Accountant Shenanigans: Derma Wand

For one simple payment of $119.80 plus $14.95 S&H you can purchase the Derma Wand, a pen like device that promises to take years off your face and provide instant rejuvenation.  If one were reading their financial statements it would seem that a large number of people had bought into the hype and purchased their product.  Unfortunately, however, for Derma Wand, it was discovered recently that this was not the case.  In early August, the SEC charged Karl Redekopp, CGA and former CFO of ICTV, with fraudulently inflating sales thereby turning profits into losses. Some of the key details are as follows:

  • In 2007, ICTV signed on with the Home Shopping Network to sell the Derma Wand
  • Sales were reported for products that were actually sitting in the company's warehouse, unsold.
  • Revenues were recognized before the trial period had expired
  • Returns that were received were not reversed against revenues
  • $3.7 Millions of dollars of excess revenue were reported in 2007 and 2008
  • The original net income for 2007 of $1.5million was restated to show a loss of $1.1 million.  Their restated net loss for 2008, per SEC filings, was $3.1 million.
  • ICTV shares which trade under the ticker ICTL on the OTC Bulletin Board  had traded as high as $3.00 in late 2007.  It is now at $0.09.
  • The SEC's is seeking a "permanent injunction, a financial penalty, and an order barring him from serving as an officer of a public company."
  • The SEC has also instituted administrative proceedings against ICTV's former auditors Steven H. Dohan, Nancy L. Brown and their Miami-area firm Dohan + Company CPAs as well as Erez Bahar, a Canadian Chartered Accountant who lives in Vancouver for failing to identify the GAAP violations and isssuing and unqualified audit report.

ICTV sales decreased significantly for 2009 to $5.9 million from $15.3 million in 2008. During the first half of 2010 their sales had fallen even further to $2.2million. This does not bode well for the future of Derma Wand.  Perhaps people are not as willing to pay $119.80 plus $14.95 S&H to look dramatically younger.  Or perhaps the product does not work.  Most likely, the company suffers from extremely poor management.