Statement of Financial Accounting Standards No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS No.
148) to account for its stock based compensation arrangements. This statement
amended the disclosure provision of FASB statement No. 123 to require prominent
disclosure about the effects on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. As permitted
by SFAS No. 123 and amended by SFAS No. 148, the Company continued to apply the
intrinsic value method under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for its stock-based
employee compensation arrangements.
 
 In
December 2004, the Financial Accounting Standards Board issued Statement Number
123 (“FAS 123 (R)”), Share-Based Payments, which is effective for the reporting
period beginning on January 1, 2006. The statement will require the Company to
recognize compensation expense in an amount equal to the fair value of
share-based payments such as stock options granted to employees. The Company has
the option to either apply FAS 123 (R) on a modified prospective method or to
restate previously issued financial statements, and chose to utilize the
modified prospective method. Under this method, the Company is required to
record compensation expense (as previous awards continue to vest) for the
unvested portion of previously granted awards that remain outstanding at the
date of adoption.
  F-9
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
1 - Summary of significant accounting policies (continued)
 
 Stock options
(continued)
 
 In
January 2006, the Company adopted the expense recognition provisions of SFAS No.
123, and for the year ended December 31, 2007, issued no options and, therefore,
recorded no stock compensation expense.
 
 The
following is a summary of stock options outstanding under the existing stock
option plan for the years ended December 31, 2007 and 2006:
 
 Number of Shares
              
              
              Weighted AverageEmployee
              
              
              Non-Employee
              
              
              Totals
              
              
              Exercise PriceBalance,
      January 1, 2006
              
              
              -
              
              
              
              1,209,000
              
              
              
              1,209,000
              
              
              $
              0.47Granted
      during 2006
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              0.00Exercised
      during the year
              
              
              -
              
              
              
              (8,000
              )
              
              
              (8,000
              )
              
              $
              0.50Cancelled
      during the year
              
              
              -
              
              
              
              (40,000
              )
              
              
              (40,000
              )
              
              $
              2.00Balance,
      December 31, 2006
              
              
              -
              
              
              
              1,161,000
              
              
              
              1,161,000
              
              
              $
              0.43
 
 Number of Shares
              
              
              Weighted AverageEmployee
              
              
              Non-Employee
              
              
              Totals
              
              
              Exercise PriceBalance,
      January 1, 2007
              
              
              -
              
              
              
              1,161,000
              
              
              
              1,161,000
              
              
              $
              0.43Granted
      during 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              0.00Exercised
      during the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              0.00Cancelled
      during the year
              
              
              -
              
              
              
              (4,000
              )
              
              
              (4,000
              )
              
              $
              0.50Balance,
      December 31, 2007
              
              
              -
              
              
              
              1,157,000
              
              
              
              1,157,000
              
              
              $
              0.43
 
 The
weighted average fair value of options granted during the last two years was
$0.  Of the stock options currently outstanding, 1,063,000 options are
currently exercisable at a weighted average exercise price of
$0.43.  These options expire at dates ranging between May 31, 2009 and
September 28, 2011.
 
 Following
are the weighted average assumptions used for the years ended December 31, 2007
and 2006:
 
 2007
              2006Risk-free
      interest rate
              -
              -Expected
      dividend yield
              -
              -Expected
      lives
              -
              -Expected
      volatility
              -
              -
  F-10
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
1 - Summary of significant accounting policies (continued)
 
 Stock options
(continued)
 
 Had
compensation cost for the Company’s option plans been determined using the fair
value method at the grant dates, the effect on the Company’s net income and
income  per share would have been as follows for the years ended
December 31:
 
 
 
 2007
              
              
              2006Net
      income as reported
              
              $
              1,475,775
              
              
              $
              343,536Deduct:Total
      stock based employee compensation determined under fair value method for
      all awards, net of related tax effects
              
              
              -
              
              
              
              -Pro
      forma net income (loss)
              
              $
              1,475,775
              
              
              $
              343,536Earnings
      per share:Basic
      - as reported
              
              $
              0.12
              
              
              $
              0.03Basic
      – pro forma
              
              $
              0.12
              
              
              $
              0.03Diluted
      - as reported
              
              $
              0.11
              
              
              $
              0.03Diluted
      – pro forma
              
              $
              0.11
              
              
              $
              0.03
 
 
 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, 2007, the Company did exceed the federally
insured limit by approximately $365,000 in its main operating account by
$3,010,000 in its investment savings account, and by $51,000 in its merchant
account. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risks on its cash in bank
accounts. As of December 31, 2007 and December 31, 2006, 51% and 45% of the
Company’s accounts receivable were due from various individual customers to whom
our Dermawand product had been sold directly via Direct Response Television; the
remaining 49% and 55% of the Company’s accounts receivable were due from four
and five wholesale infomercial operators, respectively.
  F-11
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
1 - Summary of significant accounting policies (continued)
 
 New Accounting
Pronouncements
 
 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.  SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. We are currently assessing the
impact of SFAS No. 159 on our financial position and results of operations, but
do not anticipate a material impact.
 
 
 Note
2 - License and reconveyance agreements
 
 Effective
April 1, 2000, the Company entered into a License and Reconveyance Agreement
with WSL and RJML.  These agreements are royalty-free.  WSL
and RJML owned or had rights in certain intellectual properties that were
transferred or assigned to ICTV during 2003.  Accordingly, WSL and
RJML granted all production rights, proprietary rights, inventory, development
rights, tangible assets, licenses and any assets or rights to the
Company.  The Company has the right to further develop and enhance the
intellectual properties as the Company sees fit.
 
 
 Note
3 - Financial instruments
 
 The
carrying values
of   financial   instruments   such
as cash, accounts receivable, accounts payable and accrued
liabilities, and due to related parties approximate their fair values due to the
short settlement period for these instruments.  The carrying amount of
note payable represent the fair value of the note payable based on the borrowing
rate of 0.0%
 
 
 Note
4 - Commitments and contingencies
 
 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.
  F-12
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
4 - Commitments and contingencies (continued)
 
 Cell RXTM(continued)
 
 ICTV
shall pay royalties to IMG, up to a maximum amount of $1,000,000.00, as
follows.  ICTV shall make payments on a monthly basis in an amount
equal to 2% (two percent) of the gross sales of Product in the preceding
month.  ICTV shall make payments in this manner until it has paid a
total of $400,000.00 in royalties.  Thereafter, ICTV shall make
payments on a monthly basis in an amount equal to 1.5% (one and one-half
percent) of the gross sales of Product in the preceding month, until it has paid
a total of $1,000,000.00 in royalties, after which no further royalties shall be
due.
 
 Upon the
Company’s purchase and payment of IMG’s entire inventory of Product, IMG shall
convey to ICTV ownership of all of the intellectual and tangible property
related to Product.  Upon conveyance of such property, the Company’s
exclusive license shall terminate, and thereafter ICTV shall be the sole owner
of Product, with all attendant rights to manufacture, market and sell Product
anywhere in the world.
 
 Smart StacksTM
 
 On May
18, 1998, RJML entered into a manufacturing, marketing and distribution
agreement with the inventor of Smart StacksTM.  Smart
StacksTM is a
set of rotating and stacking storage trays.  Pursuant to the
agreement, the inventor grants to RJML the exclusive right to manufacture,
advertise, promote, market, sell and distribute Smart StacksTM
worldwide through all means.  In consideration of the grants received,
RJML shall pay a royalty based on net sales depending on various scenarios as
defined in the agreement.  The initial term of the agreement was five
years starting May 18, 1998.  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 inventor intends to terminate the
agreement.
 
 On July
1, 1998, RJML entered into a production agreement with The Broadcast Arts Group,
Inc. (“BAG”) for the creation of infomercials of Smart StacksTM.  RJML
pays all necessary expenses for the creation of the infomercials and after
completion, will retain all rights, title and interest arising under the U.S.
Copyright Act, the U.S. Trademark Act and all other applicable laws, rules and
regulations in and to the entire editorial, visual, audio and graphic content of
the infomercials.  In consideration of services rendered by BAG, RJML
shall pay a royalty based on RJML’s adjusted gross sales depending on various
scenarios as defined in the agreement.  This agreement has an
indefinite term, however, it may be terminated upon thirty days written notice
under certain conditions as defined in the agreement.
 
 Derma WandTM
 
 On August
17, 1999, WSL entered into a production agreement with BAG for the creation of
infomercials of Derma WandTM.  WSL
pays all necessary expenses for the creation of the infomercials and after
completion, will retain all rights, title and interest arising under the U.S.
Copyright Act, the U.S. Trademark
  F-13
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
4 - Commitments and contingencies (continued)
 
 Derma WandTM(continued)
 
 Act and
all other applicable laws, rules and regulations in and to the entire editorial,
visual, audio and graphic content of the infomercials.  In
consideration of services rendered by BAG, WSL shall pay a royalty based on
adjusted revenues or units sold depending on various scenarios defined in the
agreement.  The initial term of this agreement was until August 31,
2002.  Upon expiration, this agreement automatically and continually
renews for successive additional three-year terms unless either party is in
material breach or the other party notifies the breaching party in writing at
least thirty days prior to the end of the then current term.  During
the period ended March 31, 2005, the agreement was amended such that royalties
payable on units sold after December 31, 2004 cease.
 
 On
October 15, 1999, WSL entered into an endorsement agreement with an individual
for her appearance in a Derma Wand 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 2.
 
 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 Derma WandTM.  In consideration of these rights,
WSL shall pay a royalty for each unit sold of Derma Wand 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 Derma WandTMand was granted
exclusive license with respect to the commercial rights to the Derma WandTM. 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.
  F-14
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
4 - Commitments and contingencies (continued)
 
 SprintR
 
 On June
6, 2002, the Company entered into an exclusive license and marketing agreement
with Land Surfer Scooter Company Ltd. (“LSSC”).  LSSC has been granted
by way of a valid agreement, by the manufacturer, the exclusive right to market
a fold-up rocker-powered scooter.  LSSC agrees to allow the Company
to order the scooters directly from the manufacturer and the Company agrees to
provide LSSC all copies of such orders.  In consideration of the grant
received, the Company shall pay LSSC a royalty per unit sold depending on
various scenarios.  The initial term of the agreement is five years
starting June 6, 2002.  The agreement automatically and continually
renews for successive additional five years unless the Company is in
default.
 
 
 BondzalotTM
 
 On July
8, 2002, the Company entered into an exclusive marketing and distribution
agreement with an individual in connection with a range of specialty adhesive
products (“Products”).  The individual has granted the exclusive right
to market through all forms of distribution a product to be known as
BondzalotTM in all
countries throughout the world other than Canada and the United Kingdom, and on
a non-exclusive basis in Canada and the United Kingdom.  In
consideration for the right received, the Company shall, at its own expense,
produce and test broadcast a long-form infomercial (“Program”) and pay a royalty
on a per unit basis at a price to be determined.  The Company agrees
to purchase a minimum of $250,000 worth of Products from the individual on an
annual basis, commencing from the date the Program is test broadcasted (December
15, 2002), to retain the exclusive rights; otherwise the license shall revert to
a non-exclusive license.  The initial term of the agreement is five
years starting July 8, 2002.  The agreement automatically and
continually renews for successive additional five-year terms, unless either
party is in breach of the agreement and the breach is not remedied within 30
days of written notice.  The Company produced and tested the
Program.  As the results were poor, the Company did not purchase the
minimum commitment to retain exclusive rights.  Management plans to
edit the Program with the intention of marketing the Products
internationally.
 
 
 TwinTechTM
 
 In
January, 2003, the Company entered into an exclusive agreement with Chevron
Oronite Company LLC (“COC”) whereby the parties acknowledge that ICTV intends to
market, sell and distribute various automobile fuel and oil additive products,
developed by COC, in the United States and elsewhere in the world via various
means and media, including, without limitation, one or more direct response
television programs of 30 minutes or less.  The initial term of the
agreement is three years from the date of first airing of the infomercial and
automatically renews for three years unless the Company is in
default.
  F-15
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  TwinTechTM(continued)
 
 On
February 20, 2003, the Company entered into a Supply Agreement with Calidad Auto
Tech, Inc. (“CAT”) whereby CAT will sell to the Company and the Company will
purchase from CAT certain automobile fuel and oil additive products developed by
COC.  The initial term of the agreement is three years from the date
of first airing of the infomercial and automatically renews for three years
unless the Company is in default.
 
 On April
28, 2003, the Company entered into a Broadcast Video Production Agreement with
Real to Reel Productions (“Real to Reel”) whereby Real to Reel will render
various services related to the production of an infomercial designed to sell
the TwinTechTMAutomotive Engine Treatment Additive.  In addition to the
production fee, the Company shall pay a royalty based on gross sales generated
from the infomercial.  The term of the agreement is five years and
Real to Reel retains the right of first refusal for subsequent new shows to
further promote the product.
 
 On April
28, 2003, the Company entered into a funding agreement with a shareholder,
whereby the shareholder agrees to pay Real to Reel’s production fee of
approximately $196,000, and in return, the Company has agreed to pay a per kit
royalty to the shareholder based on various scenarios, until such time as the
total royalty payments reach $2,000,000. The production fee was accrued and
expensed as “production costs” and included in selling and marketing expenses
during the fiscal year ended December 31, 2005.
 
 During
the period ended March 31, 2005, the Company entered into an agreement with COC
and CAT terminating the January 2003 and February 20, 2003 agreements described
above.  In consideration for surrendering our rights to advertise,
promote, market, sell or otherwise distribute TwinTechTM we received $800,000
from COC.  From these funds, we have agreed to repay Real to Reel’s
production fee in full settlement of the obligations to a shareholder set forth
in the April 28, 2003 agreement described above.
 
 Other
matters
 
 For the
period from January 1, 2004 through August 31, 2005, the Company did not
maintain product liability insurance for all products sold.  For
certain products, the Company is listed as an additional insured party under the
product manufacturers’ insurance policy. On February 20, 2007, the Company
purchased additional liability insurance to cover all direct to consumer product
sales in the US; this policy is due to expire on February 20,
2008.  At present, management is not aware of any claims against the
Company for any products sold.
 
 On
December 20, 2005, the Company entered into an operating lease agreement for
office facilities for its international operations from an unrelated party for
approximately $2,400 per month.  The term of the lease is three years
commencing January 1, 2006 and ending December 31, 2008. Our executive offices
are located in Bainbridge Island, Washington and are provided to the Company at
a month to month rate of $350 per month by Kelvin Claney, President of the
Company.
  F-16
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
5 - Related party transactions
 
 The
Company has received short-term advances from a shareholder.  These
advances amounted to $57,000 and $222,549 as of December 31, 2007 and 2006,
respectively. These advances are non-interest bearing and without specific terms
of repayment.  These advances are included in “Due to related parties”
on the accompanying consolidated balance sheets.
 
 The
Company has a note payable to a shareholder in the amount of $590,723. This loan
is interest-free and has no specific terms of repayment.
 
 Note
6 - Capital transactions
 
 During
the 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 $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
7 - 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, 2007, there
were 3,075,999 warrants outstanding and exercisable. Of this total, 1,475,999
warrants are exercisable at $1.00 per share expiring April 23, 2009. The
remaining 1,600,000 warrants are exercisable at $3.00 per share expiring
December 3, 2010.
  F-17
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
7 - Basic and fully diluted earnings per share (continued)
 
 The
computations for basic and fully diluted earnings per share are as
follows:
 
 For the year ended
      December 31, 2007:
              
              Income (Numerator)
              
              
              Shares (Denominator)
              
              
              Per Share AmountBasic earnings per
      shareIncome
      available to common shareholders
              
              $
              1,475,775
              
              
              
              12,121,462
              
              
              $
              0.12Diluted earnings per
      shareDilutive
      effect of stock options
              
              
              
              
              
              
              1,664,476
              
              
              $
              -Income
      available to common shareholders
              
              $
              1,475,775
              
              
              
              13,037,890
              
              
              $
              0.11
   For the year ended
      December 31, 2006:
              
              Income (Numerator)
              
              
              Shares (Denominator)
              
              
              Per Share AmountBasic earnings per
      shareIncome
      available to common shareholders
              
              $
              343,536
              
              
              
              10,693,188
              
              
              $
              0.03Diluted earnings per
      shareDilutive
      effect of stock options
              
              
              
              
              
              
              341,548
              
              
              $
              -Income
      available to common shareholders
              
              $
              343,536
              
              
              
              11,351,640
              
              
              $
              0.03
 
 Note
8 - Income taxes
 
 For the
most part, the Company has experienced operating losses since inception.
Therefore the Company has accumulated  $2,781,000 of net operating
loss carryforwards, which expire twenty years from the time of incurrence. The
Company has provided a full valuation allowance on the net deferred tax asset
because of uncertainty regarding its realization. The Company estimates that it
will utilize net operating losses although they have not filed income tax
returns since 1998. This asset primarily consists of net operating losses and
amortization.
 
 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.
  F-18
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
8 - Income taxes (continued)
  Significant
components of the Company’s deferred tax assets are approximately as follows as
of December 31:
 
 2007
              
              
              2006Net operating loss
              
              $
              -
              
              
              $
              220,000Basis of investments
              
              
              2,327,000
              
              
              
              2,327,000Basis of intangibles
              
              
              428,000
              
              
              
              428,000Basis of stock options
              
              
              103,000
              
              
              
              103,000Accumulated amortization
              
              
              35,000
              
              
              
              107,000Accumulated depreciation
              
              
              5,000
              
              
              
              (2,000
              )State taxes
              
              
              (117,000
              )
              
              
              (125,000
              )Total deferred tax assets
              
              
              2,781,000
              
              
              
              3,058,000Valuation allowance
              
              
              (2,781,000
              )
              
              
              (3,058,000
              )Net deferred tax assets
              
              $
              -
              
              
              $
              -
 
 
 Note
9 - 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, 2007
              
              
              For the year ended
      December 31, 2006Domestic
              
              
              International
              
              
              Totals
              
              
              Domestic
              
              
              International
              
              
              TotalsNET
      SALESInfomercial
      products
              
              $
              10,309,218
              
              
              $
              1,014,287
              
              
              $
              11,323,505
              
              
              $
              1,333,065
              
              
              $
              1,644,009
              
              
              $
              2,977,07410,309,218
              
              
              
              1,014,287
              
              
              
              11,323,505
              
              
              
              1,333,055
              
              
              
              1,644,009
              
              
              
              2,977,074COST
      OF SALESInfomercial
      products
              
              $
              2,750,171
              
              
              
              404,846
              
              
              
              3,155,017
              
              
              $
              302,407
              
              
              
              907,667
              
              
              
              1,210,0742,750,171
              
              
              
              404,846
              
              
              
              3,155,017
              
              
              
              302,407
              
              
              
              907,667
              
              
              
              1,210,074Gross
      profit
              
              
              7,559,047
              
              
              
              609,441
              
              
              
              8,168,488
              
              
              
              1,030,658
              
              
              
              736,342
              
              
              
              1,767,000Operating
      expenses:Depreciation
              
              
              5,787
              
              
              
              570
              
              
              
              6,357
              
              
              
              3,891
              
              
              
              4,803
              
              
              
              8,694General
      and administrative
              
              
              1,092,240
              
              
              
              62,832
              
              
              
              1,155,072
              
              
              
              212,124
              
              
              
              277,323
              
              
              
              489,447Selling
      and marketing
              
              
              5,475,249
              
              
              
              34,217
              
              
              
              5,509,466
              
              
              
              847,842
              
              
              
              35,539
              
              
              
              883,381Rent
              
              
              30,264
              
              
              
              2,977
              
              
              
              33,241
              
              
              
              11,939
              
              
              
              14,730
              
              
              
              26,669Total
      operating expense
              
              
              6,603,540
              
              
              
              100,596
              
              
              
              6,704,136
              
              
              
              1,075,796
              
              
              
              332,395
              
              
              
              1,408,191Operating
      income (loss)
              
              $
              955,507
              
              
              $
              508,845
              
              
              $
              1,464,352
              
              
              $
              (45,138
              )
              
              $
              403,947
              
              
              $
              358,809
  F-19
 Index
  INTERNATIONAL
COMMERCIAL TELEVISION INC. AND SUBSIDIARY
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2007
  Note
10 – Going Concern Considerations and Management Plans
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability of assets and
liquidation of liabilities that may result from this uncertainty.  The
Company generated negative cash flows from operating activities in the past
fiscal year, and the Company, for the most part, has experienced recurring
losses from operations. The Company has working capital of approximately
$6,042,085 and retained earnings of approximately $533,197 as of December 31,
2007.
 
 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.
   F-20