<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarter ended September 30, 1996 Commission File Number 33-8333-D
AMERISHOP CORP.
(Exact Name of registrant as specified in its charter)
DELAWARE 38-2684858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Centennial Office Park
Suite 308
3033 Orchard Vista Drive SE
Grand Rapids, MI 49546-7080
(Address of principal executive offices) (Zip Code)
(616) 949-0775
(Registrant's telephone number including area code)
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.
Yes X No
--- ---
As of October 31, 1996, 2,894,765 shares of common stock were outstanding.
<PAGE> 2
AMERISHOP CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Descriptions Page Number
- ------------ -----------
<S> <C>
Cover Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information
1. Financial Statements (Unaudited)
Balance Sheets
September 30, 1996 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations
Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 4
Statement of Cash Flows
Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7
2. Management's Discussion and Analysis of Results
of Operations and Financial Conditions . . . . . . . . . . . . . . . . . . . . . . . 8-9
Part II.
1. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
2
<PAGE> 3
1. FINANCIAL INFORMATION
AMERISHOP CORP.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
-------------- -------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 16,013 $ 72,429
Prepaid expenses 73,099 65,246
Accounts receivable 416,829 461,603
Prepayments to vendors 168,897 127,191
Inventory 85,870 80,109
----------- -----------
Total current assets 760,708 806,578
EQUIPMENT, net 26,794 29,520
----------- -----------
Total assets $ 787,502 $ 836,098
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 351,873 $ 516,512
Customer deposits 553,172 500,811
Deferred membership revenue 369,939 461,364
Notes payable (Note 3) 1,931,181 1,628,445
Accrued interest 850,344 847,714
Current maturities of long-term debt (Note 3) 2,000,000 2,000,000
Other current liabilities 122,630 114,146
----------- -----------
Total current liabilities 6,179,139 6,068,992
DEFERRED MEMBERSHIP REVENUE 43,750 58,333
LONG-TERM DEBT 15,449 11,573
SHAREHOLDERS' EQUITY (Deficit):
Preferred stock, $.001 par value per share,
1,000,000 shares authorized and no shares issued.
Common stock, $.00001 par value per share, 20,000,000
shares authorized, 2,894,765 shares outstanding at
September 30, 1996 and June 30, 1996 30 30
Additional paid-in capital 697,820 697,820
Accumulated deficit (6,148,686) (6,000,650)
----------- -----------
Total shareholders' equity/(deficit) (5,450,836) (5,302,800)
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 787,502 $ 836,098
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AMERISHOP CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Membership fees $ 194,765 $ 288,736
Merchandise sales 617,842 727,429
Travel revenue 0 0
Promotional revenue 49,501 13,114
---------- ----------
Total revenues 862,108 1,029,279
---------- ----------
EXPENSES:
Sales commissions 89,820 85,069
Cost of merchandise sales 443,213 556,634
Cost of travel revenue 0 0
Selling, general and administrative 441,195 416,078
Promotional expenses 30,413 2,556
---------- ----------
Total expenses 1,004,641 1,060,337
---------- ----------
Loss from operations (142,533) (31,058)
OTHER INCOME (EXPENSE):
Interest income 162 940
Other income 566 775
Interest expense (6,231) (120,838)
---------- ----------
Total other income (expense) (5,503) (119,123)
---------- ----------
Net loss $ (148,036) $ (150,181)
========== ==========
Net Loss Per Share (Note 4) $ (.05) $ (.06)
========== ==========
Weighted Average Shares Outstanding 2,894,765 2,516,327
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AMERISHOP CORP.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (148,036) $ (150,181)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 3,435 4,572
Changes in assets and liabilities:
Prepaid expenses (7,853) (102,904)
Accounts receivable 44,774 (29,941)
Prepayments to vendors (41,706) (171,298)
Inventory (5,761) (3,105)
Accounts payable (164,639) 81,225
Customer deposits 52,361 120,029
Deferred membership revenue (106,008) 11,620
Deferred non-compete revenue 0 (12,501)
Accrued interest 2,633 100,826
Other current liabilities 8,485 (23,342)
----------- -----------
Net cash used in operating activities (362,315) (175,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (710) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term
debt and capital lease obligations 0 (10,455)
Principal payments under short-term
debt (278,375) 0
Proceeds from issuance of short-term debt 581,108 0
Proceeds from issuance of long-term debt 3,876 200,000
----------- -----------
Net cash provided by financing activities 306,609 189,545
----------- -----------
NET CHANGE IN CASH (56,416) 14,545
CASH AT BEGINNING OF PERIOD 72,429 47,210
----------- -----------
CASH AT END OF PERIOD $ 16,013 $ 61,755
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
AMERISHOP CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements (the "Financial
Statements") of AmeriShop Corp. (the "Company") have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, the Financial Statements do not include all the information and
footnotes normally included in the annual financial statements prepared in
accordance with generally accepted accounting principles.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
These Financial Statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996.
The balance sheet at June 30, 1996 has been derived from the audited financial
statements at that date.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - AmeriShop Corp., formerly AmeriMark Corporation, was
incorporated under the laws of the State of Delaware on August 1, 1986.
Revenue Recognition: Membership fees and annual renewal fees allow members to
use services provided by the Company. Annual renewal fees are recorded as
deferred revenue when received and recognized as income on the straight-line
basis over the renewal period.
Merchandise sales are recorded when the merchandise is shipped to the customer.
Travel revenue is recognized when the client has completed its trip.
Equipment and Depreciation - Equipment is stated at cost less accumulated
depreciation. Improvements and betterments are capitalized; maintenance and
repairs are charged to expense as incurred. Depreciation is provided by the
use of straight-line and accelerated methods for both financial reporting and
income tax purposes over the estimated useful lives of 3 to 7 years.
Industry Segment - The Company operates as a provider of consumer merchandise
and other services. It services customers through consumer benefit programs as
well as premium incentive programs.
NOTE 3 - NOTES PAYABLE AND LONG-TERM DEBT
The Company has $2,000,000 of convertible debentures payable to an investment
fund partnership payable in quarterly installments of interest only at 12.5%
per annum. Commencing on August 1, 1995, monthly principal installments of $10
per $1,000 borrowed were required. As of September 30, 1996, the $2,000,000
debenture is classified as a current liability due to violations of debt
covenants as described below.
In addition, the Company has demand notes payable to the same investment fund
partnership totaling $1,428,445 that were due no later than July 1, 1995 and
demand notes payable totaling $200,000 that were due March 31, 1996. Interest
is payable at 12.5% per annum. These notes are collateralized by the Company's
accounts receivable.
6
<PAGE> 7
The Company is in default of its financial loan covenants on the debentures.
It is also in default of its interest installments since May 1, 1994 and
principal installments since August 1, 1995 on the debentures and the notes
payable. These covenants and default from nonpayment of interest have been
waived through January 1, 1997. Also effective July 1, 1996 the investment
fund partnership has waived for one year future interest to be paid or accrued
on the convertible debenture, short-term note payable and related accrued
interest.
The investment fund partnership has the right at any time to convert any issued
debenture into the common stock of the Company at $0.56309 per share. The
debenture can be redeemed by the Company at any time after July 1995, at
varying premium rates above par.
There are no quoted market prices for this convertible debenture. Because the
Company is unable to estimate the timing and ultimate settlement of this
convertible debenture and related accrued interest, it is unable to estimate
the fair value at September 30, 1996.
As of September 30, 1996, the Company has a demand note payable to Network
Direct, Inc. totaling $100,000 which is due December 1, 1996. Interest is
accrued at 12% and has a balance of $2,630.14. Also the Company has a
revolving line of credit secured by accounts receivable with Publishers Credit
Service, Inc. totaling $202,733. Interest is payable at prime plus 3.75%. The
maximum amount of the credit line is $250,000.
NOTE 4 - LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during the periods presented. Common stock equivalents in the form
of convertible debentures were not included in the calculation of weighted
average shares outstanding since inclusion would be anti-dilutive.
7
<PAGE> 8
AMERISHOP CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has a working capital deficit of $5,418,431 at September 30, 1996.
A major portion of this deficit relates to the convertible debentures, short
term notes payable and accrued interest totaling $4,476,161 due to an
investment fund partnership. Management is currently working with the
investment group to extend this debt and/or convert it into equity. Effective
July 1, 1996 the investment group has waived for one year any additional future
interest to be paid or accrued on the convertible debentures, short term notes
payable and accrued interest.
If the debt can be deferred beyond one year or converted, the Company is left
with a $942,270 deficit of which $369,939 represents deferred membership
revenue. The deferred revenue will be liquidated through amortization into
income over the next twelve months and therefore will not require the use of
cash resources. On July 12, 1996, the Company received a short term loan from
Network Direct, Inc. (NDI) for $100,000 at 12% interest. The note and accrued
interest is due December 1, 1996. Management is seeking additional equity
financing to offset the remaining working capital deficit of $472,331. On
October 5, 1996 the Company received a one year loan from the investment fund
partnership for $100,000 at 10% interest. Management has also attained
accounts receivable financing from Publishers Credit Service, Inc. in an effort
to leverage future profits to overcome the shortage in working capital. As of
September 30, 1996 the outstanding loan balance was $202,733.
The Company had a deficiency in shareholders' equity of $6,148,686 as of
September 30, 1996 and its continuation is dependent upon meeting its
liabilities as they become due and attaining profitable operations. Management
believes that it can attain profitable operations in the future through its
merchandise premium incentive programs which it continues to actively market.
The Company has continued to increase its level of incentive merchandise sales
as well as its overall gross profit on these sales.
In order to generate substantial growth and become profitable, the Company must
have additional in-house premium incentive sales representatives or a
strategic acquisition. In this regard, the Company has added a new sales
representative in Texas and is actively pursuing a strategy to identify and
acquire a premium incentive company. Although sales from a new sales
representative will not be realized for approximately 12 to 18 months, it is a
move that Management believes must be taken in order to ensure future
profitability. As for an acquisition, Management believes that with the right
canidate it will be able to structure the deal in conjunction with a secondary
offering.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 VS. 1995
The Company experienced a loss of $148,036 during the quarter ended September
30, 1996 compared to a loss of $150,181 for the same period of the prior year.
In the prior year, interest expense on convertible debentures, short-term notes
and accrued interest to an investment fund partnership was $119,892. Effective
July 1, 1996 the investment fund partnership has waived for one year any future
interest to be paid or accrued. Also in the prior period an amount of $58,333
pertaining to the renegotiating of the Network Direct, Inc. membership contract
was amortized into revenue. This amount was subsequently adjusted at June 30,
1996 of which the net effect was to reduce revenue by $43,750. The September
30, 1995 loss, excluding these two amounts, would have been $75,039
constituting an increase in the loss from the prior period of $72,997.
Membership fees decreased $93,971 (33%) from $288,736 of the prior year to
$194,765. Adjusting for the above mentioned difference in amortization of
revenue, the actual decrease was only $50,221. Since revenue is recorded on an
amortized basis the difference would have to be analyzed over the length of the
membership periods which can vary from one to three years. On a cash basis,
membership fees decreased by $22,486 (21%) from $108,130 of the prior year to
$85,644 the current year. The Company's significant membership program,
Network Direct, Inc., recorded a decrease of $7,067 from the prior period. The
remaining portion of the decrease is attributed to a mixture of other smaller
membership enhancement programs of which vary month to month. Management is
anticipating the decreases will be made up in the coming months.
Merchandise sales decreased by $109,587 (15%) from $727,429 the prior year to
$617,842 the current year. Merchandise sales are a combination of membership
merchandise sales and premium incentive merchandise sales. Membership
merchandise sales decreased by $131,780 (41%) from the prior period. Gross
profit on these sales is approximately break-even because of the membership
fee. Premium incentive merchandise sales increased $22,193 (5%) from the prior
period. Gross profit (excluding sales commissions) on these sales is
approximately 40%.
Sales commissions increased by $4,751 (27%) from $85,069 the prior year to
$89,820 the current year. The increase resulted from greater sales derived
from independent sales agent. Commission rates to independent agents range
from 1% to 25% of sales. When sales commissions are added to the calculation
then gross profit on premium incentive merchandise sales is approximately 23%
for the current year versus 20% for the prior year.
Selling, general and administrative expenses increased by $25,117 (6%) from
$416,078 the prior year to $441,195 the current year. The major fluctuations
included the following: Wages increased by $9,624 (5%) over the prior period
reflecting cost of living adjustments. Employee health insurance increased by
$13,190 (70%) over the prior period. The Company was on a partial self-funding
plan, but effective August 1, 1996 the Company changed to a fixed fee plan.
The increase reflects the cost of actual expenses and the start-up of the new
plan. Professional Services increased by $15,907 (56%) over the prior period
of which $8,000 pertains to fees paid to a consultant retained to search for
acquisition candidates. The remaining balance pertains to miscellaneous legal
matters. Rent expense decreased by $22,128 (42%) over the prior period which
reflects the lease re-negotiation of October, 1995.
9
<PAGE> 10
PART II.
AMERISHOP CORP.
OTHER INFORMATION
ITEM 1 Legal Proceedings
None.
ITEM 2 Changes in Securities
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
The Company is in default of certain covenants and interest payments on its $2
million of convertible debentures. The covenants dictate that the Company
maintain a current ratio of 1 to 1 and maintain positive cash flow from
operations over a three month moving average. The Company has not met these
requirements.
Since May 1, 1994, the Company is also in default regarding the payment of
interest and fees relating to the debentures and to the $1,628,445 of
short-term demand notes due to the same debenture holder.
The covenants and rights to remedies for nonpayment have been waived through
January 1, 1997.
Effective July 1, 1996, the investment fund partnership has waived for one year
future interest to be paid or accrued on the convertible debenture, short-term
note payable and related accrued interest.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements 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.
AMERISHOP CORP.
Joseph B. Preston
-------------------------------
Joseph B. Preston, Chairman/CEO
Steven R. Salasky
-------------------------------
Steven R. Salasky - Controller
10
<PAGE> 11
AMERISHOP
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 12
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 16,013
<SECURITIES> 0
<RECEIVABLES> 416,829
<ALLOWANCES> 0
<INVENTORY> 85,870
<CURRENT-ASSETS> 760,708
<PP&E> 487,374
<DEPRECIATION> 460,580
<TOTAL-ASSETS> 787,502
<CURRENT-LIABILITIES> 6,179,139
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> (5,450,866)
<TOTAL-LIABILITY-AND-EQUITY> 787,502
<SALES> 617,842
<TOTAL-REVENUES> 862,108
<CGS> 443,213
<TOTAL-COSTS> 1,004,641
<OTHER-EXPENSES> 6,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,231
<INCOME-PRETAX> (148,036)
<INCOME-TAX> 0
<INCOME-CONTINUING> (148,036)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,036)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
