10-K 1 astv_10k.htm ANNUAL REPORT Annual Report

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549


FORM 10-K


(MARK ONE)

þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED MARCH 31, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE TRANSITION PERIOD FROM __________________ TO __________________________

 

COMMISSION FILE NUMBER: 000-53539

[astv_10k001.jpg]

As Seen On TV, Inc.

(Exact name of registrant as specified in its charter)


Florida

80-0149096

(State or other jurisdiction of incorporation or organization)

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


14044 Icot Boulevard, Clearwater, Florida

33760

(Address of principal executive offices)

(Zip Code)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:

(727) 451-9510


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


TITLE OF EACH CLASS

NAME OF EACH EXCHANGE ON WHICH REGISTERED

NONE

NOT APPLICABLE


SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, PAR VALUE $0.0001 PER SHARE

(Title of class)


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


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


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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     þ Yes o No


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨ Yes þ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:


Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

þ


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


State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. Approximately $8,538,000 on September 30, 2013.


Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 531,815,115 shares of common stock are issued and outstanding as of June 16, 2014.


DOCUMENTS INCORPORATED BY REFERENCE


List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).  None.

 

 




 



TABLE OF CONTENTS


 

 

Page No.

                     

PART I

                     

 

 

 

ITEM 1.

BUSINESS.

1

ITEM 1A.

RISK FACTORS.

9

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

14

ITEM 2.

PROPERTY.

15

ITEM 3.

LEGAL PROCEEDINGS.

15

ITEM 4.

MINE SAFETY DISCLOSURES.

15

 

 

 

 

PART II

 

 

 

 

ITEM 5.

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

16

ITEM 6.

SELECTED FINANCIAL DATA.

16

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

17

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

25

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

26

ITEM 9.

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

26

ITEM 9A.

CONTROLS AND PROCEDURES.

26

ITEM 9B.

OTHER INFORMATION.

27

 

 

 

 

PART III

 

 

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

28

ITEM 11.

EXECUTIVE COMPENSATION.

34

ITEM 12.

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

37

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

41

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

41

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

42





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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


This Annual Report on Form 10-K includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about our:

 

·

failure to achieve the expected benefits of the merger with eDiets.com, Inc. and Infusion Brands, Inc.,

 

·

failure to achieve or sustain profitability,

 

·

our history of losses,

 

·

the payment of registration rights penalties which will reduce our cash,

 

·

risks associated with the direct response television industry,

 

·

failure of manufacturers and services providers to deliver products or provide services in a cost effective and timely manner,

 

·

product liability claims,

 

·

lack of intellectual property protection for “As Seen On TV”,

 

·

our failure to find or market new products,

 

·

changing consumer preferences,

 

·

eDiets’ dependence on network infrastructure,

 

·

adequate protection of confidential information,

 

·

potential litigation from competitors and health related claims from customers,

 

·

a limited market for our common stock,

 

·

the application of “penny stock” rules to trading in our common stock,

 

·

market overhang and volatility in the trading price of our common stock, and

 

·

terms of securities issued in prior transactions which will be dilutive to our shareholders and cause us to incur non-cash expenses and gains.


You should read thoroughly this Annual Report on Form 10-K and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including, but not limited to, those made in Part I of this Annual Report on Form 10-K under “Item 1A. Risk Factors.” Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION


Unless specifically set forth to the contrary, when used in this Annual Report on Form 10-K the terms “ASTV,” the “Company,” “we,” “our,” “us,” and similar terms refers to As Seen On TV, Inc., a Florida corporation, and our subsidiaries, including eDiets.com, Inc., a Delaware corporation (“eDiets”), TV Goods, Inc., a Florida corporation and Tru Hair, Inc., a Florida corporation. Subsequent to April 2, 2014, the Company also owns a 100% interest in Infusion Brands, Inc., a Nevada corporation. In addition, “fiscal 2013” refers to the year ended March 31, 2013, “fiscal 2014” refers to the year ended March 31, 2014 and “fiscal 2015” refers to the year ending March 31, 2015.

Unless specifically set forth to the contrary, the information which appears on our websites at www.astvinc.com, www.asseenontv.com, www.ediets.com, www.infusionbrands.com, www.dualtools.com and www.ronco.com are not part of this Annual Report on Form 10-K.



ii



 


PART I

ITEM 1.

BUSINESS.

Overview

As Seen On TV, Inc. (“ASTV”, “we”, or the “Company”) is a direct response marketing company and owner of AsSeenOnTV.com and eDiets.com. We identify, develop and market consumer products for global distribution via TV, Internet and retail channels. Following our February 2013 acquisition of eDiets.com, Inc. (“eDiets”), our business is organized along two segments. The As Seen On TV (“ASTV”) segment is a direct response marketing company that identifies and advises in the development and marketing of consumer products. The eDiets segment is a subscription-based nationwide weight-loss oriented digital subscription service, and, until our discontinuance of the meal delivery component in September 2013, provided dietary and wellness oriented meal delivery services. In fiscal 2014, the ASTV and eDiets segments represented approximately 62% and 38%, respectively, of our annual net revenues. In fiscal 2013, the ASTV and eDiets segments represented approximately 92% and 8%, respectively, of our annual net revenues. Our fiscal 2013 net revenues included one month revenues from eDiets’ of approximately $794,000.

Since closing the acquisition of eDiets, we have begun implementing internal changes which, when completed, will permit us to operate as a combined organization, utilizing common information and communication systems, operating procedures, financial controls and human resources practices. Furthermore, as discussed below, subsequent to the period covered by this report and effective April 2, 2014, we completed the acquisition of Infusion Brands, Inc.

Subsequent Events

Infusion Merger

On April 2, 2014, the Company entered into an Agreement and Plan of Merger (the “Infusion Merger Agreement”) with Infusion Brands International, Inc., a Nevada corporation (“IBI”), Infusion Brands, Inc. (“Infusion” or “Infusion Brands”), a Nevada corporation and a wholly owned subsidiary of IBI, and ASTV Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of the Company. Effective April 2, 2014. ASTV Merger Sub, Inc. merged with and into Infusion, with Infusion continuing as the surviving corporation and becoming a direct wholly owned subsidiary of the Company (the “Infusion Merger”).

Pursuant to the terms of the Infusion Merger Agreement the Company issued to IBI 452,960,490 shares of its common stock in exchange for all of the outstanding shares of Infusion common stock. As a result, IBI became the majority shareholder of the Company, owning approximately 85.2% of the Company’s outstanding common stock as of the date of the Infusion Merger and 75% of Company’s outstanding common stock on a fully diluted basis. Pursuant to the terms of the Infusion Merger Agreement, the Company also agreed to increase the size of its board of directors from 5 to 7, to cause three of its existing directors to resign and to appoint 5 new persons, designated by IBI, to the Company board of directors. Kevin Harrington, Randolph Pohlman and Ronald C. Pruett, Jr. resigned from the Company’s board of directors and Robert DeCecco, Shadron Stastney, Dennis W. Healey, Mary Mather and Allen Clary were appointed to the Company’s board of directors. Mr. Clary subsequently resigned in June 2014. Following these actions, the Company’s board of directors is now comprised of Mr. DeCecco, chairperson, Kevin A. Richardson, II, Greg Adams, Mr. Stastney, Mr. Healey and Ms. Mather.

Each of Ms. Mather and Messrs. DeCecco, and Stastney is party to an employment agreement with IBI, each of which was assigned to Infusion in connection with the Infusion Merger.

Under the Infusion Merger Agreement, the Company agreed to assume from Infusion all obligations for indebtedness for borrowed money of Infusion outstanding at the closing of the Infusion Merger and all agreements relating to that indebtedness. This indebtedness is primarily comprised of a Senior Secured Debenture issued to Vicis Capital Master Fund in the principal amount of $11,000,000, bearing interest at a rate of 6% until June 30, 2014, 9% from July 1, 2014 until June 30, 2015, and 12% from July 1, 2015 until the maturity date of June 30, 2016 (the “Senior Secured Debenture”). The Senior Secured Debenture is collateralized by all assets of the Company and guaranteed by each other Credit Party (as defined below), which guaranty will be collateralized by substantially all of the assets of those other Credit Parties. The Senior Secured Debenture is subject to customary covenants and events of default.

Pursuant to the terms of the Infusion Merger Agreement, IBI may require the Company to file a registration statement registering the resale of the shares of the Company’s common stock issued to IBI pursuant to the Infusion Merger. The Company has also agreed, at its cost and subject to certain limitations, to maintain the same level of director indemnification and insurance coverage as those in place for Infusion and IBI immediately prior to the Infusion Merger.



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The Infusion Merger transaction was accorded reverse merger accounting treatment under the provision of Financial Accounting Standards Board, Accounting Standards Codification (“FASB ASC”) 805, whereby Infusion became the accounting acquirer (legal acquiree) and the Company (As Seen On TV, Inc.) was treated as the accounting acquiree (legal acquirer). Accordingly, effective with the merger closing, the historical financial records of the Company are those of the accounting acquirer adjusted to reflect the legal capital of the accounting acquiree.

Infusion History and Business Summary

Infusion, formerly a wholly owned subsidiary of IBI, is a Nevada corporation organized in July 2008. IBI, currently our majority shareholder, is quoted on the Pink Sheets. Infusion is engaged in identifying affordable and demonstrable products to market through direct-to-consumer channels such as television infomercials, live shopping networks, and ecommerce channels. Its products are also sold through web sites operated by the live shopping networks that agree to carry its products and its own proprietary websites, such as www.infusionbrands.com and www.dualtools.com. Infusion’s principal product has been the DualSaw ™ with its patented counter rotating dual blade technology. Infusion has been operating at a loss since its inception.  

In addition, Infusion owns 100% of the membership interests of Ronco Funding LLC.  The sole assets of Ronco Funding LLC are a participation interest in the secured debt of Ronco Holdings, Inc. and an option to procure the remaining interest in such secured debt for an additional $2,350,000. Ronco Holdings is a Delaware company. Infusion also holds the right to designate the majority of the board of directors of Ronco Holdings. Its products include, but are not limited to the Showtime Rotisserie & BBQ, 5-Tray Electric Food Dehydrator, Veg-o-Matic, Smart Juicer and Pocket Fisherman. Due to the rights to the Ronco Holdings secured debt and control over the Ronco Holdings board of directors, for accounting purposes, Ronco Holdings is treated as a variable interest entity, and Infusion is the primary beneficiary.

As of April 2, 2014, the effective date of the merger, Infusion has 19 employees, all of which are full time, and Ronco Holdings has 15 employees, all of which are full time.

Note Purchase Agreement

Pursuant to a Senior Note Purchase Agreement dated as of April 3, 2014, by and among the Company, Infusion, eDiets.com, Inc., Tru Hair, Inc., TV Goods Holding Corporation, Ronco Funding LLC (collectively, the “Credit Parties”), and MIG7 Infusion, LLC (“MIG7” and such agreement, the “Note Purchase Agreement”), the Credit Parties sold to MIG7 a senior secured note having a principal amount of $10,180,000 bearing interest at 14% and having a maturity date of April 3, 2015 (the “MIG7 Note”). The MIG7 Note is subject to automatic extension for an additional 180-day period in the event that the Credit Parties have requested such extension in writing at least 60 days prior to the original maturity date, no event of default under the Note Purchase Agreement is then in existence, and the Company’s consolidated revenues, as determined in accordance with generally accepted accounting principles, and EBITDA for the 12 months immediately preceding the request equal or exceed $39,000,000 and $6,000,000, respectively. During such extension the MIG7 Note would bear interest at a rate of 15.5%. Funding of the amounts borrowed under the MIG7 Note was made in two tranches, with the first funding of $7,400,000 occurring on April 3, 2014, and the second funding, which resulted in funding of an aggregate gross amount of $10,180,000 under the Note Purchase Agreement, occurring on May 1, 2014.

Under the Note Purchase Agreement, MIG7 is entitled to two board observer seats on each Credit Party’s board of directors, and, upon the written request of MIG7, to the nomination of two individuals selected by MIG7 for election to the board of directors of each Credit Party as full voting members of such boards.

Under the Note Purchase Agreement, the Company also issued a warrant to purchase 4.99% of the common stock of the Company on a fully diluted basis, on the date of exercise, to MIG7 Warrant, LLC, an affiliate of MIG7, at any time on or before the maturity date of the Note at an exercise price of $0.001 per share. As of June 16, 2014, the warrant was exercisable to purchase up to 30,136,713 shares of common stock. The warrant expires on May 1, 2015, unless extended an additional six months in the event the MIG7 Note is extended.

The Note Purchase Agreement contains a number of covenants restricting, among other things, dividends, liens, redemptions of securities, debt, mergers and acquisitions, asset sales, transactions with affiliates, capital expenditures, and prepayments and modifications of subordinated debt instruments. The Note Purchase Agreement contains customary events of default as well as events of default for failing to achieve certain targets for consolidated revenues and consolidated EBITDA for the 2014 and 2015 calendar years. Among other remedies, upon an event of default MIG7 would be entitled to sweep and retain 65% of all cash deposited in the operating account of the Company until all obligations owing to MIG7 are paid in full.



2



 


The obligations of the Credit Parties under the Note are collateralized by substantially all of their respective assets under a Security Agreement between the Credit Parties and MIG7 and the Company has agreed to pledge the stock of all other Credit Parties that are corporations under a Pledge Agreement.

In connection with the Note Purchase Agreement and the transactions contemplated thereby, the Credit Parties, MIG7, and Vicis Capital Master Fund entered into an intercreditor agreement pursuant to which MIG7, and Vicis Capital Master Fund agreed among other matters to share priority under and allocation of amounts owing to each of them under the Senior Secured Debenture held by Vicis Capital Master Fund and under the MIG7 Note.

ASTV segment

ASTV generates revenues primarily from three channels: direct response sales of consumer products, sale of consumer products through a “live-shop” TV venue and ownership of the url, AsSeenOnTV.com, which operates as a web based outlet for our Company and other direct response businesses.

Inventors and entrepreneurs submit products or business concepts for our review. Once we identify a suitable product or concept, we negotiate to obtain marketing and distribution rights. These marketing and distribution agreements stipulate profit sharing, typically in the form of a royalty to the inventor or product owner. As of the date of this Annual Report on Form 10-K, we have marketed several products with limited success.

Industry

Direct response marketing is a form of marketing designed to solicit a direct response which is specific and quantifiable. The delivery of the response is direct between the viewer and the advertiser, as the customer responds to the marketer directly. In direct response marketing, marketers use broadcast media to get customers to contact them directly. Cable networks represent the traditional conduit for direct response television programming. Historically, direct response television programming has aired on cable networks during off-peak periods. The deregulation of the cable television industry in 1984 and the resulting proliferation of channels dedicated to particular demographic units, pursuits or lifestyles have created additional opportunities for direct response programming. We believe the continued growth of satellite and cable subscribers has positioned direct response television as an effective marketing channel with significant domestic and international growth prospects.

The leading product categories for direct response television programs include:

·

cosmetics,

·

fitness/exercise products,

·

diet/nutrition products,

·

kitchen tools and appliances,

·

self-improvement/education/motivation courses, and

·

music and home videos/DVDs.

Typically direct response television programs incorporate an infomercial in either short form (30 seconds to five minutes) or long form (approximately 30 minutes) direct response programs. The formats discuss and demonstrate products and provide a toll-free number or website for viewers to purchase. Direct response television marketing can create rapid customer awareness and brand loyalty.

As the industry has developed, the variety of products and services promoted through direct response television programs has steadily increased. Direct response television programs are now routinely used to introduce new products, drive retail traffic, schedule demonstrations and build product and brand awareness for products ranging from automobiles to mutual funds.

Recent years have also seen a convergence of direct response television programs with Internet direct response marketing. Virtually all direct response television programs now display a website in addition to a toll-free telephone number. The addition of an ecommerce component can enhance sales. We believe the principal competitive factors include authenticity of information, unique content and distinctiveness and quality of product, brand recognition and price.



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Product development and marketing

We provide resources to develop consumer products from initial concepts to global distribution. We do not manufacture products. We solicit product submissions through numerous sources including inventors, product owners, design companies, manufacturers, advertising and media agencies, production houses, and trade shows. We employ internal methodology utilizing several selection criteria to evaluate product submissions. Each product is graded on its internal system; points are awarded for various factors such as product design, application, target market, retail price, competitive products, and proprietary nature of the product. The selection process may include market tests in which the potential market demand for a product is quantified on the basis of its performance in certain test markets. Upon our acceptance, we attempt to negotiate exclusive marketing rights.

We design, create and produce direct response marketing campaigns primarily in the form of infomercial programming. We seek to maintain a low cost structure. We do not incur any expense for product research and development (excluding costs associated with our selection and testing process). We internally perform product testing, marketing development, media buying and direct response television production and outsource to third parties functions such as manufacturing, order processing and fulfillment. While there are no guarantees that a product will be successful, we believe that this allows us to reduce our risk by controlling variable costs.

We believe media exposure of a direct response television campaign can reduce barriers to gain access to retail outlets which can increase profitability for a consumer product. Viable consumer products possess customer awareness and brand loyalty. We seek to extend product lifecycles through other distribution channels such as home shopping channels and retail outlets. Thereafter, we seek to penetrate retail outlets which include the Internet, retail, catalog, radio and print.

Supply and distribution

We typically work with third party distributors, suppliers and manufactures on a per order basis. In the event that a manufacturer is unable to meet supply or manufacturing requirements at some time in the future, we may suffer short-term interruptions of delivery of certain products while we establish an alternative source. In most cases, alternative sources are readily available and we have established working relationships with several third party distributors, suppliers and manufacturers. We also rely on third party carriers for product shipments, including shipments to and from distribution facilities.

We have a contractual arrangement with a third party, Delivery Agent, LLC, under which Delivery Agent, LLC manages and fulfills all sales that take place over the internet of third party products on our website AsSeenOnTV.com. Under that arrangement, we do not recognize the total revenue from the transaction but rather Delivery Agent, LLC, pays us a fee calculated as a percentage of net product sales, defined as total sales of products and Orders On Demand (OOD) offers on the website, less amounts attributable to returns. In the direct response industry, purchased items are generally returnable for a certain period of time after purchase. We believe that our return experience is within the customary range for the direct response industry.

eDiets segment

eDiets develops and markets Internet-based diet and fitness programs primarily through the url eDiets.com. eDiets also offered, through September 2013, a subscription-based nationwide weight loss oriented meal delivery service. Digital diet plans are personalized according to an individual’s weight goals, food and cooking preferences, and include the related shopping lists and recipes. eDiets offers a variety of different digital diet plans, including internally developed plans and online personalized meal plans.

In addition to a digital diet plan, subscribers receive access to support offerings including interactive online information, communities and education as well as telephone and online support. Substantially all digital subscribers purchase programs via credit/debit cards, with renewals billed automatically on a monthly basis, until cancellation. eDiets also offers message boards on various topics of interest to its subscribers, online meetings presented by a dietitian and customer service representatives.



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Industry

The weight loss industry in the U.S. is large and continues to grow. According to Marketdata Enterprises, Inc. in a 2011 report, eDiets’ particular segment, the online dieting market, was estimated to grow from approximately $990.0 million in 2010 to $1.2 billion in 2014. We believe the growing population of overweight and obese people who are motivated by both an increasing awareness of the health benefits of weight loss and the desire to improve their lives is driving the growth of weight-loss solutions. We also believe eDiets’ comprehensive and integrated digital weight-loss offerings provides eDiets with the products to well service this expanding market.

Marketing

eDiets advertises on its websites and in its email newsletters. Over the last few years eDiets’ cost to acquire subscribers through banner advertisements on the major online portals has risen as a result of rapidly rising online advertising rates. eDiets has responded by shifting an increasing percentage of its advertising budget to web-based ventures and paid search programs. eDiets typically experiences its weakest conversion rates during the fourth calendar quarter due to the November and December holiday season, and it moderates its advertising expenditures accordingly.

Competition

The direct response marketing industry is a large, fragmented and competitive industry. The United States direct response marketing industry has a diverse set of channels, including direct mail, telemarketing, television, radio, newspaper, magazines and others. The list of market leaders fluctuates constantly. Companies marketing popular products dominate the airwaves and control media time. Furthermore, established brick-and-mortar retail competitors have recently made efforts to sell products through direct response marketing channels. Several competitors, including All Star Marketing Group, Telebrand Corp. and Hampton Direct, Inc. are significantly larger and have greater financial resources than we do and may be able to devote greater resources for the development and promotion of their services and products. We believe the principal competitive factors include authenticity of information, unique content and distinctiveness and quality of product, brand recognition and price.

The eDiets segment faces significant competition. Its most significant competitor is www.weightwatchers.com, which is owned by Weight Watchers® International. eDiets also competes with privately-held Waterfront Media, Inc., which operates a variety of diet and self-help-oriented websites including www.southbeachdiet.com, and with the WebMD® Weight Loss Center operated by WebMD, Inc. Many of eDiets’ competitors are significantly larger and have greater financial resources than we do and may be able to devote greater resources for the development and promotion of their services and products. eDiets mainly competes in the areas of program efficacy, price, customer service and brand recognition.

Intellectual property

Our success depends on the goodwill associated with our trademarks and other proprietary intellectual property rights. We attempt to protect our intellectual property and proprietary rights through a combination of trademark, copyright and patent law, trade secret protection and confidentiality agreements with our employees and marketing and advertising partners. We pursue the registration of our domain names, trademarks and service marks and patents in the United States and abroad.

We have received U.S. trademark registration with the United States Patent and Trademark Office (the USPTO) for U.S. trademarks for “TV Goods” and PITCH TANK®.

A substantial amount of uncertainty exists concerning the application of the intellectual property laws to the Internet and there can be no assurance that existing laws provide adequate protection of proprietary intellectual property. The steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate copyrights, trademarks, service marks and similar proprietary rights.

In addition to www.astvinc.com, www.asseenontv.com, www.ediets.com, www.infusionbrands.com, www.ronco.com and www.dualtools.com we own multiple domain names that we may or may not operate in the future. However, as with phone numbers, we do not have and cannot acquire any property rights in an Internet address. The regulation of domain names in the United States and in other countries is also subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business.



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Government regulation

There is an increasing number of laws and regulations being promulgated by the United States government, governments of individual states and governments overseas that pertain to the Internet and doing business online. In addition, a number of legislative and regulatory proposals are under consideration by federal, state, local and foreign governments and agencies. Laws or regulations have been or may be adopted with respect to the Internet relating to:

·

liability for information retrieved from or transmitted over the Internet;

·

online content regulation;

·

commercial e-mail;

·

visitor privacy; and

·

taxation and quality of products and services.

Moreover, the applicability to the Internet of existing laws governing issues such as:

·

intellectual property ownership and infringement;

·

consumer protection;

·

obscenity;

·

defamation;

·

employment and labor;

·

the protection of minors;

·

health information; and

·

personal privacy and the use of personally identifiable information.

The Federal Trade Commission (“FTC”) has adopted regulations and guidelines regarding the collection and use of personally identifiable consumer information obtained from individuals when accessing websites, with particular emphasis on access by minors. Such regulations include requirements that companies establish certain procedures to, among other things:

·

give adequate notice to consumers regarding the type of information collected and disclosure practices;

·

provide consumers with the ability to have personally identifiable information deleted from a company’s database;

·

provide consumers with access to their personal information and with the ability to rectify inaccurate information;

·

notify consumers of changes to policy and procedure for the use of personally identifiable information;

·

clearly identify affiliations with third parties that may collect information or sponsor activities on a company’s website; and

·

obtain express parental consent prior to collecting and using personal identifying information obtained from children under 13 years of age.

These regulations also include enforcement and redress provisions. We have implemented programs designed to enhance the protection of the privacy of our visitors and comply with these regulations. However, the FTC’s regulatory and enforcement efforts may adversely affect its ability to collect personal information from visitors and customers and therefore limit its marketing efforts.

Due to the global nature of the Internet, it is possible that, although transmissions by our Company over the Internet originate primarily in the United States, the governments of other foreign countries might attempt to regulate our transmissions or prosecute us for violations of their laws. In the future, these laws may be modified or new laws may be enacted. We may unintentionally violate these laws to the extent that our transmissions are sent to or made available in these jurisdictions. Like domestic regulations that may apply to our activities, even if compliance is possible the cost of compliance may be burdensome. Any of these developments could cause our business to suffer. In addition, as our services are available over the Internet in multiple states and foreign countries, these jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each state or foreign country. The failure by us to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties and could result in our inability to enforce contracts in such jurisdictions.



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This area is uncertain and developing. Any new legislation or regulation or the application or interpretation of existing laws may have an adverse effect on our business. Even if our activities are not restricted by any new legislation, the cost of compliance may become burdensome, especially as different jurisdictions adopt different approaches to regulation.

In addition, each of our segments are subject to particular government regulation specific to its business as described below.

ASTV segment

ASTV’s business is subject to a number of governmental regulations, including the Mail or Telephone Order Merchandise Rule and related regulations of the FTC. These regulations prohibit unfair methods of competition and unfair or deceptive acts or practices in connection with mail and telephone order sales and require sellers of mail and telephone order merchandise to conform to certain rules of conduct with respect to shipping dates and shipping delays. We are also subject to regulations of the U.S. Postal Service and various state and local consumer protection agencies relating to matters such as advertising, order solicitation, shipment deadlines and customer refunds and returns. In addition, imported merchandise is subject to import and customs duties and, in some cases, import quotas.

eDiets segment

Content may be accessed on eDiets’ website and this content may be downloaded by visitors and subsequently transmitted to others over the Internet. This could result in claims made against us based on a variety of theories, including, but not limited to, tort, contract and intellectual property violations. We could also be exposed to liability with respect to content that may be posted by visitors. It is also possible that if any information contains errors or false or misleading information or statements, third parties could make claims against us for losses incurred in reliance upon such information. In addition, eDiets may be subject to claims alleging that, by directly or indirectly providing links to other websites, eDiets is liable in tort, contract or intellectual property, for the wrongful actions of third party website operators. The Communications Decency Act of 1996, as amended, provides that, under certain circumstances, a provider of Internet services shall not be treated as a publisher or speaker of any information provided by a third-party content provider. This safe harbor has been interpreted to exempt certain activities of providers of Internet services. However, as a result of certain of eDiets’ activities, we may be prevented from being able to take advantage of this safe harbor provision. Any claims brought against us in this respect may have a material and adverse effect on our business.

The FTC and certain states’ regulatory authorities regulate advertising and consumer matters such as unfair and deceptive trade practices. The FTC renewed its focus on claims made in weight-loss advertisements, announcing, for example, guidelines effective December 2009 concerning the use of endorsements and testimonials in advertising. In addition, the State of Florida, where our corporate offices are located, regulates certain marketing and disclosure requirements for weight loss providers. The nature of eDiets’ interactive Internet activities may subject us to similar legislation in a number of other states. Although we intend to conduct our operations in compliance with applicable regulatory requirements and regularly review our operations to verify compliance, we cannot ensure that aspects of our operations will not be reviewed and challenged by the regulatory authorities and that if challenged that we would prevail. Furthermore, we cannot ensure that new laws or regulations governing weight loss and nutrition services providers will not be enacted, or existing laws or regulations interpreted or implied in the future in such way as to cause harm to our business.

eDiets relies to varying degrees on online advertising and e-mail in its marketing efforts. The use of e-mail advertising may become less effective in the future for a number of reasons. Some of these reasons are regulatory, as legislators attempt to address problems related to perceived deceptive practices in unsolicited bulk e-mails. For example, the Federal CAN-SPAM Act of 2003, which became effective January 1, 2004, places requirements on certain commercial e-mail activity relating to, among other things, making conspicuous and effective opt-out procedures available to the recipient and the identification and location of the sender. eDiets has implemented procedures to ensure compliance with the Federal CAN-SPAM Act of 2003, but future legislation or regulatory developments under existing laws may have a negative impact on our ability to advertise by e-mail. E-mail advertising also may become less effective in the future for non-regulatory reasons, including the sheer volume of unsolicited e-mail being received, increased use of “white lists” through which only pre-approved sender addresses are not filtered, and other e-mail filtering systems which may become more robust in response to recent viruses and worms circulating on the Internet.



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Furthermore, we cannot provide any assurance that future regulation of commercial e-mail will not also impose significant costs or restrictions on even subscriber-based or “opt-in” e-mail services such as the eDiets newsletter service. As part of the public debate on commercial e-mail regulations, for example, some have advocated an electronic stamp program applicable to commercial e-mail generally, and it is unclear what exceptions, if any, there would be under such a program for a periodic newsletter service such as ours if such a program were passed as legislation.

Employees

At June 15, 2014, we employed 30 full-time employees of which 5 are senior management. We believe that we maintain a satisfactory working relationship with our employees and have not experienced any labor disputes or any difficulty in recruiting staff for operations.

Our history

We are a Florida corporation organized in November 2006. On May 28, 2010, we completed an Agreement and Plan of Merger with TV Goods Holding Corporation, a Florida corporation (“TV Goods”) and our wholly owned subsidiary, TV Goods Acquisition, Inc. (“Acquisition Sub”), pursuant to which TV Goods merged with Acquisition Sub and continues its business as a wholly owned subsidiary of our Company. The transaction was accorded reverse recapitalization accounting treatment under the provision of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 805 whereby TV Goods became the accounting acquirer (legal acquiree) and our Company was treated as the accounting acquiree (legal acquirer).

On May 27, 2011, we entered into a binding letter agreement with Seen on TV, LLC, an unaffiliated Nevada limited liability company, and Ms. Mary Beth Gearhart (formerly Fasano), its President. The letter agreement provided that we would obtain ownership of certain Seen on TV intangible assets, primarily consisting of the domain names “asseenontv.com” and “seenontv.com”. Upon entering into the binding letter agreement, we issued 250,000 shares of our common stock, with a fair value of $500,000 on the contract date, and an initial cash payment of $25,000 to Ms. Gearhart. In addition, we granted warrants to purchase 50,000 shares of our common stock, initially exercisable at $7.00 per share, for a period of three years with a grant date fair value of $162,192. Further, we agreed to make five additional monthly payments of $5,000 to the seller and a $10,000 contribution to a designated charitable contribution, all of which payments were made. All payments made under the initial letter agreement, including the fair value of securities and an additional $7,000 paid to the UK for use of the URL “asseenontv.co.uk” totaled $729,450. On June 28, 2012, we finalized the asset purchase agreement with Seen on TV, LLC, agreeing to:

·

pay an additional $1,560,000 in cash,

·

issue an additional 250,000 shares of our common stock,

·

issue 250,000 common stock purchase warrants, exercisable at $0.64 per share for three years from issuance,

·

modifying the exercise price of the 50,000 common stock purchase warrants issued in May 2011 from $7.00 per share to $1.00 per share and extending their term, and

·

making five annual payments of $10,000 per year to a charitable organization designated by Seen on TV.

We agreed that until December 31, 2014, so long as Ms. Gearhart owns at least 250,000 shares of our common stock received under the purchase agreement, if we were to issue additional shares of common stock, Ms. Gearhart will be entitled to receive additional shares sufficient to maintain her proportional ownership in our Company. As a result of private placements of our securities that we completed in November 2012 and December 2012, the Company issued an additional 284,757 shares of common stock and as a result primarily of our acquisition of eDiets, we issued an additional 316,267 shares of common stock. Following the Infusion Merger Agreement, we issued an additional 7,113,375 shares under this provision.

On February 28, 2013, we acquired 100% of the outstanding stock of eDiets pursuant to the terms and conditions of the Agreement and Plan of Merger by and among our company, eDiets Acquisition Company, a Delaware corporation and wholly owned subsidiary of our Company, and eDiets.com, dated October 31, 2012 (the “eDiets Acquisition”). At closing, we issued an aggregate of 19,077,270 shares of our common stock, at the ratio of 1.2667 shares of our common stock for each outstanding share of eDiets’ common stock, to the eDiets’ shareholders. Following the closing, eDiets became a wholly owned subsidiary of our Company.



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The total purchase price for eDiets was approximately $15.1 million. The purchase price consisted of approximately (i) $2.4 million in cash, (ii) $11.1 million in the Company’s common stock, valued based on the closing price of the stock on February 28, 2013, (iii) $0.9 million representing the fair value of the Company’s options issued to eDiets’ employees and warrants issued to eDiets consultants, and (iv) assumed liability of $600,000 in principal and $92,057 of related accrued interest in eDiets notes payable to related parties converted into 988,654 shares of common stock at $0.70 per share in accordance with the agreement and 494,328 warrants of the Company. In accordance with accounting standards of business combinations, we accounted for the acquisition of eDiets under the acquisition method. Under the acquisition method, the acquired assets and liabilities assumed at the date of acquisition were recorded in the consolidated financial statements at their respective fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets had been recorded as goodwill. eDiets’ results of operations are included in our consolidated financial statements from the date of acquisition.

ITEM 1A.

RISK FACTORS.

Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this Annual Report on Form 10-K before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.

RISKS RELATED TO OUR BUSINESS

Our auditors have reported that there are substantial doubts as to our ability to continue as a going concern.

Our consolidated financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring losses from operations, which losses have caused an accumulated deficit of approximately $22.9 million as of March 31, 2014. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that we will continue to incur losses in future periods until we are successful in significantly increasing our revenues and/or reducing our operating expenses. There are no assurances that we will be able to raise our revenues to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we would be required to raise additional debt or equity financing. Such financing, if available, may dilute our shareholders’ ownership interest in our Company. If we raise capital in the future by issuing additional securities, shareholders may experience dilution and a decline in the value of their shares of our common stock.

There are no assurances we will realize the anticipated benefits of the acquisition of eDiets and Infusion.

In February 2013 we closed the eDiets Acquisition and in April 2014 we closed the Infusion Merger. The future success of these acquisitions will depend, in part, on our ability to realize the anticipated growth opportunities and synergies from combining ASTV, eDiets and Infusion. We are in the early stages of integrating Infusion’s operations into our historical operations. The integration of the three companies will be a time consuming and expensive process and may disrupt our operations if it is not completed in a timely and efficient manner. In addition, we may not achieve anticipated synergies or other benefits of the mergers. The combined company may encounter the following difficulties, costs and delays involved in integrating these operations:

·

failure to integrate the three companies’ businesses and operations;

·

failure to successfully manage relationships with customers and other important relationships;

·

failure of customers to continue using the services of the combined company;

·

difficulties in successfully integrating the management teams and employees of our company and Infusion;

·

challenges encountered in managing larger operations;

·

the loss of key employees;

·

failure to manage the growth and growth strategies of both companies;

·

diversion of the attention of management from other ongoing business concerns;

·

potential incompatibility of technologies and systems;

·

potential impairment charges incurred to write down the carrying amount of intangible assets generated as a result of the mergers; and

·

potential incompatibility of business cultures.



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If the combined company’s operations after the mergers do not meet the expectations of the customers of our companies before the mergers, then these customers may cease doing business with the combined company altogether, which would harm our results of operations and financial condition. If the management team is not able to develop strategies and implement a business plan that successfully addresses these difficulties, we may not realize the anticipated benefits of the merger. In particular, we are likely to realize lower earnings per share, which may have an adverse impact on our Company and the market price of our common stock.

We may never achieve or sustain profitability.

We may continue to incur losses as we attempt to develop and expand our operations and to market and sell our products. We entered into the mergers with eDiets and Infusion in part because of expected synergies with these companies, including operating a larger entity with greater critical mass of direct response marketing which could reduce the media buying pricing for the combined company and lower expenses due to an elimination in certain duplicate administrative costs, such as finance, legal, and marketing. There are no assurances; however, these expected cost savings will materialize. While we expect that our revenues will increase following the merger with Infusion as a result of consolidating that company’s results of operations with ours, because of the uncertainty regarding the scope of increased revenues and expected cost savings, there are no assurances that we will ever achieve or sustain profitability.

We have reported operational losses since inception, eDiets, Infusion and Ronco have histories of losses, and we cannot anticipate with any degree of certainty what our revenues will be in future periods.

At March 31, 2014, we had a cash balance of approximately $5,000 and a working capital deficit of $2.9 million. Even if we are able to substantially increase revenues and reduce operating expenses following the Infusion Merger, we may need to raise additional capital. In order to continue operating, the combined company may need to obtain additional financing, either through borrowings, public offerings, private offerings, or some type of business combination, such as a merger, or buyout, and there can be no assurance that we will be successful in such pursuits. In the past, we have actively pursued a variety of funding sources including private offerings and have consummated certain transactions in order to address their respective capital requirements. However, we may be unable to acquire the additional funding necessary to continue operating. Accordingly, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell one or more lines of business or all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.

We have $10,180,000 principal amount MIG7 Note which matures on April 3, 2015, unless extended for an additional 180-day period, and we may not have available capital to satisfy such note when it becomes due.

The MIG7 Note is collateralized by all of our assets. We currently do not have sufficient cash to satisfy the note when it becomes due and there are no assurances we will be able to raise the funds if necessary.

Our contractual arrangements with Ronco Holdings, LLC may not be as effective in providing control over Ronco Holdings as direct ownership.


We have no equity ownership interest in Ronco Holdings, as we hold a participation interest in the secured debt of Ronco Holdings and an option to procure the remaining interest in such secured debt for an additional $2,350,000. While we also hold the right to designate the majority of the board of directors of Ronco Holdings, these arrangements may not be as effective in providing control over Ronco Holdings as direct ownership. In addition, we cannot assure you that Ronco Holdings management and shareholders would always act in our best interests.


We have to satisfy registration rights provisions under a 2010 Private Placement and we are obligated to make pro rata payments to the subscribers of the 2010 Private Placement in an amount equal to the aggregate amount of $156,000.

Under the terms of a private placement conducted in 2010, we provided that we would use our best reasonable effort to cause a registration statement to become effective within 180 days of the termination date of the offering. We failed to comply with the registration rights provision and are obligated to make pro rata payments to the subscribers under the private placement in an amount equal to the aggregate amount of $156,000. The payment of this amount remains due and, when paid, will reduce our available cash and could adversely impact funds available for operations.



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Our operations are subject to the general risks of the direct response television industry including product liability claims, the amounts of which could exceed our insurance coverage.

Our operations could be impacted by both genuine and fictitious claims regarding products we market. Although primarily all of the consumer products we market are not our property, we could potentially suffer losses from a significant product liability judgment against us. Any such significant product liability judgment could also result in a loss of consumer confidence in our products as well as an actual or perceived loss of value of our brand, materially impacting consumer demand. Although we carry a limited amount of product liability insurance, the amount of liability from product liability claims may exceed the amount of any insurance proceeds received by us. If we should be required to pay a product liability claim in excess of our insurance coverage, our working capital would be adversely impacted in future periods.

Our business would be harmed if manufacturers and service providers are unable to deliver products or provide services in a timely and cost effective manner, or if we are unable to timely fulfill orders.

We do not have any long-term contracts with manufacturers, suppliers or other service providers for our products. We do not produce or manufacture the products we market, and we utilizes third party companies to fulfill consumer orders and provide telemarketing services. If any manufacturer or supplier is unable, either temporarily or permanently, to manufacture or deliver products or provide services to us in a timely and cost effective manner, it could have an adverse effect on our financial condition and results of operations. Our ability to provide effective customer service and efficiently fulfill orders for merchandise depends, to a large degree, on the efficient and uninterrupted operation of the manufacturing and related call centers, distribution centers, and management information systems run by third parties. Any material disruption or slowdown in manufacturing, order processing or fulfillment systems resulting from strikes or labor disputes, telephone down times, electrical outages, mechanical problems, human error or accidents, fire, natural disasters, adverse weather conditions or comparable events could cause delays in our ability to receive and fulfill orders and may cause orders to be lost or to be shipped or delivered late. As a result, these disruptions could adversely affect our financial condition or results of operations in future periods.

We are not affiliated with any of the “As Seen On TV” or “Seen On TV” retail stores and “As Seen On TV” and “Seen On TV” are not subject to trademark protection and therefore have been, and will continue to be used by third parties, including online and retail applications with no connections, nor benefits, to our Company.

We are not affiliated with any of the “As Seen On TV” or “Seen on TV” retail stores. While we rely on “As Seen On TV” and “Seen On TV” for name recognition and marketing, such terms are not subject to trademark registration or common law protection. Therefore, our competitors have, and will continue to use such terms in the market. The inability to register the terms may subject our Company to negative public perception in the event that one of our competitors sells or distributes a negatively received product under an “As Seen On TV” or “Seen On TV” label. Furthermore, the inability to register “As Seen On TV” or “Seen On TV” may prevent us from developing a unique brand that exclusively benefits our Company.

We may not be successful in finding or marketing new products. Our financial performance is dependent on the disproportionate success of a small group of products.

Our business, operations and financial performance depends on our ability to attract and market new products on a consistent basis. In the direct marketing industry, the average product life cycle varies from six months to four years, based on numerous factors, including competition, product features, distribution channels utilized, cost of goods sold and effectiveness of advertising. Less successful products have shorter life cycles. The majority of products are submitted by inventors. There can be no assurance that we will be successful in acquiring rights to quality products. We select new products based upon management’s expertise and limited market studies. As a result, we need to acquire the rights to quality products with sufficient margins and consumer appeal to justify the acquisition costs. There can be no assurance that chosen products will generate sufficient revenues to justify the acquisition and marketing costs. In addition, our business and results of operations is dependent on the disproportionate success of a small group of products, which we do not produce or manufacture. It is likely that the majority of the products we market may fail to generate significant revenues. Furthermore it is likely we will market more products which fail to generate significant revenues as opposed to products which generate significant revenues. Our sales and profitability has been in the past and will continue to be in the future adversely affected if we are unable to develop a sufficient number of successful products.



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We may not be able to respond in a timely and cost effective manner to changes in consumer preferences.

Our merchandise is subject to changing consumer preferences. A shift in consumer preferences away from the merchandise we offer would result in significantly reduced revenues. Our future success depends in part on our ability to anticipate and respond to changes in consumer preferences. Failure to anticipate and respond to changing consumer preferences in the products we market could lead to, among other things, lower sales of products, significant markdowns or write-offs of inventory, increased merchandise returns and lower margins. In addition, eDiets’ success depends, to a large degree, upon the continued popularity of its program versus various other weight loss, weight management and fitness regimens, such as low carbohydrate diets, appetite suppressants and diets featured in the published media. Changes in consumer tastes and preferences away from eDiets’ digital weight-loss programs, and any failure to provide innovative responses to these changes, may have a materially adverse impact on its revenues. If we are not successful in anticipating and responding to changes in consumer preferences, our results of operations in future periods will be materially adversely impacted.

eDiets depends heavily on its network infrastructure and its failure could result in unanticipated expenses and prevent subscribers from effectively utilizing services, which could negatively impact eDiets’ ability to attract and retain subscribers.

eDiets’ ability to successfully create and deliver its content depends in large part on the capacity, reliability and security of networking hardware, software and telecommunications infrastructure. Failures of network infrastructure could result in unanticipated expenses to address such failures and could prevent subscribers from effectively utilizing services, which could prevent eDiets from retaining and attracting subscribers. The hardware infrastructures on which the eDiets’ system operates are located in Chicago, Illinois and Lithia Springs, Georgia. eDiets does not currently have a formal disaster recovery plan. Its system is susceptible to natural and man-made disasters, including terrorism, earthquakes, fires, floods, power loss and vandalism. Further, telecommunications failures, computer viruses, electronic break-ins or other similar disruptive problems could adversely affect the operation of its systems. eDiets’ insurance policies may not adequately compensate us for any losses that may occur due to any damages or interruptions in its systems. Accordingly, we could incur capital expenditures in the event of unanticipated damage.

The unauthorized access of confidential member information that eDiets transmits over public networks could adversely affect its ability to attract and retain subscribers.

eDiets’ subscribers transmit confidential information to it over public networks, and the unauthorized access of such information by third parties could harm its reputation and significantly hinder its efforts to attract and retain subscribers. eDiets relies on a variety of security techniques and authentication technology licensed from third parties to provide the security and authentication technology to effect secure transmission of confidential information, including customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise or breach of the technology it uses to protect customer transaction data and adversely affect its ability to attract and retain customers.

eDiets may be subject to health-related claims from its customers which may negatively affect its business.

eDiets’ weight loss program does not include medical treatment or medical advice, and it does not engage physicians or nurses to monitor the progress of customers. Many people who are overweight suffer from other physical conditions, and target consumers could be considered a high-risk population. A customer who experiences health problems could allege or bring a lawsuit against eDiets on the basis that those problems were caused or worsened by participating in its weight management program. Defending against such claims, regardless of their merit and ultimate outcome, would likely be lengthy and costly, and adversely affect our results of operations and eDiets’ general liability insurance may not cover claims of these types.

RISKS RELATED TO OUR SECURITIES

Because the market for our common stock is limited, persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid for them.

Our common stock is quoted on the OTC Bulletin Board which is not a liquid market. There is currently only a limited public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may continue to decline.



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Because we are subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock which adversely affects its liquidity and market price.

The United States Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTC Bulletin Board has been substantially less than $5.00 per share and we do not meet any of the other rule exclusions, and therefore our common stock is currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. SEC regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

Due to factors beyond our control, the market price of our common stock price may be volatile.

Any of the following factors could affect the market price of our common stock:

·

failure to increase revenues in each succeeding quarter;

·

failure to achieve and maintain profitability;

·

the loss of distribution relationships;

·

the sale of a large amount of common stock by our shareholders;

·

announcement of a pending or completed acquisition or failure to complete a proposed acquisition;

·

adverse court ruling or regulatory action;

·

failure to meet financial analysts’ performance expectations;

·

changes in earnings or loss estimates and recommendations by financial analysts;

·

changes in market valuations of similar companies;

·

short selling activities;

·

announcement of a change in the direction of our business;

·

actual or anticipated variations in quarterly or in forecasted results of operations; or

·

announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.

Shares eligible for sale or convertible into shares in the future could negatively affect our stock price and dilute shareholders.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. This might also make it more difficult for us to raise funds through the issuance of securities. As we may also issue and/or register additional shares, options, or warrants in the future in connection with capital raising activities, acquisitions, compensation or otherwise, we cannot predict what effect, if any, market sales of shares held by any shareholder or the availability of these shares for future sale will have on the market price of our common stock.



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The exercise of the warrants and options will result in dilution to existing shareholders and could negatively affect the market price for our common stock.

At June 16, 2014, we had outstanding warrants to purchase an aggregate of 94,634,234 shares of common stock exercisable at various prices and options to purchase an aggregate of 7,148,836 shares of common stock exercisable at various prices. As a result of the Infusion Merger Agreement, outstanding warrants include a warrant to purchase 30,136,173 shares as of June 16, 2014, representing 4.99% of the common stock of the Company on a fully diluted basis, on the date of exercise, at an exercise price of $0.001 per share. If all the warrants and options are exercised, based on 531,815,115 shares of common stock issued and outstanding on June 16, 2014, our issued and outstanding shares would increase by 19%. In the event that a liquid market for our common stock develops, of which there is no assurance, to the extent that holders of our warrants and options exercise such convertible securities, our existing shareholders will experience dilution to their ownership interest in our Company. In addition, to the extent that holders of convertible securities convert such securities and then sell the underlying shares of common stock in the open market, the market price of our common stock may decrease due to the additional shares in the market.

The purchase price protection features of our securities issued under its securities purchase agreement dated October 28, 2011 and November 14, 2012 could require us to issue a substantially greater number of shares of common stock, which will cause dilution to our shareholders.

Under a securities purchase agreement effective October 28, 2011 and securities purchase agreement effective November 14, 2012, purchasers may receive additional shares of common stock in the event we issue additional securities, at an effective price per share that is less than the initial issuance price of the shares under the respective securities purchase agreement. The warrants issued pursuant to the above referenced agreements also contain provisions entitling the holders of such warrants to cashless exercise rights in the event we fail to register the underlying shares of common stock at or prior to the time the warrants are exercised. In addition, if at any time while the warrants are outstanding we issue securities at an effective price per share less than the exercise price of the respective warrants, then, subject to certain exempt issuances, the exercise price of the warrants may be reduced to such discounted price.

The change in value of our derivative liabilities could have a material effect on our financial results in future periods.

In connection with recent financings, we have issued a significant number of warrants and other securities that, as a result of the terms of these warrants and other securities, each are considered a derivative liability under U.S. generally accepted accounting principles. At each of our financial reporting periods, we are required to determine the fair value of such derivatives and record the fair value adjustments as non-cash unrealized gains or losses. The share price of our common stock represents the primary underlying variable that impacts the value of the derivative instruments. Additional factors that impact the value of the derivative instruments include the volatility of our stock price, our credit rating, discount rates, and stated interest rates. Due to the volatile nature of our share price, we expect that we will recognize non-cash gains or losses on its derivative instruments each reporting period and that the amount of such non-cash gains or losses could be material.

Provisions of our articles of incorporation and bylaws may delay or prevent a take-over which may not be in the best interests of our shareholders.

Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our shareholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Florida Business Corporations Act also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested shareholders. Further, our articles of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors in their sole discretion. Our board may, without shareholder approval, issue shares of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

Not applicable to a smaller reporting company.



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ITEM 2.

PROPERTY.

Our corporate offices are located in Clearwater, Florida. This location is approximately 10,500 square feet which includes approximately 5,000 square feet of studio production space. On February 1, 2012, we entered into a new 36-month lease agreement on our existing headquarters facility. Terms of the lease provided for a base rent payment of $7,875 per month for the first 12 months, increasing 3% per year thereafter. On August 23, 2013, the lease on our headquarters facility was amended, decreasing our base rent payments to $5,688 per month and extending the term of the lease through January 31, 2018. The amended lease further provides for annual increases in the base rent commencing February 1, 2015, based on the Consumer Price Index of the immediately preceding calendar year but in no event less than 3% per annum. The lease contains no provisions for a change in the base rent based on future events or contingent occurrences. This location is sufficient to support current and anticipated operations.

ITEM 3.

LEGAL PROCEEDINGS.

From time to time, we are periodically a party to or otherwise involved in legal proceedings arising in the normal and ordinary course of business. As of the date of this report, except as otherwise disclosed below, we are not aware of any other proceeding, threatened or pending, against us which, if determined adversely, would have a material effect on our business, results of operations, cash flows or financial position.

Subsequent to the period covered by this report, on or about June 13, 2014, the Company became aware of a former director of the Company filing a complaint in the U.S. District Court in the Eastern District of Pennsylvania, styled Michael Cimino v. As Seen On TV, Inc., Steven A. Rogai and Ronald C. Pruett, Jr., Case No. 2:14-cv-03461-GAM, alleging that the Company breached certain settlement and equity compensation matters relating to the director’s resignation from the Company in 2011. The complaint also names the Company’s former chief executive officers as defendants. The plaintiff is seeking approximately $3.5 million in damages, pre and post judgment interest, attorneys’ fees, together with an unspecified amount of punitive damages. The Company, based on its preliminary review, believes that the claims are without merit. In addition, as the Company has not yet been served in this matter, it has not determined the potential liability associated with the claims, if any. In the event the plaintiff takes any further steps to prosecute the lawsuit, the Company intends to retain counsel and vigorously defend the action.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable to our Company.



15



 


PART II

ITEM 5.

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

Our common stock is quoted in the OTC Bulletin Board under the symbol “ASTV.” The reported high and low last sales prices for the common stock are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

 

 

High

 

 

Low

 

Fiscal 2013

 

 

 

 

 

 

First quarter ended June 30, 2012

 

$

1.15

 

 

$

0.60

 

Second quarter ended September 30, 2012

 

$

1.05

 

 

$

0.65

 

Third quarter ended December 31, 2012

 

$

0.80

 

 

$

0.65

 

Fourth quarter ended March 31, 2013

 

$

0.74

 

 

$

0.30

 

Fiscal 2014

 

 

 

 

 

 

 

 

First quarter ended June 30, 2013

 

$

0.40

 

 

$

0.30

 

Second quarter ended September 30, 2013

 

$

0.30

 

 

$

0.12

 

Third quarter ended December 31, 2013

 

$

0.15

 

 

$

0.07

 

Fourth quarter ended March 31, 2014

 

$

0.08

 

 

$

0.05

 

Fiscal 2015

 

 

 

 

 

 

 

 

First quarter ended June 30, 2014

 

$

0.11

 

 

$

0.06

 


Holders

The last sale price of our common stock as reported on the OTC Bulletin Board on June 16, 2014 was $0.07 per share. As of June 16, 2014, there were approximately 500 record owners of our common stock.

Securities Authorized for Issuance Under Equity Compensation Plans

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.”

Dividend Policy

We have never paid cash dividends on our common stock. Payment of dividends will be within the sole discretion of our board and will depend, among other factors, upon our earnings, capital requirements and our operating and financial condition. In addition, under Florida law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Florida statutes, or if there is no such surplus, out of our net profits for the year in which the dividend is declared and/or the preceding year. If, however, the capital of our Company computed in accordance with the relevant Florida statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired. We have no present intention to pay any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

Except as previously disclosed in reports file with the SEC, we have not sold any unregistered equity securities during the period covered by this Annual Report on Form 10-K.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6.

SELECTED FINANCIAL DATA.

Not applicable to a smaller reporting company.



16



 


ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations for fiscal 2014 and fiscal 2013 should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including, but not limited to, those set forth under “Item 1A. Risk Factors”, “Cautionary Statement Regarding Forward-Looking Information” and “Business” sections in this Annual Report on Form 10-K. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

As Seen On TV, Inc. is a direct response and retail marketing company and owner of AsSeenOnTV.com, eDiets.com, and effective April 2, 2014, Infusion Brands, Inc. We identify, develop and market consumer products for global distribution via TV, Internet and retail channels. In February 2013 we acquired eDiets.com, Inc. and following this transaction our business is organized along two segments. The ASTV segment is a direct response marketing company that identifies and advises in the development and marketing of consumer products. The eDiets segment is a subscription-based nationwide weight-loss oriented digital subscription service.

Although the Company made the decision to divest its dietary meal component in September 2013, when considering the acquisition of eDiets, we believed that the combination could create a stronger, more scalable business and facilitate our strategic objective of becoming one of the top providers of ecommerce products and solutions.

Subsequent to the period covered by this report, on April 2, 2014, the Company entered into the Infusion Merger Agreement with IBI, Infusion, and ASTV Merger Sub, Inc. Effective April 2, 2014. ASTV Merger Sub, Inc. merged with and into Infusion, with Infusion continuing as the surviving corporation and becoming a direct wholly owned subsidiary of the Company.

Pursuant to the terms of the Infusion Merger Agreement the Company issued to IBI 452,960,490 shares of its common stock in exchange for all of the outstanding shares of Infusion common stock. As a result, IBI became the majority shareholder of the Company, owning approximately 85.2% of the Company’s outstanding common stock as of the date of the Infusion Merger and 75% of Company’s outstanding common stock on a fully diluted basis.

The Infusion merger transaction will be treated as a reverse merger under the acquisition method in accordance with the provisions of FASB ASC – Business Combinations, whereby Infusion will be the accounting acquirer (legal acquiree) and the Company (As Seen On TV, Inc.) the accounting acquiree (legal acquirer). Accordingly, effective with the merger closing, the historical financial records of the Company are those of the accounting acquirer, adjusted to reflect the legal capital of the accounting acquiree.

Infusion is an international consumer brands products company that creates, designs, distributes and sells consumer products through international distribution channels. Infusion products include a line of Do It Yourself (“DIY”) innovative power tools marketed under the DualTool® brand, which includes innovative saws, drills, sanders and polishers to the growing DIY consumer market and a growing line of cleaning products under the DOC brand. In addition, under the well-recognized Ronco® brand, the Company markets an extensive line of household consumer products, primarily through Direct Response (“DR”) channels, including the Pocket Fisherman, Showtime Rotisserie, Veg-O-Matic and Smart Juicer, among others.

Infusion and Ronco intend to continue to expand their marketing efforts targeting traditional established DIY and home goods retail outlets in the US and internationally as well as TV and print media.

Management believes that the acquisition of Infusion, with their international distribution channels and expanding product lines, could significantly improve the Company’s operational results. Further, Infusion will be able to capitalize on the Company’s ecommerce platforms already in place which we believe have been significantly enhanced by our recent restructuring program.



17



 


Since the closing of the acquisitions of eDiets and Infusion, we have undertaken extensive internal changes which we believe, when completed, will enable us to operate as a combined organization, utilizing common information and communication systems, operating procedures, financial controls and human resources practices. Those changes include a significant reduction in personnel and an enhanced emphasis brought about in part through the divestiture of our meal delivery service in our second fiscal quarter allowing the Company to better focus our limited resources on the eDiets digital subscription-based plans. In addition, we have directed significant Company resources to develop and deploy our ecommerce platforms on behalf of third parties, which we believe may prove more profitable for the Company. Under this structure, we would not recognize total revenue with sales transactions but rather a negotiated percentage of each transaction. This approach, if successful, would eliminate many costs and the administrative burden of purchasing and carrying inventories, while capitalizing on our ecommerce platforms and distribution potential already owned by the Company.

We believe this shift in focus to ecommerce based revenues could be accomplished principally through maximizing resources and assets already held by the Company. While we currently receive a royalty through our ownership of the url AsSeenOnTV.com, this outlet presents the opportunity to generate revenues from both referrals or the placement and distribution of our own products or products for which we will receive a licensing fee. Distribution of third party products through this channel provides us with the opportunity to expand revenues without a costly proportionate expansion of infrastructure, including support personal and inventory purchase and management costs.

In furtherance of our shift to focus to ecommerce platforms and to reduce operating expenses, on October 11, 2013, the Company completed the sale to Chefs Diet National Co., LLC (“Chef’s Diet”), a subsidiary of Chef’s Diet Corp., of certain assets (the “Meal Delivery Assets”) relating to the eDiets meal delivery business pursuant to an Asset Purchase and Revenue Sharing Agreement (the “Agreement”) dated August 23, 1013 between eDiets and Chef’s Diet. The disposed assets consist primarily of a customer database of active and inactive eDiets customers. In addition, eDiets granted Chef’s Diet a perpetual royalty-free license to content and certain other intellectual property used in connection with the eDiets meal delivery business. As a result of the sale of our Meal Delivery Assets component, the financial statements included in the Annual Report have been presented in accordance with the provisions of ASC 205-20 Discontinued Operations for all periods presented.

The base sales price of $1.1 million consisted of an initial cash payment of $200,000, which was collected prior to March 31, 2014, plus deferred cash payments totaling $900,000 payable as follows: (i) eight quarterly payments beginning January 1, 2014, in an amount equal to the greater of $56,250 or 7% of adjusted gross revenue for the immediately preceding period, and (ii) eight quarterly payments beginning January 1, 2016, in an amount equal to the greater of $56,250 or 5% of adjusted gross revenue for the immediately preceding period. In addition, Chef’s Diet will make up to four quarterly bonus payments of up to $50,000 each if it meets certain customer acquisition and retention targets. The elimination of our meal delivery program, while having a negative effect on revenues in the near term, has had, and is expected to have, a significant reduction in operating expenses. As a result of this divestiture, the meal delivery component of our dietary programs has been recorded as a discontinued operation in our condensed consolidated financial statements.

In connection with the Agreement, the Company retained a perpetual, nonexclusive, worldwide, royalty free right and license to use the Meal Delivery Assets in its business provided that it shall not utilize such assets to promote any fresh, frozen or prepared meal program, as defined.

We continue to face a number of challenges during fiscal 2015, including operating within the highly competitive industries, effectively responding to ever changing consumer preferences and completing our Infusion Brands and eDiets integrations. We may also need additional fundings to provide the resources necessary to continue in business and to realize the expected benefits of our initiatives. In light of the Company’s results from operations, the Company intends to continue to evaluate various possibilities, including: (i) raising additional capital through the issuance of common or preferred stock, securities convertible into common stock, or secured or unsecured debt, (ii) selling one or more lines of business, or all or a portion of the Company’s assets, (iii) entering into a business combination, and (iv) aggressively restructuring existing operations, including reducing or eliminating less promising operations or liquidating assets. These possibilities, to the extent available, may be on terms that result in significant dilution to the Company’s shareholders or that result in the Company’s shareholders losing all of their investment in the Company. There can be no assurance that the Company will be successful in effecting any of the above possibilities.



18



 


We reported a net loss of approximately $9.3 million for the fiscal year ended March 31, 2014. At March 31, 2014, we had a working capital deficit of approximately $2.9 million, an accumulated deficit of approximately $22.9 million and cash used in operations for the fiscal year ended March 31, 2014 of approximately $3 million. Subsequent to the period covered by this report, pursuant to a Senior Note Purchase Agreement dated as of April 3, 2014, by and among the Company, Infusion, eDiets.com, Inc., Tru Hair, Inc., TV Goods Holding Corporation, Ronco Funding LLC (collectively, the “Credit Parties”), and MIG7 Infusion, LLC (“MIG7” and such agreement, the “Note Purchase Agreement”), the Credit Parties sold to MIG7 a senior secured note having a principal amount of $10,180,000 bearing interest at 14% and having a maturity date of April 3, 2015 (the “MIG7 Note”). The MIG7 Note is subject to automatic extension for an additional 180-day period in the event that the Credit Parties have requested such extension in writing at least 60 days prior to the original maturity date, no event of default under the Note Purchase Agreement is then in existence, and the Company’s consolidated revenues, as determined in accordance with generally accepted accounting principles, and EBITDA for the 12 months immediately preceding the request equal or exceed $39,000,000 and $6,000,000, respectively. During such extension the MIG7 Note would bear interest at a rate of 15.5%. Funding of the amounts borrowed under the MIG7 Note was made in two tranches, with the first funding of $7,400,000 occurring on April 3, 2014, and the second funding, which resulted in funding of an aggregate gross amount of $10,180,000 under the Note Purchase Agreement, occurring on May 1, 2014.

Results of operations

The Company’s meal delivery operations were a component for our eDiets subsidiary which delivered fresh and frozen diet or wellness focused meals to our customers. Management believes the divestiture of this component, as described above, will allow the Company to streamline its operations and focus its limited dietary resources on ecommerce based platforms, which it believes is the future of the dietary and wellness industries.

For the fiscal year ended March 31, 2014, the Company’s discontinued meal delivery component had operational losses of $15,165,000. As a result of this divestiture, the Company recognized a non-cash charge of $14,631,000, including a write down of goodwill of $9,300,000 and $5,331,000 in identifiable intangible assets, resulting from the Company’s determination that it would not be able to recover the carrying value of its investment in this component and that it would not be able to recover the carrying value of its finite-lived intangible assets in this component and therefore recorded the related loss in discontinued operations. As a result of this impairment, the Company carries no remaining goodwill. No tangible assets or liabilities were transferred in the divestiture of the meal delivery component.

The results of operations for the meal delivery component has been reported as discontinued operations in the accompanying condensed consolidated financial statements for all periods presented. The following table summarizes the results of operations for the discontinued component:


 

Year Ended March 31,

 

 

2014

 

 

2013

 

Net sales

$

1,975,963

 

 

$

703,747

 

Operating (loss)

 

(1,812,507

)

 

 

(439,710

)

Asset sale

 

1,100,000

 

 

 

 

Impairment charge related to goodwill and finite-lived intangibles

 

(14,631,439

)

 

 

 

Other income

 

18,249

 

 

 

 

Income tax benefit (expense)

 

 

 

 

 

Loss from discontinued operations, net of taxes

$

(15,325,697

)

 

$

(439,710

)


Following our acquisition of eDiets.com completed February 28, 2013 we began reporting our operations in two segments. The ASTV segment is a direct response marketing company that identifies and advises in the development and marketing of consumer products. The eDiets segment is a subscription-based nationwide weight-loss oriented digital subscription service and, until our discontinuance of the meal delivery component in September 2013, provided dietary and wellness oriented meal delivery services. See Note 4.



19



 


The following tables reflect results of operations from our business segments for the years ended March 31, 2014 and 2013:

 

 

Year Ended March 31, 2014

 

 

 

ASTV

 

 

eDiets

 

 

Corporate

and other

 

 

Total

 

Revenues

 

$

1,224,245

 

 

$

761,350

 

 

$

 

 

$

1,985,595

 

Costs of revenues

 

 

1,250,249

 

 

 

91,280

 

 

 

 

 

 

1,341,529

 

Gross profit (loss)

 

 

(26,004

)

 

 

670,070

 

 

 

 

 

 

644,066

 

Gross profit (loss) %

 

 

(2%

)

 

 

88%

 

 

 

0%

 

 

 

32%

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocated operating expenses:

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

 

88,986

 

 

 

(20,185

)

 

 

 

 

 

68,801

 

General and administrative expenses

 

 

2,743,121

 

 

 

369,798

 

 

 

2,222,172

 

 

 

5,335,091

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(2,858,111

)

 

 

320,457

 

 

 

(2,222,172

)

 

 

(4,759,826

)

Revaluation of warrants and interest

 

 

(5,772

)

 

 

2,328

 

 

 

10,759,545

 

 

 

10,756,101

 

Loss from discontinued operations

 

 

 

 

 

(15,325,697

)

 

 

 

 

 

(15,325,697

)

Net income (loss) before taxes

 

$

(2,863,883

)

 

$

(15,002,912

)

 

$

8,537,373

 

 

$

(9,329,422

)


 

 

Year Ended March 31, 2013

 

 

 

ASTV

 

 

eDiets

 

 

Corporate

and other

 

 

Total

 

Revenues

 

$

9,313,213

 

 

$

90,545

 

 

$

 

 

$

9,403,758

 

Costs of revenues

 

 

6,979,898

 

 

 

342

 

 

 

 

 

 

6,980,240

 

Gross profit

 

 

2,333,315

 

 

 

90,203

 

 

 

 

 

 

2,423,518

 

Gross profit %

 

 

25%

 

 

 

100%

 

 

 

 

 

 

26%

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocated operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expense

 

 

3,969,177

 

 

 

(16,667

)

 

 

 

 

 

3,952,510

 

General and administrative expenses

 

 

5,224,123

 

 

 

61,642

 

 

 

1,493,452

 

 

 

6,779,217

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(6,859,985

)

 

 

45,228

 

 

 

(1,493,452

)

 

 

(8,308,209

)

Revaluation of warrants and interest

 

 

(770

)

 

 

(849

)

 

 

12,446,297

 

 

 

12,444,678

 

Loss from discontinued operations

 

 

 

 

 

(439,710

)

 

 

 

 

 

(439,710

)

Net income (loss) before taxes

 

$

(6,860,755

)

 

$

(395,331

)

 

$

10,952,845

 

 

$

3,696,759

 


We measure the profit or loss of our segments or “segment operating income (loss).” We define segment operating income (loss) as income from operations before warrant revaluation income or loss, net interest expenses and income taxes and excludes unallocated corporate overhead. We have no intersegment revenues, profits or losses. The amounts under the caption, “Corporate and Other” in this table are unallocated corporate overhead items. Loss from discontinued operations for fiscal year ended March 31, 2014, reflects the losses from our meal delivery component and impairment of diet related intangibles including $5,331,000 in identifiable intangibles and $9,300,000 in related goodwill.

Revenues

ASTV segment


We generate revenues in our ASTV segment from a number of sources. In the fiscal 2014 and fiscal 2013 periods, these sources included:

·

heater sales (fiscal 2013),

·

other product sales, and

·

royalty fees.

While there can be no assurance, management believes that continuing to develop a marketing strategy based upon distributing developed products through our AsSeenOnTV.com url, will ultimately prove a successful strategy.



20



 


ASTV segment revenues for the fiscal year ended March 31, 2014 declined 87% from the comparable period of the preceding year. This very sharp decline was due to the absence of sales of our heater unit during the current year. Revenues related to the Company’s heater products totaled approximately 64% of total revenues for the fiscal year ended March 31, 2013. The suspension of these revenues represents the Company’s intentional shift in focus from traditional direct response, inventory intensive model, to an ecommerce based model which we believe requires less capital per revenue dollar and improvement of the Company’s long-term prospects.

Product sales represent limited ASTV sales of various consumer direct response products. These sales declined during the fiscal year ended March 31, 2014, compared to the prior year as the Company reduced expenditures on media spending to conserve cash during its restructuring resulting in reduced product sales revenue.

Commission and royalty fees income, totaling $509,200 and $304,200 in the fiscal year ended March 31, 2014 and 2013, respectively, primarily represent fees received by the Company under an agreement associated with our AsSeenOnTV.com url and partnership fees associated with products appearing on home shopping networks. The royalty fees includes minimum fees due the Company resulting from its acquisition of the AsSeenOnTV.com url, completed in June 2012. While there can be no assurance, it is hoped that these royalty fees will increase in the future as web-related revenues for those utilizing our website increase.

Infomercial production ceased during the current fiscal year. This reflected the Company’s decision to shift away from infomercial production to ecommerce driven sales of consumer products, including ecommerce dietary products which the Company believes has a higher earnings potential. The Company has no plans to develop infomercial production operations in the future.

Under the terms of an agreement dated November 20, 2013, Tru Hair, Inc., a wholly owned subsidiary of the Company, licensed certain trademarks to a third party in exchange for a cash payment of $25,000 and an undertaking by the third party to use reasonable best efforts to market, distribute and sell certain items held by Tru Hair, Inc.

eDiets segment

The Company intends to continue to focus its diet related programs on ecommerce platforms. As discussed above, on October 11, 2013, the Company completed the sale to Chef’s Diet of certain assets relating to the eDiets meal delivery component. The elimination of our meal delivery program, while having a negative effect on revenues for the current periods, has, and will continue to, significantly reduce operating expenses. It will also enable us to dedicate our limited dietary related resources to developing our ecommerce platforms.

Cost of revenues

Overall, cost of revenues for the fiscal year ended March 31, 2014 represented 68% of revenues compared to 74% of revenues for the prior fiscal year. This decrease between the periods is due primarily to the significant change in the overall product mix and strategy from tangible products inventoried, held and sold by the Company to an ecommerce based approach. Management of the Company plans to continue to expand this model in the future for more Infusion Brand products. The Company believes that, while there can be no assurance, the shift in emphasis in the ASTV segment away from a traditional distribution of purchased inventory items to a more ecommerce based subscription or royalty based model will better utilize the Company’s limited resources, providing a higher return.

Costs associated with the ASTV segment product sales include the direct costs of purchasing the products marketed as well as fulfillment costs associated with the taking and shipment of orders, merchant discount fees, royalties, commissions and shipping and freight costs, which can, and as happened in fiscal 2014 did, exceed the related revenues resulting in a loss. The Company does not manufacture any products in-house and relies on third-party suppliers, located primarily outside of the United States, for its inventory. Accordingly, our cost of products acquired for sale could vary significantly if fuel and transportation costs were to increase in the future. Costs associated with the eDiets segment sales, reflecting our dietary ecommerce programs, include credit card fees, product costs, fulfillment and shipping costs, as well as costs associated with revenue sharing or royalty costs related to license agreements with third party nutrition and fitness companies, Internet access fees and compensation for nutritional professionals.



21



 


Operating expenses

Operating expenses, consisting of selling and marketing expenses and general and administrative expenses, declined sharply for the fiscal year ending March 31, 2014, compared to the comparable periods of the preceding year. The bulk of this decrease is reflected in selling and marketing expenses attributable to the absence of selling and marketing expenses related to the Company’s heater sales campaign in the prior year which accounted for 64% of total revenues for the fiscal year ended March 31, 2013. There were no comparable heater sales or related costs for the fiscal year March 31, 2014.

General and administrative expenses decreased approximately $1,300,000 or 19% for the fiscal year ended March 31, 2014, compared to the preceding year. This decline was due in large part to the shift in sales focus between the periods to a more ecommerce structure as mentioned above. Administrative salaries and related cost declined approximately $430,000 as a direct result of a reduction in administrative staff as a cost reduction measure. While there can be no assurances, we anticipate administrative salaries as a percentage of revenues to continue to decline in future periods as a result of our acquisition of Infusion Brands, completed in April 2014. Stock based compensation also declined between the periods from $1,375,000 in fiscal 2013 to $944,000 for fiscal 2014. This decline of approximately $431,000 reflects the accelerated vesting of options as part of our termination agreement with our former CEO in March 2013, which totaled expense recognition of approximately $550,000.

In both fiscal 2014 and 2013, the Company recognized costs associated with mergers as incurred. For fiscal 2014 we recognized merger related costs associated with the Infusion Brands transaction, completed in fiscal 2015, of $157,600. During fiscal 2013, we recognized merger related costs associated with the eDiets transaction of $277,700. Insurance related costs increased between the periods by approximately $303,000 due in part to our acquisition of eDiets and related coverages.

Other (income) expenses

Other (income) expense primarily consists of the non-cash income or expense recognized on the periodic revaluation of the fair value of financing related warrants outstanding at the end of each period that, based on their provisions, are carried as liabilities on the Company’s records. For the fiscal year ended March 31, 2014, we reported warrant revaluation income of approximately $10,760,000. For the fiscal year ended March 31, 2013 we reported warrant revaluation income of approximately $13,951,000. These periodic revaluations have, and most likely will continue to, result in significant, non-cash income or expense being recognized at the end of any given period depending on fluctuations in the market value of our stock on each remeasurement date. In addition, in May 2014 the Company completed a financing with gross proceeds of $10,180,000, which contained a provision requiring the issuance of warrants representing 4.99% of our total outstanding shares with an exercise price of $0.0001 per share. Provisions within these warrants will also require fair value recognition of the related liability with income or expense recognition in addition to those outstanding at March 31, 2014. Investors should not place undue emphasis on our other income resulting from our revaluation of warrants outstanding when evaluating our actual operating performance.

Liquidity and capital resources

Liquidity is the ability of a company to generate adequate amounts of cash to meet the company’s needs for cash to operate the business. At March 31, 2014, we had a working capital deficit of approximately $2.9 million as compared to a working capital deficit of approximately $9.6 million at March 31, 2013. At March 31, 2014, our current assets decreased 91% and our current liabilities decreased 78%, respectively, from March 31, 2013. The sharp decrease in current liabilities was primarily due to a sharp decline in the Company’s warrant liabilities, decreasing from approximately $11,700,000 to $930,000 between the periods. This decline was attributable to a significant drop in the market price of our common stock, used in determining the fair value of the liability at the respective balance sheet dates. Principal changes in current assets at March 31, 2014 compared to March 31, 2013 include a decline in cash from approximately $2.4 million to $5,000 attributable primarily to operational losses during the period and sharp decline in accounts receivable reflecting our sharp decline in sales revenue, following the cessation of our heater sales program and our operational restructuring toward ecommerce based operations.

Net cash used in operating activities for the fiscal year ended March 31, 2014, was approximately $3 million. This use of cash was due in large part to our operational losses and decreases in the balance in accounts payable offset by a decrease in trade accounts receivable and inventory levels. The decline in accounts receivable and inventory levels primarily resulted from the wind-down of the Company’s heater sales program at the end of fiscal 2013.



22



 


These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that we will continue to incur losses in future periods until we are successful in significantly increasing our revenues and/or reducing our operating expenses. There are no assurances that we will be able to raise our revenues to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we would be required to raise additional debt or equity financing. Such financing, if available, may dilute our shareholders’ ownership interest in our Company. If we raise capital in the future by issuing additional securities, shareholders may experience dilution and a decline in the value of their shares of our common stock.

As discussed above, subsequent to the period covered by this report, and in connection with the Infusion Merger, pursuant to a Note Purchase Agreement dated as of April 3, 2014, by and among the Credit Parties, and MIG7, the Credit Parties sold to MIG7 a Note. Funding of the amounts borrowed under the Note was made in two tranches, with the first funding of $7,400,000 occurring on April 3, 2014, and the second funding, which resulted in funding of an aggregate gross amount of $10,180,000 under the Note Purchase Agreement, occurring on May 1, 2014.

Under the Note Purchase Agreement, MIG7 is entitled to two board observer seats on each Credit Party’s board of directors, and, upon the written request of MIG7, to the nomination of two individuals selected by MIG7 for election to the board of directors of each Credit Party as full voting members of such boards.

Under the Note Purchase Agreement, the Company has delivered a warrant to purchase 4.9% of the common stock of the Company on a fully diluted basis to MIG7 Warrant, LLC, an affiliate of MIG7, at any time on or before the maturity date of the Note at an exercise price of $0.001 per share.

The Note Purchase Agreement contains a number of covenants restricting, among other things, dividends, liens, redemptions of securities, debt, mergers and acquisitions, asset sales, transactions with affiliates, capital expenditures, and prepayments and modifications of subordinated debt instruments. The Note Purchase Agreement contains customary events of default as well as events of default for failing to achieve certain targets for consolidated revenues and consolidated EBITDA for the 2014 and 2015 calendar years. Among other remedies, upon an event of default MIG7 would be entitled to sweep and retain 65% of all cash deposited in the operating account of the Company until all obligations owing to MIG7 are paid in full.

The obligations of the Credit Parties under the Note are collateralized by substantially all of their respective assets under a Security Agreement between the Credit Parties and MIG7 and the Company has agreed to pledge the stock of all other Credit Parties that are corporations under a Pledge Agreement.

In connection with the Note Purchase Agreement and the transactions contemplated thereby, the Credit Parties, MIG7, and Vicis Capital Master Fund entered into an intercreditor agreement pursuant to which MIG7, and Vicis Capital Master Fund agreed among other matters to share priority under and allocation of amounts owing to each of them under the Senior Secured Debenture held by Vicis Capital Master Fund and under the Note.

Commitments

In connection with the eDiets acquisition, on September 10, 2012, the Company received notice of a complaint filed in Broward County, Florida by an eDiets stockholder against eDiets, members of the board of directors of eDiets and the Company, alleging that eDiets breached its fiduciary duty to its stockholders by entering into the transaction for inadequate consideration. Prior to the deadline for the defendants to answer the complaint, the plaintiff and the defendants in the case filed a stipulation with the court allowing the plaintiff to file an amended complaint. The Company’s acquisition of eDiets was consummated on February 28, 2013. On November 19, 2013, the plaintiff voluntarily dismissed the case without prejudice.



23



 


On May 2, 2013, effective May 1, 2013, we entered into an employment agreement with Mr. Ronald C. Pruett Jr. to serve as our chief executive officer. The term of the agreement was for one year and provided for successive one-year periods unless a notice of non-renewal is given by either party or the agreement is otherwise terminated sooner in accordance with its provisions. Pursuant to the agreement, Mr. Pruett received an annual base salary of $275,000, together with an additional salary of $275,000 during the first year of his employment with us. Mr. Pruett also received an option grant to purchase 425,000 shares (the “First Option Grant”) of our common stock and a second option grant to purchase 2,625,000 shares (the “Second Option Grant”) of our common stock, subject to vesting. The First Option Grant vested on the grant date, May 6, 2013, and had a per share exercise price equal to $0.35, the average of the high bid and low asked prices of our common stock on the OTC Bulletin Board on the trading day immediately preceding the grant date. The Second Option Grant had a per share exercise price equal to $0.70. A portion of the Second Option Grant, 656,250 options, vested on May 6, 2013. Following the Infusion Merger, Mr. Pruett resigned as President and Chief Executive Officer of the Company (and all positions with our subsidiaries). Mr. Pruett elected to terminate his employment effective May 1, 2014. The termination agreement modified certain terms of his employment agreement and provided that Mr. Pruett was entitled to receive the balance of additional salary due him totaling approximately $72,000, which will be paid over a period of approximately three months beginning May 1, 2014. In addition, in accordance with our stock option plans, his options granted, both vested and unvested, will expire 90-days from the date of his resignation.

On June 13, 2013, TV Goods, the Company’s wholly owned subsidiary, entered into a termination agreement (the “Termination Agreement”) with Presser Direct, LLC (“Presser Direct”) under which it terminated a Purchasing and Marketing Agreement (the “P & M Agreement”) between TV Goods and Presser Direct dated March 7, 2012, relating to the manufacture, marketing, sale and distribution of the SeasonAire heater and related product lines. Under the Termination Agreement, TV Goods agreed to pay approximately $309,000 related to previously purchased inventory and approximately $146,000 attributable to royalty payments under the P & M Agreement, of which $65,000 was to be held in escrow pending delivery of replacements for damaged or defective SeasonAire heaters and related products previously sold by TV Goods. TV Goods also agreed to transfer title to certain assets relating to the products, including infomercials and intellectual property, to Presser Direct. Presser Direct agreed to pay TV Goods $50,000 for existing SeasonAire inventory, to assume obligations to make all royalty payments relating to SeasonAire sales after July 31, 2013 and to assume all liabilities relating to the SeasonAire products after June 13, 2013, except for certain warranty obligations relating to SeasonAire products sold prior to that date. TV Goods and Presser Direct released each other from all obligations under the P & M Agreement, so that the only surviving obligations were those arising under the Termination Agreement.

Leases

On February 1, 2012, the Company entered into a new 36-month lease agreement on our existing headquarters facility. Terms of the lease provide for a base rent payments of approximately $7,900 per month for the first twelve months, increasing 3% per year thereafter. The lease contained no provisions for a change in the base rent based on future events or contingent occurrences. In accordance with the provisions ASC 840-Leases, the Company is recognizing lease expenses on a straight-line basis, which total $8,100 per month over the lease term.

On August 23, 2013, the lease on our headquarters facility was amended, decreasing our base rent payments to approximately $5,700 per month and extending the term of the lease through January 31, 2018. The amended lease further provides for annual increases in the base rent commencing February 1, 2015, based on the Consumer Price Index of the immediately preceding calendar year but in no event less than 3% per annum. In accordance with the provisions of ASC 840 – Leases, the Company is recognizing lease expense on a straight line basis, which totals approximately $5,900 per month over the lease term.

During September 2012, eDiets entered into a one year lease for office space in Pompano Beach, Florida. The lease covered approximately 8,800 square feet at a monthly base rent of $9,800 per month. The Company did not renew this lease upon expiration and no longer occupies this facility.

The following is a schedule by year of future minimum rental payments required under our lease agreement on March 31, 2014:

 

 

Operating Lease

 

Year 1

 

$

68,762

 

Year 2

 

 

70,825

 

Year 3

 

 

72,949

 

Year 4

 

 

55,934

 

Year 5

 

 

 

 

 

$

268,470

 




24



 


Base rent expense recognized by the Company, attributable to its headquarters facility and eDiets facility was approximately $131,000 and $107,000 for the years ended March 31, 2014 and 2013, respectively.

Other Commitments

Under the terms of a 2010 private placement, the Company provided that it would use its best reasonable efforts to cause the related registration statement to become effective within 180 days of the termination date, July 26, 2010, of the offering. We have failed to comply with this registration rights provision and are obligated to make pro rata payments to the subscribers under the 2010 private placement in an amount equal to 1% per month of the aggregate amount invested by the subscribers up to a maximum of 6% of the aggregate amount invested by the subscribers. The maximum amount of penalty to which the Company may be subject is $156,000. The Company had recognized an accrued penalty of $156,000 at both March 31, 2014 and March 31, 2013, respectively.

Critical accounting policies

There have been no changes to our critical accounting policies in the fiscal year ended March 31, 2014. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed with our audit committee. Those policies are discussed in our consolidated financial statements and the footnotes thereto.

Accounting Standards Updates

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):  Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures to this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in the ASU are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2014. The Company is currently evaluating the impact that this ASU will have on its financial statements.

In May 2014, the FASB has issued No. 2014-09, “Revenues from Contracts with Customers (Topic 606)”. The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact that this ASU will have on its financial statements.

Off Balance Sheet Arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for a smaller reporting company.



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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Please see our Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

ITEM 9.

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

None.

ITEM 9A.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rules 13a-15(e) and 15d-15(d) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective such that the information relating to our Company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

·

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

·

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 our management and directors; and

·

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.

Because of the inherent limitations, our management does not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, cannot provide full assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework — 1992. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of March 31, 2014, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.



26



 


This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial report. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to a permanent exemption of the SEC that permits the Company to provide only management’s report in this Annual Report on Form 10-K. Accordingly, our management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2014, has not been audited by our auditors, EisnerAmper LLP or any other independent registered accounting firm.

Changes in Internal Control over Financial Reporting.  There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION.

None.



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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors and executive officers

The following table provides information on our directors and executive officers:

Name

 

Age

 

Position

 

 

 

 

 

Robert DeCecco

 

46

 

Chief Executive Officer and Chairman of the Board of Directors

Dennis W. Healey

 

65

 

Chief Financial Officer and Director

Mary Mather

 

53

 

Secretary, Treasurer and Director

Greg Adams

 

53

 

Director

Kevin Richardson, II

 

43

 

Director

Shadron Stastney

 

45

 

Director


Robert DeCecco.  Mr. DeCecco has served as a director of the Company since April 2, 2014 and chief executive officer of the Company since April 10, 2014. Since 2010, Mr. DeCecco has served as president and chief executive officer of Infusion Brands International, Inc. (“IBI”), formerly the parent company of Infusion, our wholly owned subsidiary and a company that produces and sells consumer products. Mr. DeCecco has also served as chief financial officer of IBI from 2009 until 2011. Mr. DeCecco still holds his positions with IBI, although the Company has now acquired all of the business and assets of Infusion. In addition, IBI is now a controlling shareholder of the Company.

Dennis W. Healey.  Mr. Healey, a certified public accountant, has served as our chief financial officer since October 2011 and as a director since April 2014. Since November 2007, Mr. Healey has provided accounting and financial reporting services to various private and public companies. Commencing first quarter 2010 through the date of his appointment as chief financial officer, Mr. Healey provided accounting and financial consulting services to us. From 1980 until October 2007, Mr. Healey served as vice president of finance and chief financial officer of Viragen, Inc., a public company specializing in the research and development of biotechnology products. Viragen filed for an assignment for the benefit of creditors in October 2007. Mr. Healey received a B.B.A. degree in accounting from the University of Florida and is a member of the Florida Institute of Certified Public Accountants and the American Institute of Certified Public Accountants.

Mary Mather.  Ms. Mather has served as a director of the Company since April 2, 2014 and secretary and treasurer since April 10, 2014. Since August 2010 she has served as vice president of finance of IBI and since June 2011 she has served as chief financial officer and treasurer of IBI. Ms. Mather has a 25 year career in the area of accounting (both public and private) and finance. From 2006 to 2009 she served as chief financial officer of City Lights Productions, Inc. a television, film and post production company in New York. Prior to working at City Lights, she held the position of chief financial officer for Howard Schwartz Recording, Inc. (a/k/a hsr/ny), the largest privately owned and operated audio production facility in the United States. Ms. Mather also served as treasurer for Hanseatic Corporation, a private equity company that takes an active role on the boards of its portfolio companies until these companies have reached the size and maturity necessary to be accepted by the public market. Ms. Mather also spent thirteen years in public accounting with Moore Stephens CPAs in New York and Houston and Deloitte & Touche in Houston in the areas of auditing and taxation. Ms. Mather is a CPA licensed in Texas and New York and holds a BBA in Accounting from University of Texas at Austin and an MBA from Columbia Business School in New York.

Greg Adams.  Mr. Adams has served as a member of our board of directors since December 2011. He has served as chief financial officer and secretary since March 2008 and chief operating officer since 2010 of Green Earth Technologies, Inc. (OTCBB: GETG), a company that markets, sells and distributes branded, environmentally-friendly, bio-based performance and cleaning products to the oil field services, automotive aftermarket and outdoor power equipment markets. From 1999 to 2008, he served as a chief financial officer, a chief operating officer and a director of EDGAR Online Inc., a provider of business information. From 1994 to 1999, he was also chief financial officer and senior vice president, finance of PRT Group Inc., a technology solutions company and the Blenheim Group Plc., U.S. Division, a conference management company. Mr. Adams began his career in 1983 at KPMG in the audit advisory practice where he worked for 11 years. Mr. Adams is a certified public accountant, a member of the New York State Society of Certified Public Accountants and the American Institute of Certified Public Accountants, and served as vice chairman of Financial Executives International’s committee on finance and information technology. He received a B.B.A. degree in Accounting from the College of William & Mary.



28



 


Kevin Richardson, II.  Mr. Richardson has been a member of our board of directors since February 2013, having been appointed under the terms of the merger with eDiets. Prior to our acquisition of eDiets, he served as eDiets’ chairman of the board of directors since 2006 and as its principal financial officer and principal accounting officer from May 2012 through February 2013. Mr. Richardson originally joined eDiets’ board of directors in connection with the 2006 purchase of shares of common stock of that company by Prides Capital Fund I, LP, in which Prides Capital Partners LLC is general partner. Mr. Richardson founded Prides Capital LLC and Prides Capital Partners LLC in January 2004 where he is managing director. Prides Capital LLC and Prides Capital Partners LLC specialize in strategic block, active investing in small- and micro-cap public and private companies. From April 1999 until the end of 2003, Mr. Richardson was a partner at Blum Capital Partners, a $2.5 billion investment firm. Between May 1999 and September 2003, Mr. Richardson was the lead public partner on 18 investments. Prior to joining Blum Capital, Mr. Richardson was an analyst at Tudor Investment Corporation, an investment management firm. Previously, Mr. Richardson spent four years at Fidelity Management and Research where he was the assistant portfolio manager of the Fidelity Contra Fund, a registered investment company. Mr. Richardson also managed Fidelity Airline Fund, the Fidelity Aerospace and Defense Fund, and performed research and analysis in a variety of industry sectors (computer services, business services, media, financial services, and healthcare information technology). Previously, Mr. Richardson worked at Kidder, Peabody & Co. Mr. Richardson is also a director of SANUWAVE Health, Inc., and previously served as a director of QC Holdings, Inc. until June 2007 and Healthtronics, Inc. until November 2008. Mr. Richardson received an M.B.A. from Kenan-Flagler Business School at the University of North Carolina.

Shadron Stastney.  Mr. Stastney has been a member of our board of directors since April 2, 2014. He has served as a director of IBI since September 2010. Mr. Stastney is a founding partner of Vicis Capital LL ("Vicis"). He graduated from the University of North Dakota in 1990 with a B.A. in Political Theory and History, and from Yale Law School in 1994 with a J.D. focusing on corporate and tax law. From 1994 to 1997, he worked as an associate at Cravath, Swaine and Moore in New York, where he worked in the tax group and in the corporate group, focusing on derivatives. In 1997, he joined CSFB‘s then-combined convertible/equity derivative origination desk. From 1998 through 2001, he worked in CSFB’s corporate equity derivatives origination group, eventually becoming a Director and Head of the Hedging and Monetization Group, a joint venture between derivatives and equity capital markets. In 2001, he jointly founded Victus Capital Management, LP, and in 2004, he jointly founded Vicis. Mr. Stastney also jointly founded Vicis Capital Management LLC in 2001. Mr. Stastney has been a director of China Hydro from January 2010 to September 2013, Master Silicone Carbide from September 2008 to June 2013, Amacore Holdings, Inc. from August 2008 to June 2012, China New Energy from August 2008 to June 2013, Zurvita Holdings, Inc. since March 2010, OptimizeRX Corporation CEO and director from July 2010 to September 2013 and Ambient Corporation from 2007 to September 2013. Mr. Stastney was also a director of MDWerks from May 2008 to August 2009. On September 18, 2013, without admitting or denying the findings of the SEC, Mr. Stastney (as a member of Vicis Capital, LLC, which acts as investment advisor to Vicis Capital Master Fund (the “Fund”)) consented to the entry of an administrative order (the “Order”) by the SEC instituting administrative and cease-and-desist proceedings pursuant to Sections 203(f) and 203(k) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and Section 9(b) of the Investment Company Act of 1940, as amended. The order, entitled In the Matter of Shadron L. Stastney, resolved issues relating to a failure to disclose a material conflict of interest to the trustee of the Fund, and the engagement in an undisclosed principal transaction with the Fund. In conjunction with the Order, Mr. Stastney agreed to cease and desist from committing or causing any violations and any future violations of Sections 206(2) and 206(3) of the Advisers Act, to be barred from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent and prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter, with the right to apply for reentry after eighteen months (except that he may continue to remain associated with Vicis Capital, LLC as a managing member solely for the purpose of engaging in activities and taking actions that are reasonably necessary to wind down the Fund, subject to the oversight of an independent monitor paid for by Mr. Stastney), and pay disgorgement of $2,033,710.46, prejudgment interest of $501,385.06, and a civil monetary penalty of $375,000.

There are no family relationships between any of the executive officers and directors. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified.



29



 


Corporate governance

Summary of corporate governance framework

We are committed to maintaining the highest standards of honest and ethical conduct in running our business efficiently, serving our shareholders’ interests and maintaining our integrity in the marketplace. To further this commitment, we have adopted our Code of Business Conduct and Ethics, which applies to all our directors, officers and employees. To assist in its governance, our board has formed three standing committees composed entirely of independent directors, Audit, Compensation and Governance and Nominating committees. A discussion of each committee’s function is set forth below. Our by-laws, the charters of each board committee, our Code Business Conduct and Ethics provide the framework for our corporate governance. Copies of our by-laws, committee charters, Code of Business Conduct and Ethics are available without charge upon written request to our Corporate Secretary.

Board of directors

The board of directors oversees our business affairs and monitors the performance of management. In accordance with our corporate governance principles, the independent members of our board of directors do not involve themselves in day-to-day operations. The independent directors keep themselves informed through discussions with our chief executive officer and our chief financial officer, and by reading the reports and other materials that we send them and by participating in board of directors and committee meetings. Directors are elected for a one year term and hold office until their successors have been elected and duly qualified unless the director resigns or by reason of death or other cause is unable to serve in the capacity of director. If any director resigns, dies or is otherwise unable to serve out his or her term, or if the board increases the number of directors, the board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. Vacancies occurring by reason of the removal of directors without cause may only be filled by vote of the shareholders.

We do not have a policy regarding the consideration of any director candidates which may be recommended by our shareholders, including the minimum qualifications for director candidates, nor has our board of directors established a process for identifying and evaluating director nominees. Further, when identifying nominees to serve as director, while we do not have a policy regarding the consideration of diversity in selecting directors, we seek to create a board of directors that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our shareholders, including the procedures to be followed. Our board has not considered or adopted any of these policies as, excluding the director nomination rights granted to MIG7 in April 2014 under the Note Purchase Agreement, we have never received a recommendation from any shareholder for any candidate to serve on our board of directors. Given our relative size, we do not anticipate that any of our shareholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our board.

Board leadership structure and board’s role in risk oversight

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of the risks we face, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. To do this, the Chairman of the Audit Committee and other members of our board of directors meet regularly with management to discuss strategy and risks we face. Our chief financial officer attends all board meetings and is available to address any questions or concerns raised by the board on risk management and any other matters. The independent members of the board work together to provide strong, independent oversight of our management and affairs through its standing committees and, when necessary, special meetings of independent directors.



30



 


Director independence

While the OTC Bulletin Board does not impose any qualitative standards requiring companies to have independent directors, the board of directors has determined that two of our directors, Mr. Adams and Mr. Richardson have no relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and each is an “independent director” as defined in the Nasdaq Marketplace Rules.

Our independent directors may meet at any time in their sole discretion without any other directors or representatives of management present. Each independent director has access to the members of our management team or other employees as well as full access to our books and records. We have no policy limiting, and exert no control over, meetings of our independent directors.

Board committees

The board of directors has a standing Audit and Compensation committee. Each committee has a written charter. Copies of the committee charters are available without charge upon written request to our Corporate Secretary. All committee members are independent directors. Information concerning the current membership and function of each committee is as follows:

Name

 

Audit

Committee

 

Compensation

Committee

 

 

    

 

 

 

 

Greg Adams

 

  ü*

 

ü

 

Kevin Richardson, II

 

ü

 

  ü*

 

———————

*

Denotes chairperson.

Audit Committee. The Audit Committee assists the board in fulfilling its oversight responsibility relating to:

·

the integrity of our financial statements;

·

our compliance with legal and regulatory requirements; and

·

the qualifications and independence of our independent registered public accountants.

The board has determined that Mr. Adams qualifies as an “audit committee financial expert” as defined by the SEC.

Compensation Committee. The Compensation Committee is responsible for overseeing our compensation programs and practices, including our executive compensation plans and incentive compensation plans. The chief executive officer provides input to the committee with respect to the individual performance and compensation recommendations for the other executive officers. Although the committee’s charter authorizes the committee to retain an independent consultant, no third party compensation consultant was engaged for fiscal 2014.

Director qualifications

The following is a discussion for each director of the specific experience, qualifications, attributes or skills that our board of directors to conclude that the individual should be serving as a director of the Company.

Robert DeCecco – Mr. DeCecco’s experience as chief executive officer of IBI was the primary factor considered by the Board. Specifically, the Board viewed favorably his experience in the direct response marketing industry, together with his management expertise, in reaching their conclusion.

Dennis Healey – Mr. Healey’s extensive experience in corporate finance and public company management were factors considered by the board. Specifically, the board viewed favorably his roles at Viragen, Inc. and our company, together with his experience in public accounting and his membership the Florida Institute of Certified Public Accountants and the American Institute of Certified Public Accountants AICPA in reaching their conclusion.

Mary Mather – Ms. Mather’s extensive experience in corporate finance and accounting were factors considered by the board. Specifically, the board viewed favorably her public accounting experience with Moore Stephens CPAs in New York and Houston and Deloitte & Touche in Houston in the areas of auditing and taxation.



31



 


Greg Adams – Mr. Adams’ extensive experience in corporate finance and public company management were factors considered by the board. Specifically, the board viewed favorably his roles at Green Earth Technologies, Inc., EDGAR Online, Inc., PRT Group, Inc. and Blenheim Group Plc., together with his experience at KPMG and his involvement with the AICPA in reaching their conclusion.

Kevin Richardson, II – Mr. Richardson’s extensive experience in corporate finance and as a small cap and micro cap investor were factors considered by the board. Specifically, the board viewed his experience at Prides Capital LLC and Prides Capital Partners LLC, as well as Blum Capital, Tudor Investment Corporation, Fidelity Management and Research and Kidder, Peabody & Co., together with his service on public company boards, including eDiets’, in reaching their conclusion.

Shadron Stastney – Mr. Stastney’s extensive experience in corporate finance and serving on numerous board of directors of public companies were factors considered by the board. Specifically, the board viewed favorably his experience in the direct response marketing industry.

In addition to the each of the individual skills and background described above, the board also concluded that each of these individuals will continue to provide knowledgeable advice to our other directors and to senior management on numerous issues facing our company and on the development and execution of our strategy.

Code of Ethics and Business Conduct

We have adopted a Code of Business Conduct and Ethics to provide guiding principles to all of our employees. Our Code of Business Conduct and Ethics does not cover every issue that may arise, but it sets out basic principles to guide our employees and provides that all of our employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. Any employee who violates our Code of Business Conduct and Ethics will be subject to disciplinary action, up to an including termination of his or her employment.

Generally, our Code of Business Conduct and Ethics provides guidelines regarding:

·

compliance with laws, rules and regulations;

·

conflicts of interest;

·

insider trading;

·

corporate opportunities;

·

competition and fair dealing;

·

discrimination and harassment;

·

health and safety;

·

record keeping;

·

confidentiality;

·

protection and proper use of company assets;

·

payments to government personnel;

·

waivers of the Code of Business Conduct and Ethics;

·

reporting any illegal or unethical behavior; and

·

compliance procedures.

We have also adopted a Code of Ethics for our senior financial personnel who are also subject to specific policies regarding:

·

disclosures made in our filings with the Securities and Exchange Commission;

·

deficiencies in internal controls or fraud involving management or other employees who have a significant role in our financial reporting, disclosure or internal controls;

·

conflicts of interests; and

·

knowledge of material violations of securities or other laws, rules or regulations to which we are subject.

A copy of our Code of Business Conduct and Ethics is available without charge upon written request to our Corporate Secretary.



32



 


Director compensation

Pursuant to independent director agreements, we have agreed to pay our independent directors an annual fee of $18,000 for serving on the board of directors and an additional $3,000 per year for serving as a committee chairperson and $2,000 per year for serving on a committee in a non chairperson position. In addition, in fiscal 2013 we issued each independent director options to purchase up to 25,000 shares of our common stock. The independent director options are exercisable at 100% of the closing price of our common stock as reporting on the OTC Bulletin board on the date prior to such director’s appointment to the board. Options to purchase 12,500 shares of common stock vest 12 months from date of appointment to the board, and options to purchase 12,500 shares vest 24 months from date of appointment. The options are issued pursuant and subject to our equity incentive plan.

The information in the following table provides information paid for director compensation in fiscal 2014, excluding any reimbursement of out-of-pocket travel and lodging expenses which we may have paid.

 

 

Director Compensation

Name

 

Fees

earned or

paid in

cash ($)

 

Stock

awards

($)

 

Option

awards

($)

 

Non-equity

incentive

plan

compensation

($)

 

Nonqualified

deferred

compensation

earnings

($)

 

All other

compensation

($)

 

Total

($)

Greg Adams

 

$ 24,800

 

 

 

 

 

 

$ 24,800

Randolph Pohlman, PhD.(1)

 

$ 25,700

 

 

 

 

 

 

$ 25,700

Kevin Richardson

 

$ 19,500

 

 

 

 

 

 

$ 19,500

———————

(1)

Resigned effective April 2, 2014.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during fiscal 2014.



33



 


ITEM 11.

EXECUTIVE COMPENSATION.

The following table summarizes all compensation recorded by us in the past two fiscal years for:

·

our principal executive officer or other individual serving in a similar capacity,

·

our two most highly compensated executive officers other than our principal executive officer who were serving at March 31, 2014 as executive officers as that term is defined under Rule 3b-7 of the Securities Exchange Act of 1934, and

·

up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at March 31, 2014.

For definitional purposes, these individuals are sometimes referred to as the “named executive officers.” The amounts included in the “Option Awards” column below represent the aggregate grant date fair value of the stock options granted, computed in accordance with ASC Topic 718. The assumptions made in the valuations of the option awards are included in Note 13 of the Notes to our Consolidated Financial Statements for the year ended March 31, 2014, appearing elsewhere in this report.

Name

 

Year

 

Salary

($)

 

Bonus

($)

 

Stock

Awards

($)

 

Option

Awards

($)

 

Non Equity

Incentive Plan

Compensation

($)

 

Nonqualified

Deferred

Compensation

(S)

 

All Other

Compensation
($)

 

Total

($)

Kevin Harrington (1)

 

2014

 

$

225,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$

225,000

 

 

2013

 

$

295,548

 

 

 

 

 

 

 

 

 

 

 

 

 

$

295,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steven Rogai (2)

 

2013

 

$

225,000

 

 

 

 

 

$

247,450

 

 

 

 

 

 

 

$

472,450

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dennis W. Healey (3)

 

2014

 

$

140,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$

140,000

 

 

2013

 

$

140,000

 

 

 

 

 

$

212,100

 

 

 

 

 

 

 

$

352,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ronald C. Pruett, Jr. (4)

 

2014

 

$

478,000

 

 

 

 

 

$

970,675

 

 

 

 

 

 

 

$

1,448,675

———————

(1)

Mr. Harrington served as senior executive officer from May 2010 until March 2013. He served as our chairman of the board from May 2010 through April 2014. He also served as interim principal executive officer from March 13, 2013 through May 3, 2013.

(2)

Mr. Rogai served as our chief executive officer until March 13, 2013. Option awards in fiscal 2013 reflect the aggregate fair value of options to purchase 350,000 shares of our common stock, exercisable at $0.68 per share, granted December 7, 2012. Excludes certain payments and benefits under Mr. Rogai’s Severance Agreement dated March 13, 2013, discussed below.

(3)

Mr. Healey serves as our chief financial officer. Option awards in fiscal 2013 reflect the aggregate fair value of options to purchase 300,000 shares of our common stock, exercisable at $0.68 per share, granted December 7, 2012.

(4)

Mr. Pruett served as our chief executive officer and president from May 2013 through April 10, 2014.

Employment agreements

Ronald C. Pruett, Jr.

Effective May 1, 2013, we entered into an employment agreement with Mr. Pruett to serve as our chief executive officer. The term of the agreement was for one year and provided for successive one-year periods unless a notice of non-renewal is given by either party or the agreement is otherwise terminated sooner in accordance with its provisions. Pursuant to the agreement, Mr. Pruett received an annual base salary of $275,000, together with an additional salary of $275,000 during the first year of his employment with us and options subject to vesting requirements. Following the Infusion Merger, he resigned as President and Chief Executive Officer of the Company (and all positions with our subsidiaries), effective as of April 10, 2014. Mr. Pruett elected to terminate his employment under the provisions of his agreement. The termination agreement modified certain terms of his employment agreement and provided that Mr. Pruett was entitled to receive the balance of additional salary due him totaling approximately $72,000, which will be paid over a period of approximately three months beginning May 1, 2014. In addition, in accordance with our stock option plans, his options granted, both vested and unvested, will expire 90-days from the date of his resignation.



34



 


Kevin Harrington

Effective on October 28, 2011, we entered into a three year services agreement with Mr. Harrington and Harrington Business Development, Inc. to provide executive services and for Mr. Harrington to serve as chairman of the board of directors. Under the agreement Mr. Harrington initially received base compensation per annum of $300,000, which was subsequently reduced to $225,000, and was entitled to such bonus compensation as determined by our board of directors from time to time. In addition, he was entitled to receive reimbursement for all reasonable travel, entertainment and miscellaneous expenses incurred in connection with the performance of his duties, as well as up to a vacation of two weeks per annum and participation in in any pension, insurance or other employment benefit plan as maintained by us for our executives, including programs of life and medical insurance and reimbursement of membership fees in professional organizations. On April 2, 2014, he resigned from the board of directors and on June 5, 2014, we terminated the services agreement and agreed to pay Mr. Harrington $52,800 in full satisfaction and release by all parties of all rights and obligations under the services agreement and license agreement we entered into with Harrington.

Dennis W. Healey

Effective on October 28, 2011, we entered into a three year employment agreement with Mr. Healey to serve as our Chief Financial Officer. Under the agreement Mr. Healey receives base compensation per annum of $140,000. Under the agreement, Mr. Healey is, in addition to base compensation, entitled to such bonus compensation as determined by our board of directors from time to time. In addition, he is entitled to receive reimbursement for all reasonable travel, entertainment and miscellaneous expenses incurred in connection with the performance of his duties, as well as up to a vacation of two weeks per annum and participation in in any pension, insurance or other employment benefit plan as maintained by us for our executives, including programs of life and medical insurance and reimbursement of membership fees in professional organizations.

We have agreed to maintain a minimum of $5,000,000 of directors and officers liability coverage during his employment term and to indemnify him to the fullest extent permitted under Florida law. In the event of termination for death or disability, his estate is entitled to receive three months base salary at the then current rate, payable in a lump sum and continued payment for a payment of one year following his death of benefits under any employee benefit plan extended from time to time by us to our senior executives. In the event he is terminated for cause or without good reason, as defined under the agreement, he has no right to compensation or reimbursement or to participate in any benefit programs, except as may otherwise be provided by law, for any period subsequent to the effective date of termination. In the event of termination without cause, for good reason or change of control, as defined under the agreement, we are obligated to pay him 12 months base salary at the then current rate, to be paid from the date of termination until paid in full, any accrued benefits under any employee benefit plan extended to him, and he is entitled to immediate vesting of all granted but unvested options and the payment on a pro rate basis of any bonus or other payments earned in connection with any bonus plan to which he is a participant. The agreement also contains a non-competition and non-solicitation provision for a period of up to nine months from the date of termination.

Steve Rogai

On March 13, 2013, Steve Rogai and the Company entered into an Agreement and General Release (“Severance Agreement”) terminating his employment as chief executive officer as of that date. As part of this agreement and under the provisions of Mr. Rogai’s employment agreement, Mr. Rogai received severance including: (i) twelve (12) months base salary totaling $225,000, payable in four equal quarterly installments; (ii) quarterly payments totaling $14,091 representing reimbursement of one years’ health insurance premiums; (iii) $5,990 in accrued but unused vacation pay; and (iv) $3,000 in transitional auto allowance. The Company has recorded total severance expense of $242,091 related to this agreement during the year ended March 31, 2013, and $179,318 is included in accrued expenses as of March 31, 2013.

In addition, the Severance Agreement further provided for the modification of Mr. Rogai’s outstanding options, providing for vesting in full upon termination and extending their exercise period to the full term of the initial grant. This modification, including accelerated vesting, resulted in a non-cash charge to stock based compensation of approximately $327,000, which was recorded during the year ended March 31, 2013.



35



 


Employment Agreements Subsequent to Fiscal Year Ended March 31, 2014

Each of Ms. Mather and Messrs. DeCecco, and Stastney is party to an employment agreement with IBI, each of which was assigned to Infusion in connection with the Infusion Merger. The agreements provide for base salaries in the amount of $260,000 for Mr. DeCecco, $150,000 for Ms. Mather, and $175,000 for Mr. Stastney. Each agreement also provides for ordinary executive benefits and perquisites, and imposes standard non-competition and non-solicitation covenants. The agreements contain a provision which provides that for 360 days following any change in control, the termination or resignation of the employee will be treated as a termination without cause. As such, the employee would be entitled to severance compensation equal to the remaining compensation left for the term of his agreement, and all unvested stock, stock equivalents or stock options would immediately vest in full, free of Company-imposed restrictions. “Change in control” means either: (i) any person, entity or group acquires 51% or more of either the outstanding shares of common stock or the combined voting power of the company's outstanding voting securities entitled to vote generally in the election of directors; or (ii) Infusion's shareholders approve a reorganization, merger or consolidation with respect to which persons who were the shareholders of Infusion immediately prior to such event no longer own 51% or great of the outstanding voting securities of Infusion. In connection with the Infusion Merger, each such employee has executed an amendment to their employment agreement with Infusion to set the expiration date of the employment agreements at June 15, 2018, and waive for 360 days any right to change in control payments to which they might otherwise be entitled upon resignation or termination for cause following the Infusion Merger.

Outstanding equity awards at fiscal year-end

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of March 31, 2014:

 

 

OPTION AWARDS

 

 

STOCK AWARDS

 

Name

 

Number of

Securities

Underlying

Unexercised

Options

(#)

Exercisable

 

 

Number of

Securities

Underlying

Unexercised

Options

(#)

Unexercisable

 

 

Equity

Incentive

Plan Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)

 

 

Option

Exercise

Price

($)

 

 

Option

Expiration

Date

 

 

Number of

Shares or

Units of

Stock That

Have Not

Vested

(#)

 

 

Market Value

of Shares or

Units of

Stock That

Have Not

Vested

($)

 

 

Equity

Incentive

Plan Awards:

Number of

Unearned

 Shares,

Units or

Other Rights

that Have

Not Vested

(#)

 

 

Equity

Incentive

Plan Awards:

Market or

Payout Value

Of Unearned

Shares,

Units or

Other Rights

That Have

Not Vested

(#)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ronald C. Pruett, Jr.(1)

 

 

425,000

 

 

 

 

 

 

 

 

 

0.35

 

 

 

5/06/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

656,250

 

 

 

 

 

 

 

 

 

0.70

 

 

 

5/06/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

656,250

 

 

 

 

 

 

0.70

 

 

 

5/06/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

656,250

 

 

 

 

 

 

0.70

 

 

 

5/06/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

656,250

 

 

 

 

 

 

0.70

 

 

 

5/06/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kevin Harrington(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve Rogai(3)

 

 

350,000

 

 

 

 

 

 

 

 

 

1.50

 

 

 

5/25/15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150,000

 

 

 

 

 

 

 

 

 

0.96

 

 

 

9/26/16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

350,000

 

 

 

 

 

 

 

 

 

0.68

 

 

 

12/07/22

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dennis W. Healey

 

 

  50,000

 

 

 

 

 

 

 

 

 

1.50

 

 

5/26/15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  50,000

 

 

 

 

 

 

 

 

 

2.20

 

 

12/20/15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  50,000

 

 

 

 

 

 

 

 

 

0.96

 

 

9/26/16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

 

 

0.68

 

 

12/07/22

 

 

 

 

 

 

 

 

 

 

 

 

 

———————

(1)

Mr. Pruett resigned effective April 10, 2014. Options expire 90 days from date of resignation.

(2)

Mr. Harrington served as interim principal executive officer from March 13, 2013 to May 3, 2013.

(3)

Mr. Rogai resigned March 31, 2013.




36



 


ITEM 12.

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

At June 16, 2014 we had 531,815,115 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of June 16, 2014 by:

·

each person known by us to be the beneficial owner of more than 5% of our common stock;

·

each of our directors;

·

each of our named executive officers; and

·

our named executive officers, directors and director nominees as a group.

Unless otherwise indicated, the business address of each person listed is in care of 14044 Icot Boulevard, Clearwater, Florida 33760. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

 

 

Amount and Nature of Beneficial Ownership

Name and Address of Beneficial Owner

 

 Number of Shares

Beneficially owned

 

% of Class

 

 

 

 

 

 

Robert DeCecco

 

452,960,490

(1)

 

85.2%

Dennis W. Healey

 

222,500

(2)

 

*

Greg Adams

 

45,000

(3)

 

*

Kevin Richardson II

 

12,829,910

(4)

 

  2.4%

Shadron Stastney

 

452,960,490

(5)

 

85.2%

Mary Mather

 

 

 

*

 

 

 

 

 

 

All directors and executive officers as a group (6 persons)

 

466,057,900

(1)(2)(3)(4)(5)

 

87.5%

 

 

 

 

 

 

Infusion Brands International, Inc.

 

452,960,490

(6)

 

85.2%

 

 

 

 

 

 

MIG7 Warrant, LLC  

 

30,136,713

(7)

 

  5.4%

———————

* Less than 1%

(1)

The number of shares beneficially owned by Mr. DeCecco includes 452,960,490 shares beneficially owned by Infusion Brands International, Inc., an entity over which Mr. DeCecco has shared voting control.

(2)

The shares beneficially owned by Mr. Healey includes 12,500 shares of common stock and 210,000 shares underlying options exercisable at prices ranging from $0.68 per share to $2.20 per share. Does not include 240,000 shares of common stock underlying options subject to vesting requirements.

(3)

The shares beneficially owned by Mr. Adams includes 45,000 shares of common stock underlying options exercisable at prices ranging from $0.68 to $1.00 per share and excludes 80,000 shares of common stock underlying options subject to vesting requirements.

(4)

The number of shares beneficially owned by Mr. Richardson includes 9,953,874 shares beneficially owned by Prides Capital Partners LLC, an entity over which Mr. Richardson has voting and investment control. Includes 2,189,713 shares of common stock held in his own name. Also includes 686,323 shares of common stock issuable upon the exercise of warrants directly held by Mr. Richardson.

(5)

The number of shares beneficially owned by Mr. Stastney includes 452,960,490 shares beneficially owned by Infusion Brands International, Inc., an entity over which Mr. Stastney has shared voting control.

(6)

Robert DeCecco serves as chief executive officer and director of Infusion Brands International, Inc. and is deemed to have shared voting control over the shares held by Infusion Brands International, Inc.  Furthermore, Mr. Stastney serves as a director of Infusion Brands International, Inc. and is deemed to have shared voting control over the shares held by Infusion Brands International, Inc.

(7)

Includes shares of common stock underlying a warrant to purchase currently 30,136,713 shares, at an exercise price of $0.0001 per share, representing 4.99% of the common stock of the Company on a fully diluted basis on the date of exercise at any time.




37



 


Securities authorized for issuance under equity compensation plans

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of March 31, 2014.

Plan category

 

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights

(a)

 

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))

Plans approved by our shareholders:

    

 

 

 

 

 

2010 Equity Compensation Plan

 

700,000

 

$1.35

 

200,000

Non-Executive Equity Incentive Plan

 

140,000

 

$0.70

 

660,000

Assumed options, eDiets Stock Option Plan

 

1,841,336

 

$1.93

 

3,225,464

2013 Equity Compensation Plan

 

4,467,500

 

$0.70

 

4,532,500

Plans not approved by shareholders

 

 

 

Equity incentive plans

We presently have three equity compensation plans, including the As Seen On TV, Inc. 2010 Equity Compensation Plan, as amended, which we refer to as the Executive Plan, the As Seen On TV, Inc. Non-Executive Equity Incentive Plan, as amended, which we refer to as the Non-Executive Plan and the As Seen On TV, Inc. 2013 Equity Compensation Plan, as amended, which we refer to as the 2013 Plan. The purpose of the each plan is to attract, retain and provide incentives to our employees, officers, directors and consultants thereby increasing shareholder value. Following is a description of these plans.

In June 2010 our board of directors adopted our Executive Plan and our Non-Executive Plan and initially reserved 600,000 shares and 500,000 shares, respectively, for grants under these plans. Our shareholders approved these plans in March 2010 and May 2010, respectively. In February 2011, in connection with a reverse split of our common stock which would have proportionally reduced the number of shares reserved for issuance under these plans, our shareholders approved amendments to these plans changing the number of shares reserved for issuance to 300,000 shares and 300,000 shares, respectively.

In September 2012 our board of directors adopted our 2013 Plan and we initially reserved 3,000,000 shares for grants under this plan. During March 2013 our board of directors increased the number of shares available for grants under this plan to 6,000,000 shares and during May 2013 to 9,000,000 shares. This plan was approved by a vote of our shareholders on September 16, 2013.

At March 31, 2014 there are outstanding:

·

options to purchase 700,000 shares of our common stock under the Executive Plan with exercise prices ranging from $0.82 to $2,20 per share;

·

options to purchase 600,000 shares of our common stock under the Non-Executive Plan with exercise prices ranging from $0.68 to $0.96 per share; and

·

options to purchase 4,532,500 shares of our common stock under the 2013 Plan with exercise prices ranging from $0.35 to $0.70 per share.

·

options to purchase 1,841,336 shares of our common stock to the former eDiets option holders in connection with the acquisition with exercise prices ranging from $0.21 to $17.84 per share.

Other than the number of shares reserved for issuance under each plan, the terms of the Executive Plan, the Non-Executive Plan and the 2013 Plan are identical.

The plans each provide for the grant of incentive stock options, or ISOs, nonqualified stock options, or NSOs, stock purchase rights, stock appreciation rights and restricted and unrestricted stock awards. Such shares are currently authorized and unissued, but reserved for issuance. The Executive Plan is reserved primarily for our executive officers and the Non-Executive Plan is reserved primarily for our non-executive employees. Grants under the 2013 Plan are made to our directors, executive officers, employees and consultants. Each plan has a term of 10 years. Accordingly, no grants may be made under the any plan after the 10 year anniversary of its date of adoption, but each plan will continue thereafter while previously granted stock options or stock awards remain outstanding and unexercised.



38



 


These plans are administered by our board of directors or a committee appointed by the board of directors, which we refer to as the Committee. The Committee has the power and authority to make grants of stock options or stock awards or any combination thereof to eligible persons under the plan, including the selection of such recipients, the determination of the size of the grant, and the determination of the terms and conditions, not inconsistent with the terms of the plans, of any such grant including, but not limited to:

·

approval of the forms of agreement for use;

·

the applicable exercise price;

·

the applicable exercise periods;

·

the applicable vesting period;

·

the acceleration or waiver of forfeiture provisions; and

·

any other restrictions or limitations regarding the stock option or stock award.

The Committee also has the authority, in its discretion, to prescribe, amend and rescind the administrative rules, guidelines and practices governing the plans, as it from time to time deems advisable. The Committee may construe and interpret the terms of the plans and any stock options or stock awards issued under the plans and any agreements relating thereto and otherwise supervise the administration of the plans. In addition, the Committee may modify or amend each stock option or stock award granted under the plans. All decisions made by the Committee pursuant to the provisions of the plans are final and binding on all persons, including our company and all plan participants.

Our employees, directors and consultants providing services to us are eligible to be granted non-qualified stock options and stock awards under the plans. Our employees are also eligible to receive incentive stock options. The Committee shall select from among the eligible persons under the plans as recommended by our senior management, from time to time in its sole discretion, to make certain grants of stock options or stock awards, and the Committee shall determine, in its sole discretion, the number of shares covered by each grant.

Stock options may be granted to eligible persons alone or in addition to stock awards under the plans. Any stock option granted under the plans will be in such form as the Committee approves, and the provisions of a stock option award need not be the same with respect to each optionee. Recipients of stock options must enter into a stock option agreement with us, in the form determined by the Committee, setting forth the term, the exercise price and provisions regarding exercisability of the stock options granted thereunder. The Committee may grant either incentive stock options or non-qualified stock options or a combination thereof, but the Committee may not grant incentive stock options to any individual who is not our employee. To the extent that any stock option does not qualify as an incentive stock option, it constitutes a separate non-qualified stock option. The Committee may not grant to any employee incentive stock options that first become exercisable in any calendar year in an amount exceeding $100,000.

Incentive stock options and nonstatutory stock options may not be granted at less than the fair market value of the underlying common stock at the date of the grant. Incentive stock options may not be granted at less than 110% of fair market value if the employee owns or is deemed to own more than 10% of the combined voting power of the all classes of our stock at the time of the grant. Stock options can be exercisable at various dates, as determined by the Committee and will expire no more than 10 years from the grant date, or no more than five years for any stock option granted to an employee who owns or is deemed to own 10% of the combined voting power of all classes of our stock. Once vested, stock options granted under the plans are exercisable in whole or in part at any time during the option period by giving written notice to us and paying the option price:

·

in cash or by certified check,

·

through delivery of shares of common stock having a fair market value equal to the purchase price, or

·

a combination of these methods.

The Committee may also permit cashless exercises of stock options.

Stock options issued under the plans may not be transferred other than by will or by the laws of descent and distribution. During an optionee’s lifetime, a stock option may be exercised only by the optionee. Unless otherwise provided by the Committee, stock options that are exercisable at the time of a recipient’s termination of service with our company will continue to be exercisable for three months thereafter, or for 12 months thereafter if the optionee’s employment is terminated due to their death or disability.



39



 


Stock appreciation rights may be granted to eligible persons alone or in addition to stock options or other stock awards under the plans. The Committee will determine the number of shares of common stock to which the stock appreciation rights shall relate. Each stock appreciation right will have an exercise period determined by the Committee not to exceed 10 years from the grant date. Upon exercise of a stock appreciation right, the holder will receive cash or a number of shares of common stock equal to:

·

the number of shares for which the stock appreciation right is exercised multiplied by the appreciation in the fair market value of a share of common stock between the stock appreciation right grant date and exercise date, divided by

·

the fair market value of a share of common stock on the exercise date of the stock appreciation right.

Stock purchase rights may be granted to eligible persons alone or in addition to stock options or other stock awards under the plans. A stock purchase right allows a recipient to purchase a share of common stock at a price determined by the Committee. Unless otherwise determined by the Committee, we have the right to repurchase the shares of common stock acquired upon exercise of the stock purchase right upon the recipient’s termination of service, for any reason, prior to the satisfaction of the vesting conditions established by the Committee. Unless otherwise determined by the Committee, our right of repurchase will lapse as to 1/6th of the purchase shares on the date that is six months after the grant date, and as to an additional 1/6th of such shares every six months thereafter. Upon exercise of a stock purchase right, the purchaser will have all of the rights of a shareholder with respect to the shares of common stock acquired.

Stock purchase rights may not be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime, a purchase grant may be exercised only by the recipient. Unless otherwise determined by the Committee, if a recipient’s service to us terminates for any reason, all stock purchase rights held by the recipient will automatically terminate.

Restricted and unrestricted stock awards may be granted to eligible persons alone or in addition to stock options or other stock awards under the plans. Shares of common stock granted in connection with a restricted stock award are generally subject to forfeiture upon:

·

termination of the recipient’s service with our company prior to vesting. or

·

the failure by the recipient to meet performance goals established by the Committee as a condition of vesting.

Shares of common stock subject to a restricted stock award cannot be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until the applicable restrictions lapse. Unless otherwise determined by the Committee, holders of shares of common stock granted in connection with a restricted stock award have the right to vote such shares and to receive any cash dividends with respect thereto during the restriction period. Any stock dividends will be subject to the same restrictions as the underlying shares of restricted stock. Unrestricted stock awards are outright grants of shares of common stock that are not subject to forfeiture.

If:

·

we merge or consolidate with another corporation,

·

there is an exchange of substantially all of our outstanding stock for shares of another entity in which our shareholders will own less than 50% of the voting shares of the surviving entity, or

·

we sell substantially all of our assets,

then, unless otherwise provided by the Committee in a grantee’s option or award agreement, each outstanding and unexercised stock option or stock award may be assumed by the successor corporation or an equivalent option, or stock award will be substituted by the successor. If, however, the successor does not assume the stock options and stock awards or substitute equivalent stock options or stock awards, then each outstanding and unexercised stock option and stock award shall become exercisable for a period of at least 20 days prior to the effective date of such transaction and our right of repurchase with respect to shares covered by all outstanding stock purchase rights and all restrictions with respect to restricted stock awards will lapse. Any stock options, or stock awards that are not exercised during such 20-day period shall terminate at the end of such period.

Stock options and stock awards made under the plans will be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the common stock, or any other increase or decrease in the number of issued shares of common stock effected without receipt of consideration by us.



40



 


eDiets’ plans

Pursuant to a merger agreement with eDiets, effective February 28, 2013, upon the closing of the transaction we assumed the eDiets.com Amended and Restated Equity Incentive Plan and the eDiets.com, Inc. Stock Option Plan and all options issuable under such plans totaling 2,913,807 options.

At the effective time of the merger with eDiets, each eDiets option that remained outstanding and unexercised following the effective time was deemed amended and is now exercisable for shares of our common stock. The terms and conditions of the options remained the same, except that the number of shares covered by the option, and the exercise price was adjusted to reflect the exchange ratio of 1.2667. The exercise price per share is now equal to the exercise price prior to the effective time, divided by the exchange ratio.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Transactions with Related Persons

Concurrent with the Company’s acquisition of eDiets on February 28, 2013, the Company issued 988,654 shares of common stock and 494,328 common stock purchase warrants in settlement of $600,000 of related eDiets party debt and $92,057 in related interest to an eDiets director (Kevin Richardson II) and one former director. During our second fiscal quarter 2014, the Company repaid $50,000 in principal to our director (Kevin Richardson II), and the remaining $50,000 was repaid with related interest in the third quarter.

Mr. Stastney, a member of our board of directors, is a member in and chief operating officer of Vicis Capital, LLC, the investment advisor to Vicis Capital Master Fund. Vicis Capital Master Fund is the holder of the Senior Secured Debenture.

Director independence

Mr. Greg Adams and Mr. Kevin Richardson, II are each considered “independent” within the meaning of meaning of Rule 5605 of the NASDAQ Marketplace Rules.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

Currently, our Audit Committee reviews and approves audit and permissible non-audit services performed by its current independent registered public accounting firm, EisnerAmper LLP as well as the fees charged for such services. In its review of non-audit service and its appointment of EisnerAmper LLP the Company’s independent registered public accounting firm, the board considered whether the provision of such services is compatible with maintaining independence. All of the services provided and fees charged by EisnerAmper LLP were approved by our Audit Committee. The following table shows the fees that were billed for the audit and other services for fiscal 2014 and fiscal 2013.

 

2014

 

2013

 

 

 

 

Audit Fees

$

142,200

 

$

216,800

Audit-Related Fees

 

 

 

144,900

Tax Fees

 

 

 

All Other Fees

 

 

 

Total

$

142,200

 

$

361,700


Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.



41



 


Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a)(1)

Financial statements.


·

Report of Independent Registered Public Accounting Firm

·

Consolidated Balance sheets at March 31, 2014 and 2013

·

Consolidated Statements of Operations for the years ended March 31, 2014 and 2013

·

Consolidated Statements of Changes in Stockholders’ Equity/(Deficiency) at March 31, 2014

·

Consolidated Statements of Cash Flows for the Years Ended March 31, 2014 and 2013

·

Notes to Consolidated Financial Statements

(b)

Exhibits.


2.1

 

Agreement and Plan of Merger effective May 28, 2010 (1)

2.2

 

Agreement and Plan of Merger by and among As Seen On TV, Inc., eDiets Acquisition Company and eDiets.com, Inc. dated as of October 31, 2012 (17)

3.1

 

Articles of Incorporation (2)

3.2

 

Amendment to Articles of Incorporation dated April 18, 2008 (2)

3.3

 

Amendment to Articles of Incorporation dated August 5, 2010 (15)

3.4

 

Amendment to Articles of Incorporation effective October 28, 2011 (10)

3.5

 

Bylaws (2)

3.6

 

Certificate of Merger effective February 28, 2013(33)

4.5

 

Convertible Debenture dated April 8, 2011(5)

4.5.1

 

Amendment to Convertible Debenture dated April 8, 2011 (9)

4.6

 

Form of Convertible Debenture issued August 29, 2011 (9)

4.7

 

Form of Warrant issued August 29, 2011 (9)

4.8

 

Form of Warrant issued under Securities Purchase Agreement dated October 28, 2011 (10)

4.9

 

Form of Placement Agent Warrant issued under Securities Purchase Agreement dated October 28, 2011 (10)

4.10

 

Form of Common Stock Warrant issued under Securities Purchase Agreement dated October 28, 2011 (10)

4.12

 

Form of Warrant dated June 28, 2012 (14)

4.13

 

Form of 12% Senior Secured Convertible Note (16)

4.14

 

Form of Warrant dated September 7, 2012 (16)

4.15

 

Form of Placement Agent Warrant dated September 7, 2012 (16)

4.16

 

Form of Warrant dated November 14, 2012 (19)

4.17

 

Form of Placement Agent Warrant dated November 14, 2012 (19)

10.1

 

Services Agreement with Kevin Harrington (7)**

10.2

 

Employment Agreement with Steve Rogai (7)**

10.3

 

Employment Agreement with Dennis W. Healey (7)**

10.4

 

Form of Independent Director Agreement (7)**

10.5

 

2010 Executive Equity Incentive Plan (3)**

10.6

 

2010 Non Executive Equity Incentive Plan (3)**

10.7

 

Securities Purchase Agreement dated April 11, 2011 (5)

10.8

 

Securities Purchase Agreement dated May 27, 2011 (6)

10.9

 

Severance, Consulting and Release Agreement dated March 23, 2011 (13)

10.10

 

Securities Purchase Agreement effective August 29, 2011 (9)

10.11

 

Notice, Consent, Amendment and Waiver Agreement between the Company and a majority of the Purchasers under the Securities Purchase Agreement dated May 27, 2011, effective August 29, 2011 (9)

10.12

 

Securities Purchase Agreement dated October 28, 2011 (10)

10.13

 

Binding Letter Agreement date May 27, 2011 (11)

10.14

 

Stratcon Partners, LLC Agreement dated December 6, 2011 (12)

10.15

 

Purchasing and Marketing Agreement with Presser Direct(13)



42



 





10.16

 

Asset Purchase Agreement dated June 22, 2012 by and among Seen On TV, LLC and Mary Beth Gearhart (formerly Fasano) and TV Goods, Inc. and As Seen On TV, Inc. (14)

10.17

 

$500,000 principal amount Senior Promissory Note dated September 6, 2012 issued by eDiets.com, Inc. in favor of As Seen On TV, Inc. (15)

10.18

 

Securities Purchase Agreement dated September 7, 2012 (16)

10.19

 

Security Agreement dated September 7, 2012 (16)

10.20

 

Kevin Harrington Lock-up Agreement dated November 5, 2012 (18)

10.21

 

Securities Purchase Agreement dated November 14, 2012 (19)

10.22

 

License Agreement with Kevin Harrington dated February 8, 2012 (20)**

10.23

 

Amendment to Services Agreement with Kevin Harrington dated March 8, 2013 (20)**

10.24

 

Amendment to License Agreement with Kevin Harrington dated March 8, 2013 (20)**

10.25

 

Agreement and General Release dated March 13, 2013 between As Seen On TV, Inc. and Steve Rogai (21)**

10.26

 

Employment Agreement, dated May 1, 2013, between As Seen On TV, Inc. and Ronald C. Pruett, Jr. (22)**  

10.27

 

Assignment and Assumption Agreement, dated May 21, 2013, between TVGoods, Inc. and As Seen On TV, Inc. (23)

10.28

 

Second Amendment to License Agreement, dated May 21, 2013, between As Seen On TV, Inc. and Kevin Harrington (23)**

10.29

 

Second Amendment to Services Agreement, dated May 21, 2013, between As Seen On TV, Inc. and Kevin Harrington (23)**

10.30

 

2013 Equity Compensation Plan, as amended **(34)

10.31

 

eDiets.com, Inc. Amended and Restated Equity Incentive Plan. **(24)

10.32

 

Promissory Note dated November 12, 2010 issued by eDiets.com, Inc. to Lee S. Isgur. (25)

10.33

 

Promissory Note dated November 12, 2010 issued by eDiets.com, Inc. to Kevin N. McGrath. (26)

10.34

 

Promissory Note dated November 12, 2010 issued by eDiets.com, Inc. to Kevin A. Richardson II. (27)

10.35

 

Amendment to Promissory Note entered into as of December 1, 2011 between eDiets.com, Inc. and Kevin A. Richardson, II.(28)

10.36

 

Amendment to Promissory Note entered into as of December 1, 2011 between eDiets.com, Inc. and Lee S. Isgur. (28)

10.37

 

Amendment to Promissory Note entered into as of December 1, 2011 between eDiets.com, Inc. and Kevin N. McGrath. (28)

10.38

 

Fourth Amendment dated February 6, 2012 to eDiets.com, Inc. Amended and Restated Equity Incentive Plan. (29)

10.39

 

eDiets.com, Inc. Amended and Restated Equity Incentive Plan, as amended. (29)

10.40

 

Amendment dated November 16, 2012, to Senior Promissory Note dated September 6, 2012, between eDiets.com, Inc. and As Seen On TV, Inc.(30)

10.41

 

Amendment to Promissory Note entered into as of January 7, 2013 between eDiets.com, Inc. and Kevin A. Richardson, II.(31)

10.42

 

Amendment to Promissory Note entered into as of January 7, 2013 between eDiets.com, Inc. and Lee S. Isgur.(32)

10.43

 

Amendment to Promissory Note entered into as of January 7, 2013 between eDiets.com, Inc. and Kevin N. McGrath.(32)

10.44

 

Senior Promissory Note dated February 12, 2013 issued by eDiets.com, Inc. to As Seen On TV, Inc.(33)

10.45

 

Chefs Diet National Co., LLC Asset Purchase and Revenue Sharing Agreement dated August 23, 2013(35)

10.46

 

Lease Agreement, as amended on August 23, 2013 *

21.1

 

List of subsidiaries of the Company *

23.1

 

Consent of EisnerAmper LLP *

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) *

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) *

32.1

 

Certification of Chief Executive Officer pursuant to Section 1350 *

32.2

 

Certification of Chief Financial Officer pursuant to Section 1350 *

101.INS

 

XBRL Instance Document ***

101.SCH

 

XBRL Taxonomy Extension Schema Document ***

101.CAL

 

XBRL Taxonomy Calculation Linkbase Document ***

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document ***

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document ***

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document ***

———————

*

Filed herewith.



43



 


**

Management contract or compensatory plan arrangement.

***

These exhibits are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we incorporate them by reference

++

Confidential treatment requested pursuant to Rule 24B-2 promulgated under the Securities and Exchange Act of 1934. Confidential portions of this document have been redacted and have been filed separately with the SEC.


(1)

Incorporated by reference to Form 8-K dated May 28, 2010 filed on June 4, 2010.

(2)

Incorporated by reference to Registration Statement on Form S-1 Registration Statement filed April 24, 2008
(333-150419).

(3)

Incorporated by reference to Schedule 14C Definitive Information Statement filed on July 8, 2010.

(4)

Incorporated by reference to Form 10-Q Quarterly Report for the period ended December 31, 2010.

(5)

Incorporated by reference to Form 8-K dated April 11, 2011 filed on April 15, 2011.

(6)

Incorporated by reference to Form 8-K dated May 27, 2011 filed on June 8, 2011.

(7)

Incorporated by reference to Form 8-K dated October 28, 2011 filed on November 3, 2011.

(8)

Incorporated by reference to the Company’s Definitive Information Statement filed on September 19, 2011.

(9)

Incorporated by reference to Form 8-K dated August 29, 2011 filed on August 31, 2011.

(10)

Incorporated by reference to Form 8-K dated November 18, 2011 as filed on November 21, 2011.

(11)

Incorporated by reference to Form 8-K dated May 27, 2011 filed on June 3, 2011.

(12)

Incorporated by reference to Form 8-K dated December 6, 2011 filed on December 12, 2011.

(13)

Incorporated by reference to Form S-1 Registration Statement (333-170778).

(14)

Incorporated by reference to the Form 8-K dated June 28, 2012 filed on July 5, 2012.

(15)

Incorporated by reference to the Form 8-K dated September 7, 2013 filed September 13, 2012.

(16)

Incorporated by reference to the Form 8-K dated September 20, 2012 filed September 25, 2012.

(17)

Incorporated by reference to the Form 8-K dated October 31, 2012 filed November 1, 2012.

(18)

Incorporated by reference to the Form 8-K dated November 14, 2012 filed November 16, 2012.

(19)

Incorporated by reference to the Form 8-K dated December 28, 2012 filed January 4, 2013.

(20)

Incorporated by reference to the Form 8-K dated March 8, 2013 filed March 14, 2013.

(21)

Incorporated by reference to the Form 8-K dated March 13, 2013 filed March 19, 2013.

(22)

Incorporated by reference to the Form 8-K dated May 2, 2013 filed May 7, 2013.

(23)

Incorporated by reference to the Form 8-K dated May 21, 2013 filed May 24, 2013.

(24)

Incorporated by reference to eDiets.com, Inc.’s Form S-8 filed with the SEC on August 16, 2010.

(25)

Incorporated by reference to eDiets.com, Inc.’s Form 10-Q for the quarterly period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Filed as Exhibit 10.46).

(26)

Incorporated by reference to eDiets.com, Inc.’s Form 10-Q for the quarterly period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Filed as Exhibit 10.47).

(27)

Incorporated by reference to eDiets.com, Inc.’s Form 10-Q for the quarterly period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Filed as Exhibit 10.48).

(28)

Incorporated by reference to eDiets.com, Inc.’s Form 8-K filed with the SEC on January 3, 2012.

(29)

Incorporated by reference to eDiets.com, Inc.’s Form 8-K filed with the SEC on February 10, 2012.

(30)

Incorporated by reference to eDiets.com, Inc.’s Form 8-K filed with the SEC on November 21, 2012.

(31)

Incorporated by reference to eDiets.com, Inc.’s Form 8-K filed with the SEC on January 10, 2013.

(32)

Incorporated by reference to eDiets.com, Inc.’s Form 8-K filed with the SEC on February 14, 2013.

(33)

Incorporated by reference to Form 10-K annual report for the year ended March 31, 2013 as filed on June 28, 2013.

(34)

Incorporated by reference to Schedule 14 Information Statement filed with the SEC on July 22, 2013.

(35)

Incorporated by reference to Form 8-K filed with the SEC on August 26, 2013.




44



 



SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

As Seen On TV, Inc.

 

 

 

June 16, 2014

By:

/s/ Robert DeCecco

 

 

Robert DeCecco, Chief Executive Officer

 

 

 

 

By:

/s/ Dennis W. Healey

 

 

Dennis W. Healey, Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.


Name

 

Positions

 

Date

                                                       

    

 

    

                                                       

/s/ Robert DeCecco

 

Chief Executive Officer, Principal Executive Officer and Chairman of the Board of Directors

 

June 16, 2014

Robert DeCecco

 

 

 

 

 

 

 

 

/s/ Dennis W. Healey

 

Chief Financial Officer, Principal Financial and Accounting Officer and Director

 

June 16, 2014

Dennis W. Healey

 

 

 

 

 

 

 

 

/s/ Mary Mather

 

Secretary, Treasurer and Director

 

June 16, 2014

Mary Mather

 

 

 

 

 

 

 

 

 

/s/ Greg Adams

 

Director

 

June 16, 2014

Greg Adams

 

 

 

 

 

 

 

 

 

/s/ Kevin Richardson, II

 

Director

 

June 16, 2014

Kevin Richardson, II

 

 

 

 

 

 

 

 

 

/s/ Shadron Stastney

 

Director

 

June 16, 2014

Shadron Stastney

 

 

 

 

 

 

 

 

 




45



 


INDEX TO FINANCIAL STATEMENTS

AS SEEN ON TV, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

 

Page

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Balance Sheets

F-3

 

 

Consolidated Statements of Operations

F-4

 

 

Consolidated Statements of Stockholders’ Equity

F-5

 

 

Consolidated Statements of Cash Flows

F-6

 

 

Notes to Consolidated Financial Statements

F-8






F-1





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of

As Seen On TV, Inc.



We have audited the accompanying consolidated balance sheets of As Seen On TV, Inc. and Subsidiaries (the “Company”) as of March 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2014. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our 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 consolidated financial position of As Seen On TV, Inc. and Subsidiaries as of March 31, 2014 and 2013 and the consolidated results of their operations and their cash flows for each of the years in the two-year period ended March 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

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




/s/ EisnerAmper LLP



Iselin, New Jersey

June 16, 2014




F-2





AS SEEN ON TV, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

March 31,

 

 

 

2014

 

2013

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,400

 

$

2,352,730

 

Accounts receivable, net

 

 

93,801

 

 

2,559,332

 

Advances on inventory purchases

 

 

 

 

67,455

 

Inventories

 

 

 

 

788,727

 

Note receivable on asset sale – current

 

 

225,000

 

 

 

Prepaid expenses and other current assets

 

 

271,804

 

 

792,450

 

Total current assets

 

 

596,005

 

 

6,560,694

 

 

 

 

 

 

 

 

 

Restricted cash-non current

 

 

83,267

 

 

450,000

 

Certificate of deposit – non current

 

 

 

 

50,489

 

Note receivable on asset sale – non current

 

 

675,000

 

 

 

Property and equipment, net

 

 

43,798

 

 

144,801

 

Goodwill

 

 

 

 

9,300,000

 

Intangible assets, net

 

 

4,388,072

 

 

10,567,655

 

Deposits

 

 

2,185

 

 

17,504

 

Total assets

 

$

5,788,327

 

$

27,091,143

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

566,769

 

$

1,366,426

 

Deferred revenue

 

 

38,769

 

 

173,750

 

Accrued registration rights penalty

 

 

156,000

 

 

156,000

 

Accrued expenses and other current liabilities

 

 

204,797

 

 

727,730

 

Notes payable related party

 

 

450,000

 

 

100,000

 

Accrued interest related party

 

 

9,237

 

 

425

 

Notes payable – current portion

 

 

246,001

 

 

281,805

 

Warrant liability

 

 

929,761

 

 

11,689,306

 

Current liabilities of discontinued operations

 

 

904,788

 

 

1,673,368

 

Total current liabilities

 

 

3,506,122

 

 

16,168,810

 

 

 

 

 

 

 

 

 

Notes payable-non current

 

 

80,957

 

 

193,107

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2014 and 2013, respectively.

 

 

 

 

 

Common stock, $.0001 par value; 750,000,000 shares authorized; 71,741,250 and 71,282,066 issued and outstanding at March 31, 2014 and 2013, respectively.

 

 

7,174

 

 

7,128

 

Additional paid-in capital

 

 

25,095,345

 

 

24,293,947

 

Accumulated deficit

 

 

(22,901,271

)

 

(13,571,849

)

Total stockholders' equity

 

 

2,201,248

 

 

10,729,226

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

5,788,327

 

$

27,091,143

 




See accompanying notes to consolidated financial statements


F-3





AS SEEN ON TV, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OPERATIONS


 

 

Year Ended March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,985,595

 

$

9,403,758

 

Cost of revenues

 

 

1,341,529

 

 

6,980,240

 

 

 

 

 

 

 

 

 

Gross profit

 

 

644,066

 

 

2,423,518

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling and marketing expenses

 

 

68,801

 

 

3,952,510

 

General and administrative expenses

 

 

5,335,091

 

 

6,779,217

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(4,759,826

)

 

(8,308,209

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense:

 

 

 

 

 

 

 

Warrant revaluation

 

 

(10,759,545

)

 

(13,950,739

)

Other income

 

 

(23,530

)

 

(82,636

)

Interest expense

 

 

13,819

 

 

1,588,272

 

Interest expense - related party

 

 

13,155

 

 

425

 

 

 

 

(10,756,101

)

 

(12,444,678

)

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes

 

 

5,996,275

 

 

4,136,469

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

5,996,275

 

 

4,136,469

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income tax

 

 

(15,325,697

)

 

(439,710

)

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(9,329,422

)

$

3,696,759

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

Continuing operations

 

$

0.08

 

$

0.10

 

Discontinued operations

 

$

(0.21

)

$

(0.01

)

Income (loss) per share

 

$

(0.13

)

$

0.09

 

Diluted

 

 

 

 

 

 

 

Continuing operations

 

$

0.08

 

$

0.10

 

Discontinued operations

 

$

(0.21

)

$

(0.01

)

Income (loss) per share

 

$

(0.13

)

$

0.09

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding – basic and diluted

 

 

 

 

 

 

 

Basic

 

 

71,604,248

 

 

40,539,166

 

Diluted

 

 

72,699,243

 

 

43,439,631

 




See accompanying notes to consolidated financial statements


F-4





AS SEEN ON TV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED MARCH 31, 2014 AND 2013


 

 

Common Shares,
$.0001 Par Value
Per Share

 

 

Additional

Paid-In

Capital

 

 

Accumulated
Deficit

 

 

Total

 

 

 

Shares

Issued

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance April 1, 2012

 

 

31,970,784

 

 

$

3,197

 

 

$

 

 

$

(17,268,608

)

 

$

(17,265,411

)

Share based compensation – options

 

 

 

 

 

 

 

 

1,374,804

 

 

 

 

 

 

1,374,804

 

Common stock issued in Unit offering net of offering costs of $885,300

 

 

10,410,285

 

 

 

1,041

 

 

 

6,400,548

 

 

 

 

 

 

6,401,589

 

Placement Agent consideration for Unit Offering

 

 

100,000

 

 

 

10

 

 

 

(10

)

 

 

 

 

 

 

Common shares issued on conversion of notes payable in Unit offering

 

 

2,190,140

 

 

 

219

 

 

 

1,302,914

 

 

 

 

 

 

1,303,133

 

Warrants issued in Unit Offering reclassed to warrant liability

 

 

 

 

 

 

 

 

(5,170,769

)

 

 

 

 

 

(5,170,769

)

Shares issued under repricing agreement

 

 

6,019,933

 

 

 

602

 

 

 

(602

)

 

 

 

 

 

 

Common shares issued for services

 

 

275,000

 

 

 

27

 

 

 

218,719

 

 

 

 

 

 

218,746

 

Reclassification of warrant liability due to expiration of down round provision

 

 

 

 

 

 

 

 

6,386,307

 

 

 

 

 

 

6,386,307

 

Warrants issued for services

 

 

 

 

 

 

 

 

215,905

 

 

 

 

 

 

215,905

 

Common shares issued in asset acquisition

 

 

250,000

 

 

 

25

 

 

 

257,475

 

 

 

 

 

 

257,500

 

Warrants issued in asset acquisition, including warrant modification

 

 

 

 

 

 

 

 

241,880

 

 

 

 

 

 

241,880

 

Beneficial conversion feature on notes payable

 

 

 

 

 

 

 

 

533,032

 

 

 

 

 

 

533,032

 

Common shares issued in acquisition

 

 

19,077,270

 

 

 

1,908

 

 

 

11,062,898

 

 

 

 

 

 

11,064,806

 

Common shares issued upon conversion of acquisition related notes

 

 

988,654

 

 

 

99

 

 

 

691,958

 

 

 

 

 

 

692,057

 

Warrants issued in connection with acquisition related notes reclassed to warrant liabilities

 

 

 

 

 

 

 

 

(197,855

)

 

 

 

 

 

(197,855

)

Options issued in acquisition to eDiets employees

 

 

 

 

 

 

 

 

604,218

 

 

 

 

 

 

604,218

 

Warrants issued in acquisition

 

 

 

 

 

 

 

 

289,875

 

 

 

 

 

 

289,875

 

Acquisition related consulting fee

 

 

 

 

 

 

 

 

82,650

 

 

 

 

 

 

82,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

3,696,759

 

 

 

3,696,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2013

 

 

71,282,066

 

 

 

7,128

 

 

 

24,293,947

 

 

 

(13,571,849

)

 

 

10,729,226

 

Rounding shares eDiets acquisition transaction

 

 

416

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares based compensation - options

 

 

 

 

 

 

 

 

944,418

 

 

 

 

 

 

944,418

 

Warrants issued for services

 

 

 

 

 

 

 

 

(142,974

)

 

 

 

 

 

(142,974

)

Shares issued under consulting agreement

 

 

142,500

 

 

 

14

 

 

 

(14

)

 

 

 

 

 

 

Shares issued under repricing agreement

 

 

316,268

 

 

 

32

 

 

 

(32

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,329,422

)

 

 

(9,329,422)

 

Balance March 31, 2014

 

 

71,741,250

 

 

$

7,174

 

 

$

25,095,345

 

 

$

(22,901,271

)

 

$

2,201,248

 




See accompanying notes to consolidated financial statements


F-5





AS SEEN ON TV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31, 2014 AND 2013


 

 

Year Ended March 31,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

  

 

 

 

 

 

  

Net income (loss)

 

$

(9,329,422

)

$

3,696,759

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,005,518

 

 

190,741

 

Impairment related to divestiture of meal delivery component

 

 

14,631,439

 

 

 

Meal delivery component asset sale

 

 

(1,100,000

)

 

 

Amortization of discount on convertible debt

 

 

 

 

1,249,793

 

Amortization of deferred financing costs

 

 

 

 

300,527

 

Loss on disposal of property and equipment

 

 

48,719

 

 

 

Warrants issued for services

 

 

(142,974

)

 

215,905

 

Share-based compensation

 

 

944,418

 

 

1,374,804

 

Acquisition related consulting fees

 

 

 

 

82,650

 

Shares issued for consulting services

 

 

 

 

218,746

 

Change in fair value of warrants

 

 

(10,759,545

)

 

(13,950,739

)

Inventory write-down

 

 

307,451

 

 

1,333,960

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

2,465,532

 

 

(380,672

)

Advances on inventory purchases

 

 

67,455

 

 

237,247

 

Inventories

 

 

481,276

 

 

(833,651)

 

Prepaid expenses and other current assets

 

 

520,645

 

 

(89,930

)

Other non-current assets

 

 

15,318

 

 

23,079

 

Accounts payable

 

 

(1,568,236

)

 

287,216

 

Deferred revenue

 

 

(134,981

)

 

(205,009

)

Accrued interest – related party

 

 

8,812

 

 

425

 

Accrued expenses and other current liabilities

 

 

(505,211

)

 

(145,646

)

Decrease in non-current liabilities

 

 

(20,000

)

 

 

Net cash used in operating activities

 

 

(3,063,786

)

 

(6,393,795

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Decrease in restricted cash

 

 

366,733

 

 

 

Certificate of deposit – non current

 

 

50,489

 

 

(489

)

Proceeds from collections of notes receivable

 

 

200,000

 

 

 

Purchase of intangible assets

 

 

(98,956

)

 

(1,575,525

)

Cash paid in acquisition-net of cash acquired of $691,344

 

 

 

 

(1,713,656

)

Additions to property and equipment

 

 

(13,856

)

 

(2,879

)

Net cash provided by (used in) investing activities

 

 

504,410

 

 

(3,292,549

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of convertible debt

 

 

 

 

1,275,000

 

Costs associated with convertible debt

 

 

 

 

(157,175

)

Proceeds of notes payable

 

 

450,000

 

 

 

Repayment of notes payable

 

 

(137,954

)

 

(163,837

)

Repayment of not payable – related party

 

 

(100,000

)

 

 

Proceeds from private placements of common stock

 

 

 

 

7,287,200

 

Costs associated with private placement

 

 

 

 

(885,300

)

Net cash provided by financing activities

 

 

212,046

 

 

7,355,888

 

Net decrease in cash and cash equivalents

 

 

(2,347,330

)

 

(2,330,456

)

Cash and cash equivalents - beginning of year

 

 

2,352,730

 

 

4,683,186

 

Cash and cash equivalents - end of year

 

$

5,400

 

$

2,352,730

 




See accompanying notes to consolidated financial statements


F-6





AS SEEN ON TV, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED MARCH 31, 2014 AND 2013


 

 

Year Ended March 31,

 

 

 

2014

 

2013

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

Interest paid in cash

 

$

8,526

 

$

4,301

 

Taxes paid in cash

 

$

 

$

 

Non Cash Investing and Financing Activities

 

 

 

 

 

 

 

Common shares issued on acquisition deposit

 

$

 

$

257,500

 

Warrants issued with debt

 

$

 

 

$

860,112

 

Beneficial conversion feature on note payable

 

$

 

$

533,032

 

Warrants issued for asset acquisition

 

$

 

$

241,880

 

Insurance premiums financed through note payable

 

$

45,178

 

$

214,844

 

Reclassification of warrant liabilities to equity

 

$

 

$

6,386,307

 

Warrants issued in Unit Offering

 

$

 

$

5,170,769

 

Common shares issued in conversion of note payable

 

$

 

$

1,303,133

 

Common shares issued in acquisition

 

$

 

$

11,064,806

 

Common shares issued upon conversion of notes payable at acquisition

 

$

 

$

692,057

 

Warrants issued in connection with acquisition in related notes

 

$

 

$

197,855

 

Options issued in acquisition

 

$

 

$

1,298,451

 

Warrants issued in acquisition

 

$

 

$

289,875

 

Shares issued under repricing agreement

 

$

32

 

$

602

 

Shares issued under consulting agreement

 

$

14

 

$

 


The statements above for the years ended March 31, 2014 and 2013 combine the cash flows from discontinued operations with the cash flows from continuing operations. See Note 4 for further discussion of discontinued operations.




See accompanying notes to consolidated financial statements


F-7



 


AS SEEN ON TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Description of Our Business and Liquidity

Description of Our Business

As Seen On TV, Inc. (“ASTV”, “we”, “our” or the “Company”) is a direct response marketing company and owner of AsSeenOnTV.com and eDiets.com. We identify, develop and market consumer products for global distribution via TV, Internet and retail channels. Following our February 2013 acquisition of eDiets.com, Inc. (“eDiets”), our business is organized along two segments. The As Seen On TV (“ASTV”) segment is a direct response marketing company that identifies and advises in the development and marketing of consumer products. The eDiets segment is a subscription-based nationwide weight-loss oriented digital subscription service and, until our discontinuance of the meal delivery component in September 2013, provided dietary and wellness oriented meal delivery services. See Note 4.

On February 28, 2013, we acquired 100% of the outstanding stock of eDiets pursuant to the terms and conditions of the Agreement and Plan of Merger by and among our Company, eDiets Acquisition Company, a Delaware corporation and wholly owned subsidiary of our Company, and eDiets, dated October 31, 2012. Following the closing, eDiets became a wholly owned subsidiary of our Company (See Note 3). Accordingly, the operating results of eDiets are included in the financial statements from the acquisition date.

Effective April 2, 2014, the Company entered into an Agreement and Plan of Merger with Infusion Brands International, Inc., a Nevada corporation (“IBI”), Infusion Brands, Inc. (“Infusion” or “Infusion Brands”), a Nevada corporation and a wholly owned subsidiary of IBI, ASTV Merger Sub, Inc., a Nevada corporation and a wholly owned subsidiary of the Company (the “Infusion Merger”). Effective April 2, 2014. ASTV Merger Sub, Inc. merged with and into Infusion Brands, Inc., with Infusion Brands, Inc. continuing as the surviving corporation and becoming a direct wholly owned subsidiary of the Company. The merger transaction will be accounted for as a reverse merger under the provision of Financial Accounting Standards Board, Accounting Standards Codification (“FASB ASC”) 805, whereby Infusion Brands, Inc. became the accounting acquirer (legal acquiree) and the Company (As Seen On TV, Inc.) was treated as the accounting acquiree (legal acquirer). The historical financial records of the Company will be those of the accounting acquirer adjusted to reflect the legal capital of the accounting acquiree. (See Note 15).


ASTV, a Florida corporation, was organized in November 2006. Our executive offices are located in Clearwater, Florida.


ASTV


ASTV generates revenues primarily from three channels, including direct response sales of consumer products, sale of consumer products through a “live-shop” TV venue and ownership of the url AsSeenOnTV.com which operates as a web based outlet for our Company and other direct response businesses.

Inventors and entrepreneurs submit products or business concepts for our review. Once we identify a suitable product or concept, we negotiate to obtain marketing and distribution rights. These marketing and distribution agreements typically provide for revenue sharing in the form of a royalty to the inventor or product owner. As of the date of this report, we have marketed several products with limited success.

Under the terms of an agreement dated November 20, 2013, Tru Hair, Inc., a wholly owned subsidiary of the Company, licensed certain trademarks to a third party in exchange for a cash payment of $25,000 and an undertaking by the third party to use reasonable best efforts to market, distribute and sell certain items held by Tru Hair, Inc.



F-8




AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



eDiets


eDiets develops and markets Internet-based diet and fitness programs, primarily through the url eDiets.com. eDiets also offered through September 2013, a subscription-based nationwide weight-loss oriented meal delivery service. Digital diet plans are personalized according to an individual’s weight goals, food and cooking preferences, and include the related shopping lists and recipes.

Liquidity and Going Concern

At March 31, 2014, we had a cash balance of $5,400, a working capital deficit of approximately $2.9 million and an accumulated deficit of approximately $22.9 million. We have experienced losses from operations since our inception, and we have relied on a series of private placements and convertible debentures to fund our operations. The Company cannot predict how long it will continue to incur losses or whether it will ever become profitable.

Pursuant to a Senior Note Purchase Agreement dated as of April 3, 2014, by and among the Company, IBI, Infusion, eDiets.com, Inc., Tru Hair, Inc., TV Goods Holding Corporation, Ronco Funding LLC (collectively, the “Credit Parties”), and MIG7 Infusion, LLC (“MIG7” and such agreement, the “Note Purchase Agreement”), the Credit Parties sold to MIG7 a senior secured note having a principal amount of $10,180,000 bearing interest at 14% and having a maturity date of April 3, 2015 (the “MIG7 Note”).  See Note 15.

We have undertaken, and will continue to implement, various measures to address our financial condition, including:


·

Significantly curtailing costs and consolidating operations, where feasible.

·

Seeking debt, equity and other forms of financing, including funding through strategic partnerships.

·

Reducing operations to conserve cash.

·

Deferring certain marketing activities.

·

Investigating and pursuing transactions with third parties, including strategic transactions and relationships.


There can be no assurance that we will be able to secure the additional funding we need. If our efforts to do so are unsuccessful, we will be required to further reduce or eliminate our operations and/or seek relief through a filing under the U.S. Bankruptcy Code. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.

Note 2.

Summary of Significant Accounting Policies

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reported periods. Our management believes the estimates utilized in preparing our consolidated financial statements are reasonable. Actual results could differ from these estimates.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowance for Doubtful Accounts: The allowance for doubtful accounts is based on an evaluation of our outstanding accounts receivable including the age of amounts due, the financial condition of our specific customers, knowledge of our industry unit and historical bad debt experience. This evaluation methodology has proved to provide a reasonable estimate of bad debt expense in the past and we intend to continue to employ this approach in our analysis of collectability.



F-9



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Allowance for Sales Returns: In the direct response industry, purchased items are generally returnable for a certain period after purchase. We attempt to estimate returns and provide an allowance for sales returns where applicable. Our estimates are based on historical experience and knowledge of the products sold. The allowance for estimated sales returns totaled $0 and approximately $157,000 at March 31, 2014 and 2013, respectively, and is included in accrued expenses.

Goodwill: Goodwill is not amortized but is subject to periodic testing for impairment in accordance with Accounting Standards Codification (“ASC”) Topic 350 -- Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment. The test for impairment was to be conducted annually or more frequently if events occur or circumstances change indicating that the fair value of the goodwill may be below its carrying amount. In connection with the Company’s decision to divest the dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its investment in this component and therefore recorded a loss of $9,300,000 related to the associated goodwill, which was recorded in loss from discontinued operations.

The following provides a roll-forward of the Company’s goodwill:

Balance as of April 1, 2013

$

9,300,000

 

Impairment

 

(9,300,000

)

Balance as of March 31, 2014

$

 


Intangible Assets: Intangible assets include acquired customer relationships, urls and trademarks. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets of five years in accordance with ASC Topic 350 -- Intangibles - Goodwill and Other - Testing Indefinite-Lived Intangible Assets for Impairment. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In connection with the Company’s decision to divest the dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its finite-lived intangible assets in this component and therefore recorded a loss of approximately $5,331,000 which represented the excess carrying value over the related fair value of these assets, which was recorded in loss from discontinued operations.

Income Taxes: We use the asset and liability method to determine our income tax expense or benefit. Deferred tax assets and liabilities are computed based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that are expected to be in effect when the differences are expected to be recovered or settled. Any resulting net deferred tax assets are evaluated for recoverability and, accordingly, a valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax asset will not be realized.

Cash and Cash Equivalents

Cash and cash equivalents are recorded in the balance sheet at cost, which approximates fair value. All highly liquid investments purchased with an original maturity of three months or less are to be considered cash equivalents.

Restricted Cash

Restricted cash totaling $83,267 and $450,000 at March 31, 2014 and 2013, respectively, represents funds held by eDiets credit card processors.

Revenue Recognition

We recognize revenue from product sales in accordance with FASB ASC 605 — Revenue Recognition. Following agreements or orders from customers, we ship products to our customers often through a third party facilitator. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling price is fixed and collection is reasonably assured. Typically, these criteria are met when our customer’s order is received and we receive acknowledgment of receipt by a third party shipper and collection is reasonably assured.



F-10



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



We recognized deferred revenue for our dietary meal delivery program as payment was made in advance of the actual meal delivery. We also recognize deferred revenue related to our online dietary subscription services as payments are made in advance of the full subscription period. As of March 31, 2014 and 2013, we had deferred revenue of approximately $39,000 and $174,000, respectively.

The Company has a return policy on its ASTV sales whereby the customer can return any product within 60-days of receipt for a full refund, excluding shipping and handling. However, historically the Company has accepted returns past 60-days of receipt. The Company provides an allowance for returns based upon specific product warranty agreements and past experience and industry knowledge. All significant returns for the periods presented have been offset against gross sales. The Company also provides a reserve for warranties, which is not significant and is included in accrued expense.

eDiets’ meal delivery revenue, through the divestiture date, was recognized upon delivery and transfer of title to the product. This occurred upon shipment from the Company’s fulfillment center and delivery to the end-customer. eDiets’ digital revenue is generated by the Company offering membership subscriptions to the proprietary content contained in its websites. Subscriptions were paid in advance, mainly via credit/debit cards, and cash receipts are recognized as deferred revenue and are recorded as revenue on a straight-line basis over the period of the digital plan subscription. Commencing in fiscal 2014, the Company changed its billing policies for subscriptions, charging our customers on a monthly basis rather than annually in advance.

Receivables

Accounts receivable consists of amounts due from the sale of our direct response, home shopping related products and dietary programs. Our allowance for doubtful accounts at March 31, 2014, and 2013, totaled $22,000 and $152,000, respectively. The allowances are estimated based on historical customer experience and industry knowledge.

Inventories and Advances on Inventory Purchases

Inventories are stated at the lower of cost or market. Cost is determined using a first-in, first-out, or FIFO, method. We review our inventory for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

Advances on inventory purchases represent payments made to our product suppliers in advance of delivery to the Company. It is common industry practice to require a substantial deposit against products ordered before commencement of manufacturing, particularly with off-shore suppliers. Additional advance payments may also be required upon achievement of certain agreed upon manufacturing or shipment benchmarks. Upon delivery and receipt by the Company of the items ordered, and the Company taking title to the goods, the balances are transferred to inventory.

Property and Equipment, net

We record property, equipment and leasehold improvements at historical cost. Expenditures for maintenance and repairs are recorded to expense; additions and improvements are capitalized. We provide for depreciation using the straight-line method at rates that approximate the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the remaining term of the lease.

Property and equipment, net consists of the following:

Property and equipment

 

Estimated

Useful Lives

 

March 31,
2014

 

March 31,
2013

 

 

 

 

 

 

 

 

 

 

 

Computers and software

 

3 Years

 

$

61,892

 

$

120,041

 

Office equipment and furniture

 

5-7 Years

 

 

67,693

 

 

94,248

 

Leasehold improvements

 

1-3 Years

 

 

62,610

 

 

62,610

 

 

 

 

 

 

192,195

 

 

276,899

 

Less: accumulated depreciation and amortization

 

 

 

 

(148,397

)

 

(132,098

)

 

 

 

 

$

43,798

 

$

144,801

 




F-11



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Depreciation and amortization of leasehold improvements totaled approximately $58,418 and $59,741 for the years ended March 31, 2014 and 2013, respectively, and were charged to general and administrative expenses.

Intangible Assets

Intangible assets consisted of the following at March 31, 2014 and 2013:

 

 

March 31,

2013

 

 

Amortization

Expense for the

Year Ended

March 31,

2014

 

 

Impairment

 

 

Additions

 

 

March 31,

2014

 

Estimated

Useful Life

Customer relationships

 

$

6,000,000

 

 

$

 

 

 

$

(5,000,000

)

 

$

 

 

$

1,000,000

 

5 years

URL’s

 

 

1,000,000

 

 

 

 

 

 

 

(660,000

)

 

 

98,956

 

 

 

438,956

 

5 years

Trademarks

 

 

859,439

 

 

 

 

 

 

 

(588,439

)

 

 

 

 

 

271,000

 

5 years

AsSeenOnTV.com

 

 

2,839,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,839,216

 

Indefinite

 

 

 

10,698,655

 

 

 

 

 

 

 

(6,248,439

)

 

 

98,956

 

 

 

4,549,172

 

 

Accumulated amortization

 

 

(131,000

)

 

 

(947,100

)

 

 

917,000

 

 

 

 

 

 

(161,100

)

 

 

 

$

10,567,655

 

 

$

(947,100

)

 

$

(5,331,439

)

 

$

98,956

 

 

$

4,388,072

 

 


Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

The straight-line method is being used to amortize the Company’s finite lived intangible assets over their respective lives. Related amortization expense recognized was approximately $947,000 and $131,000 for the years ended March 31, 2014 and 2013, respectively. Amortization expense for the next five succeeding fiscal years is estimated as follows:

March 31,

 

 

 

2015

$ 342,000

2016

$ 342,000

2017

$ 342,000

2018

$ 342,000

2019

$ 181,000


Earnings (Loss) Per Share

Basic earnings per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares, if any, that would be issued assuming conversion of all potentially dilutive securities outstanding.



F-12



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following is a reconciliation of the number of shares used in the calculation of basic earnings per share and diluted earnings per share from continuing operations and basic and diluted loss per share from discontinued operations and net income (loss) per share for the years ended March 31, 2014 and 2013, respectively.

 

Year ended March 31,

 

 

2014

 

2013

 

Income from continuing operations

$

5,996,275

 

$

4,136,469

 

 

 

 

 

 

 

  

Loss from discontinued operations, net of income tax

 

(15,325,697

)

 

(439,710

)

 

 

 

 

 

 

 

Net income (loss)

$

(9,329,422

)

$

3,696,759

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding

 

71,604,248

 

 

40,539,166

 

 

 

 

 

 

 

 

Incremental shares from the assumed exercise of dilutive securities:

 

 

 

 

 

 

Dilutive options

 

8,652

 

 

9,371

 

Dilutive warrants

 

1,086,343

 

 

2,891,094

 

 

 

72,699,243

 

 

43,439,631

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

Continuing operations

$

0.08

 

$

0.10

 

Discontinued operations

 

(0.21

)

 

(0.01

)

Income (loss) per share

$

(0.13

)

$

0.09

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

Continuing operations

$

0.08 

 

$

0.10

 

Discontinued operations

 

(0.21

)

 

(0.01

)

Income (loss) per share

$

(0.13

)

$

0.09

 


The following securities were not included in the computation of diluted net earnings per share as their effective would be anti-dilutive:

 

 

Three Months Ended

December 31,

 

 

 

2014

 

 

2013

 

Stock options

 

 

7,113,115

 

 

 

1,561,250

 

Warrants

 

 

63,375,527

 

 

 

25,633,263

 

 

 

 

70,488,642

 

 

 

27,194,513

 


Subsequent to March 31, 2014, the Company entered into two transactions issuing a material number of common shares and warrants. See Note 15. On April 2, 2014, the Company entered into the Agreement and Plan of Merger issuing 452,960,490 shares of common stock. On April 3, 2014, the Company entered into a Senior Note Purchase Agreement in the principal amount of $10,180,000, which transaction included the issuance of a common stock purchase warrant, exercisable at $0.0001 per share until April 3, 2015, unless extended, for 4.99% of the Company’s common stock outstanding on a fully diluted basis on the date of exercise.  The above earnings (loss) per share calculations do not reflect these additional common shares and warrants which, if included, would have had a material dilutive effect on income per share from continuing operations for both fiscal 2014 and 2013.




F-13



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Share-Based Payments

We recognize share-based compensation expense on stock option awards under the provisions of ASC 718 Compensation - Stock Compensation. Compensation expense is recognized on that portion of option awards that are expected to ultimately vest over the vesting period from the date of grant. All options granted vest over their requisite service periods which can vary from 6 months to 5 years. We granted no stock options or other equity awards which vest based on performance or market criteria. We had applied an estimated forfeiture rate to all share-based awards, which represents that portion we expected would be forfeited over the vesting period. We reevaluate this analysis periodically and adjust our estimated forfeiture rate as necessary.

We utilized the Black-Scholes option pricing model to estimate the fair value of our stock options. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including estimates of expected life of the award, stock price volatility, forfeiture rates and risk-free interest rates. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.

In addition, under the provisions of ASC 805—Business Combinations, the Company recognized as stock-based compensation the difference in fair value between the eDiets options outstanding at the acquisition date and the replacement ASTV options granted. The fair value of the eDiets’ options replaced was recorded as consideration transferred in the acquisition. The excess fair value of the ASTV replacement options over the fair value of the eDiets options was recognized as compensation cost in the year ended March 31, 2013 since substantially all the options were fully vested. Accordingly, the Company recorded $694,000 in stock-based compensation in March 2013 related to these replacement options.

Impairment of Long-Lived Assets

We review our long-lived assets, such as property and equipment, and acquired intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from future undiscounted cash flows. Impairment losses are recorded for the excess, if any, of the carrying value over the fair value of the long-lived assets. In connection with the Company’s decision to divest the eDiets dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its finite-lived intangible assets in that component and therefore recorded a loss of approximately $5,331,000, which represented the excess carrying value over the related fair value of these assets, which was recorded in loss from discontinued operations.

Income Taxes

We account for income taxes in accordance with FASB ASC 740 — Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of FASB ASC 740 — Income Taxes.

FASB ASC 740 also requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.



F-14



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Concentration of Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash, cash equivalents and trade accounts receivable. Cash and cash equivalents are held with financial institutions in the United States and from time to time we may have balances that exceed the amount of insurance provided by the Federal Deposit Insurance Corporation on such deposits. Concentration of credit risk with respect to our trade accounts receivable to our customers is limited to approximately $94,000 at March 31, 2014. Credit is extended to our customers, based on an evaluation of a customer’s financial condition and collateral is not required.

Advertising and Promotional Costs

Advertising and promotional costs are expensed when incurred and totaled approximately $35,000 and $170,000 for the years ended March 31, 2014 and 2013, respectively.

Fair Value Measurements

FASB ASC 820 — Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to us on March 31, 2014 and 2013, respectively. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.

FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.

The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value based on the short-term maturity of these instruments. The fair value of notes payable are based on borrowing rates that are available to the Company for loans with similar terms, collateral and maturity. The estimated fair value of notes payable approximates the carrying value. Determination of fair value of related party payables is not practicable due to their related party nature.



F-15



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Accounting Standards Updates

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):  Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures to this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. The amendments in the ASU are effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2014. The Company is currently evaluating the impact that this ASU will have on its financial statements.

In May 2014, the FASB has issued No. 2014-09, “Revenues from Contracts with Customers (Topic 606)”. The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No. 2014-09 are effect for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact that this ASU will have on its financial statements.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All inter-company account balances and transactions have been eliminated in consolidation and certain prior period amounts, including those related to discontinued operations, have been reclassified to conform with the current period presentation.

Note 3.

eDiets Acquisition and Sale of Meal Delivery Service

On February 28, 2013, the Company completed the purchase of 100% of the outstanding common stock of eDiets.com, Inc., a publicly held company organized under the laws of the State of Delaware (“eDiets”), offering subscription-based weight-loss oriented meal delivery service and individualized digital subscription-based weight-loss and wellness programs. Pursuant to the terms and conditions of the Agreement and Plan of Merger by and among our Company, eDiets Acquisition Company, a Delaware corporation and wholly owned subsidiary of our Company, and eDiets, dated October 31, 2012 we issued an aggregate of 19,077,686 shares of our common stock, at the ratio of 1.2667 shares of our common stock for each outstanding share of eDiets’ common stock, to the eDiets’ stockholders. Following the closing, eDiets became a wholly owned subsidiary of our Company.

At completion, we believed the acquisition of eDiets could create a more scalable business and facilitate our strategic objective of becoming one of the top providers of ecommerce products and solutions. In addition, while there were no assurances, it was anticipated that the acquisition would allow us to expand our product offerings, realize potential synergies in marketing and media purchases, realize potential cost savings in administrative expenses and the costs associated with public company compliance, and take advantage of product cross-selling opportunities.



F-16



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The total purchase price for eDiets was approximately $15.1 million. The purchase price consisted of approximately (i) $2.4 million in cash, (ii) $11.1 million in the Company’s common stock, valued based on the closing price of the stock on February 28, 2013, (iii) $0.9 million representing the fair value of the Company’s options issued to eDiets’ employees and warrants issued to eDiets consultants, and (iv) assumed liability of $600,000 in principal and $92,057 of related accrued interest in eDiets notes payable to related parties, which converted into 988,654 shares of common stock at $0.70 per share and warrants to purchase 494,328 shares of common stock of the Company, all pursuant to the Agreement and Plan of Merger. In accordance with accounting standards of business combinations, we accounted for the acquisition of eDiets under the acquisition method. Under the acquisition method, the assets acquired and liabilities assumed at the date of acquisition were recorded in the consolidated financial statements at their respective fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill. eDiets’ results of operations are included in our consolidated financial statements from the date of acquisition.

The determination of the estimated fair value of the acquired assets and liabilities assumed required management to make significant estimates and assumptions. We determined the fair value by applying established valuation techniques, based on information that management believed to be relevant to this determination. The following table summarizes the purchase price allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition:

Cash and cash equivalents

 

$

241,344

 

Restricted cash

 

 

450,000

 

Accounts receivable

 

 

118,172

 

Inventory

 

 

75,522

 

Prepaid expenses and other assets

 

 

275,170

 

Property, plant and equipment

 

 

61,342

 

Intangibles

 

 

 

 

Customer relationships

 

 

6,000,000

 

URL’s

 

 

1,000,000

 

Trademarks

 

 

859,439

 

Total assets acquired

 

 

9,080,989

 

 

 

 

 

 

Accounts payable

 

 

(2,318,986

)

Accrued expenses

 

 

(443,364

)

Notes payable

 

 

(463,672

)

Total liabilities assumed

 

 

(3,226,022

)

Net assets acquired

 

$

5,854,967

 


The purchase price exceeded the fair value of the net assets acquired by $9,300,000, which was recorded as goodwill. Acquisition costs, consisting of legal, consulting and other costs related to the acquisition aggregated approximately $278,000 and included $82,650 for an acquisition consulting fee payable in 142,500 shares of common stock which were issued in July 2013.

In connection with the Company’s decision to divest the dietary meal delivery component in September 2013, the Company determined that it would not be able to recover the carrying value of its investment in this component and therefore recorded a loss which is included in discontinued operations. See Note 4.

The accompanying consolidated financial statements do not include any revenues or expenses related to the eDiets business on or prior to February 28, 2013, the closing date of the acquisition. The consolidated statements of operations for the years ended March 31, 2014 and 2013 include a loss from discontinued operations of approximately $15,326,000 and $440,000, respectively, related to eDiets.

In connection with the acquisition, the Company acquired an aggregate of $463,672 of notes payable, consisting of $100,000 due to a former director of eDiets, $100,000 due to a former director of eDiets who is currently a director of the Company and $263,672 due to a former landlord of eDiets. The annual interest rate on the director and former director notes is 5%. The landlord note is interest free, absent default.



F-17



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



In addition, under the provisions of ASC 805—Business Combinations, the Company recognized as stock-based compensation the difference in fair value between the eDiets options outstanding at the acquisition date and the replacement ASTV options granted. The fair value of the eDiets’ options replaced was recorded as consideration in the acquisition. The excess fair value of the ASTV replacement options over the fair value of the eDiets options, totaling approximately $694,000, was recognized as compensation cost in the fiscal year ended March 31, 2013.

At the time of acquisition, eDiets had approximately $61.2 million in net operating loss carryforwards. Those net operating loss carryforwards will be subject to the Internal Revenue Code 382 ownership change rules which will limit future use by eDiets, as a subsidiary of the Company, to approximately $0.50 million per year.

Note 4.

Discontinued Operations

On October 11, 2013, the Company completed the sale to Chefs Diet National Co., LLC (“Chef’s Diet”), a subsidiary of Chef’s Diet Corp., of certain assets (the “Meal Delivery Assets”) relating to the eDiets meal delivery business pursuant to an Asset Purchase and Revenue Sharing Agreement (the “Agreement”) dated August 23, 2013 between eDiets and Chef’s Diet. The disposed assets consist primarily of a customer database of active and inactive eDiets customers. In addition, eDiets granted Chef’s Diet a perpetual royalty-free license to content and certain other intellectual property used in connection with the eDiets meal delivery business. While the transaction was not completed until October 11, 2013, the transaction met the criteria of held-for-sale accounting as of September 30, 2013 and has been presented in accordance with the provisions of ASC 205-20 Discontinued Operations for all periods presented.

The base sales price of $1.1 million consisted of an initial cash payment of $200,000, of which $100,000 was collected prior to September 30, 2013, with the additional $100,000 collected during the three months ended December 31, 2013, plus deferred cash payments totaling $900,000 payable as follows: (i) eight quarterly payments beginning April 1, 2014 in an amount equal to the greater of $56,250 or 7% of adjusted gross revenue for the immediately preceding period, and (ii) eight quarterly payments beginning April 1, 2016 in an amount equal to the greater of $56,250 or 5% of adjusted gross revenue for the immediately preceding period. In addition, Chef’s Diet will make up to four quarterly bonus payments of up to $50,000 each if it meets certain customer acquisition and retention targets.

The Company’s meal delivery operations were a component of our eDiets subsidiary which delivered fresh and frozen diet or wellness focused meals to our customers. Management believes this divestiture allowed the Company to streamline its operations and better focus its limited recourses on ecommerce based platforms, which it believes is the future of the dietary and wellness industries.

In connection with the Agreement, the Company retained a perpetual, nonexclusive, worldwide, royalty free right and license to use the Meal Delivery Assets in its business provided that it shall not utilize such assets to promote any fresh, frozen or prepared meal program, as defined.

For the years ended March 31, 2014 and 2013, the Company’s meal delivery component had operational losses of $1,812,507 and $439,710, respectively. As a result of this divestiture, the Company recognized a non-cash charge of $14,631,000, including a write down of goodwill of $9,300,000 and $5,331,000 in identifiable intangible assets, resulting from the Company’s determination that it would not be able to recover the carrying value of its investment in this component and that it would not be able to recover the carrying value of its finite-lived intangible assets in this component and therefore recorded the related loss in discontinued operations. As a result of this impairment, the Company carries no remaining goodwill. No tangible assets or liabilities were transferred in the divestiture of the meal delivery component.

The results of operations for the meal delivery component has been reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. The following table summarizes the results of operations for the discontinued component:

 

 

Year Ended March 31,

 

 

 

2014

 

 

2013

 

Net sales

 

$

1,975,783

 

 

$

703,747

 

Operating (loss)

 

 

(1,812,507

)

 

 

(439,710

)

Asset sale

 

 

1,100,000

 

 

 

 

Impairment charge related to goodwill and finite-lived intangibles

 

 

(14,631,439

)

 

 

 

Other income

 

 

18,249

 

 

 

 

Income tax benefit (expense)

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

$

(15,325,697

)

 

$

(439,710

)



F-18



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 5.

Major Customers

Major customers are those customers that account for more than 10% of revenues. For the years ended March 31, 2014 and 2013, 32% and 12% of revenues were derived from two major customers and the accounts receivable for these major customers represented approximately 93% of total accounts receivable as of March 31, 2014. The loss of these customers would have a material adverse effect on the Company’s operations.

Note 6.

Prepaid expenses and other current assets

Components of prepaid expenses and other current assets consist of the following:

 

 

March 31,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

Prepaid license fees

 

$

25,692

 

 

$

23,550

 

Prepaid insurance

 

 

245,667

 

 

 

388,690

 

Prepaid investor relations fees

 

 

 

 

 

8,475

 

Prepaid talent fees

 

 

 

 

 

204,167

 

Prepaid professional fees

 

 

 

 

 

57,055

 

Prepaid medical and related insurance

 

 

 

 

 

46,011

 

Prepaid expenses – other

 

 

445

 

 

 

64,502

 

 

 

$

271,804

 

 

$

792,450

 


Note 7.

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

March 31,

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

Accrued compensation

 

$

104,421

 

 

$

137,505

 

Accrued warranty

 

 

10,836

 

 

 

52,000

 

Accrued sales returns

 

 

 

 

 

156,838

 

Accrued professional fees

 

 

80,000

 

 

 

159,000

 

Accrued other

 

 

9,540

 

 

 

222,387

 

 

 

$

204,797

 

 

$

727,730

 


Note 8.

Warrant Liabilities

Warrants issued in connection with several private placements contain provisions that protect holders from a decline in the issue price of our common stock (or “down-round” provisions) or that contain net settlement provisions. The Company accounts for these warrants as liabilities instead of equity. Down-round provisions reduce the exercise or conversion price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise or conversion price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price. Net settlement provisions allow the holder of the warrant to surrender shares underlying the warrant equal to the exercise price as payment of its exercise price, instead of physically exercising the warrant by paying cash. The Company evaluates whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective warrant agreements based on a variable that is not an input to the fair value of a “fixed-for-fixed” option.

The Company recognizes these warrants as liabilities at their fair value and remeasures them at fair value on each reporting date.



F-19



AS SEEN ON TV, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The assumptions used in connection with the valuation of warrants issued were as follows:

 

 

March 31,

 

 

 

 

2014

 

2013

 

 

Number of shares underlying the warrants

 

47,726,100