<PAGE> 1
--------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
September 30, 1996 0-25596
--------------------- ----------------------
SHOP AT HOME, INC.
------------------
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
--------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5210 Schubert Road
P. O. Box 12600
Knoxville, Tennessee 37912
--------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (423) 688-0300
--------------
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Common Stock $.0025 par value 10,594,414
- ----------------------------- ----------------
<S> <C>
(Title of class) (Shares outstanding at
October 25, 1996)
</TABLE>
<PAGE> 2
SHOP AT HOME, INC. AND SUBSIDIARIES
INDEX
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - unaudited 3
Condensed Consolidated Statements of Operations - unaudited 4
Condensed Consolidated Statements of Cash Flows - unaudited 5-6
Notes to Condensed Consolidated Financial Statements - unaudited 7-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-11
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
2
<PAGE> 3
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited) (Audited)
----------------- ------------
<S> <C> <C>
Cash $ 1,983,112 $ 1,914,759
Accounts receivable 484,167 387,757
Inventories 2,777,463 2,611,142
Prepaid expenses 212,886 279,505
Deferred tax assets 100,000 80,000
------------ ------------
Total current assets 5,557,628 5,273,163
Property & equipment, net 3,503,475 3,470,226
FCC License, net 12,368,974 10,516,041
Goodwill, net 601,275 605,154
Other assets 309,707 422,086
------------ ------------
Total assets $ 22,341,059 $20,286,670
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 8,305,175 $ 6,616,796
Current portion - capital leases and long term 838,001 850,706
Deferred revenue 98,772 1,512,291
------------ ------------
Total current liabilities 9,241,948 8,979,793
Long-term debt 6,927,353 5,722,712
Deferred income taxes 2,445,961 2,082,336
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
137,943 and 140,000 shares issued
and outstanding at September 30, 1996 and
June 30, 1996, respectively 1,393,430 1,393,430
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,594,414 and 10,575,255 shares issued at
September 30, 1996 and June 30, 1996, respectively 26,486 26,438
Additional paid in capital 9,985,216 9,927,787
Accumulated deficit (7,679,335) (7,845,826)
------------ -----------
Total liabilities and stockholders' equity $ 22,341,059 $20,286,670
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE> 4
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
1996 1995
----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net revenues $13,741,493 $ 7,811,094
Cost of sales 8,474,787 4,631,752
----------- -----------
Gross profit 5,266,706 3,179,342
Other operating income 226,834 141,397
Operating expenses 5,190,519 3,580,096
----------- -----------
Operating income (loss) 303,021 (259,357)
Interest expense (186,820) (169,836)
Other income 25,292 8,296
----------- -----------
Income (loss) before income taxes 141,493 (420,897)
Income tax benefit 25,000 27,000
----------- -----------
Net income (loss) $ 166,493 $ (393,897)
=========== ===========
Primary and fully diluted net
earnings per common and
equivalent share $ 0.01 $ (0.04)
=========== ===========
Weighted average number of
common and equivalent
shares outstanding 14,812,455 10,194,423
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE> 5
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 166,493 $ (393,897)
Non-cash expenses included in net loss
Depreciation and amortization 211,190 211,904
Deferred income taxes (25,000) (27,000)
Changes in current and non-current items
Accounts receivable (96,410) 108,250
Inventories (108,844) 90,558
Prepaid expenses and other assets 77,790 (42,820)
Accounts payable and accrued expenses 1,688,379 (976,664)
Deferred revenue (1,413,519) 288,265
----------- ----------
Net cash (used)/provided by operations 500,079 (741,404)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (172,768) (168,810)
Other assets (12,928)
FCC licenses (50,894) 20,576
----------- ----------
Net cash (used)/provided by investing activities (223,662) (161,162)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (208,064) (722,084)
Additional long-term debt 2,000,000
----------- ----------
Net cash (used) /provided by financing activities (208,064) 1,277,916
----------- ----------
NET INCREASE IN CASH 68,353 375,350
Cash beginning of period 1,914,759 202,146
----------- ----------
Cash end of period $ 1,983,112 $ 577,496
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE> 6
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Stock issued for inventory and reduction
of accounts payable $ 57,477 --
========== ===========
Note payable issued for acquisition
of FCC license $1,400,000 --
========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE> 7
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of financial condition and results of operations of the interim
periods. The condensed consolidated balance sheet data for the fiscal year
ended June 30, 1996 was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The accounting policies followed by the Company are set forth in the Company's
financial statements in the Shop at Home, Inc. and Subsidiaries Annual Report
on Form 10-K for the fiscal year ended June 30, 1996.
NOTE 2 - NET INCOME (LOSS) PER SHARE
Income per share is computed by dividing net income or loss by the weighted
average number of common shares and equivalents outstanding. Common stock
equivalents represented by options, warrants, redeemable preferred stock, and
convertible debt outstanding have been included in the computation through the
use of the treasury stock method. See Exhibit 11 for details of changes in
computation of weighted average number of shares.
NOTE 3 - MANAGEMENT STOCK OPTIONS OUTSTANDING
At September 30, 1996, options to purchase up to 1,691,500 shares of common
stock at prices ranging from $1.00 - $3.75 per share were outstanding to
employees and members of management. Options vest annually over a period of up
to five years. The options expire the earlier of 5 years from date of vesting
or 30 days after termination of employment.
NOTE 4 - ACQUISITION OF SUDSIDIARY INTEREST
On September 5, 1996 the Company, through its subsidiary, Broadcast, Cable and
Satellite Technologies, Inc. (BSCT), purchased the remaining 51% interest in
Urban Broadcast System, Inc., for the purchase price of $1,400,000 (See Note
5).
7
<PAGE> 8
NOTE 5- LONG-TERM DEBT
In September 1996, the Company, through its subsidiary, Broadcast, Cable and
Satellite Technologies, Inc. (BCST), entered into a $1,400,000 Promissory Note
payable to Charles E. Walker for the acquisition of the remaining 51% interest
in Urban Broadcast Systems, Inc. The note bears interest at 6% interest only in
the first year, principal and interest payable thereafter; and is payable in
132 monthly installments. The note is collateralized by a pledge of the capital
stock of Urban Broadcast Systems, Inc.
NOTE 6 - ISSUANCE OF COMMON STOCK
During the three month period ended September 30, 1996, the Company issued a
total of 19,159 shares of common stock in connection with the purchase of
merchandise.
NOTE 7 - INCOME TAXES
The income tax benefit varies from the amount of expense computed by applying
the federal corporate income tax rate of 34% to net income before tax benefit
due to the expected utilization of net operating loss carryforwards. In
connection with the acquisition of BCST, the Company reduced the valuation
allowance of deferred tax assets by $221,175 representing the effect of the
deferred tax liability expected to reverse in the net operating loss
carryforward period. The reduction of the valuation allowance was effected by
reducing intangible asset balances recorded as a result of the acquisition.
8
<PAGE> 9
SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had total current assets of $5,538,000
and total current liabilities of $9,242,000 for negative working capital of
$3,704,000. At June 30, 1996, the Company had current assets of $5,273,000 and
current liabilities of $8,980,000 for a negative working capital of $3,707,000.
During the quarter, the Company generated cash flow of approximately $540,000
which was used to fund the transition to on line credit card processing.
The Company believes internally generated funds from operations (which should
improve significantly as carriage penetration increases and cost control
programs take effect), and the sale of common stock and warrant rights, if
needed, will be sufficient to meet the Company's capital requirements for the
near future. The Company is investigating other avenues of additional financing
for the near to mid-future to facilitate its contemplated relocation, which may
be necessary due to the Company's anticipated increased growth.
9
<PAGE> 10
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995.
The following table sets forth for the periods indicated the percentage
relationship to total revenues of certain items included in the Company's
Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of sales 61.7 59.3
Gross profit 38.3 40.7
Other operating income 1.7 1.8
Operating expenses 37.8 45.8
Interest expense 1.4 2.2
Other income .2 .1
Net income (loss) before income taxes 1.0 (5.4)
===== =====
</TABLE>
The Company's net revenues for the quarter ended September 30, 1996, were
$13,741,000 which was an increase of 76% from net revenues of $7,811,000 for
the quarter ended September 30, 1995. These increases reflect expanded carriage
and market penetration and reflect the increase in full-time equivalent
households (FTEs) to approximately 5,600,000 in 1996 compared to approximately
2,900,000 in 1995. During the quarter, the Company instituted on line credit
card verification which has helped increase sales and system changes which
speed up product delivery to its customers. In addition, stronger sales from
the Company's customer base reflects a combination of new households and rising
revenue per household as the Company's market share continues to grow.
The gross profit margin for the three month period ended September 30, 1996,
was 38.3%, compared to 40.7% for the same period in 1995. This decrease is
primarily the result of more aggressive and competitive pricing in a tighter
retail economy together with incentive offers provided to the Company's
customers in 1996.
The Company had other operating income of $227,000 during the three months
ended September 30, 1996, compared to $141,000 in the comparable three month
period in 1995. This income represents infomercial income generated by WMFP
(TV) in Boston and KZJL (TV) in Houston.
10
<PAGE> 11
The Company's operating expenses for the three month period ended September 30,
1996, increased $1,610,000 or 45% compared to the same period in 1995.
Expressed as a percentage of net revenue, operating expenses decreased to 37.8%
from 45.8%, for the three months ended September 30, 1996. This percentage
decrease in operating expenses for the quarter was achieved primarily as a
result of the leveling of fixed operating expenses and management's cost
control programs. Although, the total operating expenses expressed as a
percentage of sales declined, cable cost which is included in operating
expense, increased $1,269,000 or 179% over the comparable 1995 period. Cable
costs reflect 14.4% of net revenues for the quarter ended September 30, 1996
compared to 9.1% for the same period in 1995. The Company expects this expense
to continue to grow as it aggressively pursues new cable markets. Cable costs
precede the subsequent increase in revenues when expanding into new markets. In
addition, other general and administrative expenses grew with the general
increase in business but their increase did not keep pace with the 76% growth
in sales.
As a result of the foregoing, the Company generated a net income of $166,000
for the three months ended September 30, 1996, compared to a net loss of
$394,000 for the same period from the prior year. The Company believes this
$560,000 improvement and turnaround reflected in the first quarter is
attributable to the higher level of sales from its investment in cable carriage
coupled with expense control programs.
11
<PAGE> 12
SHOP AT HOME, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: Exhibit 27 - Financial Data Schedule (SEC Use Only)
Exhibit 11 - Schedule of Computation of Net Earnings Per Share
(b) No reports on Form 8-K were filed during the period covered by
this report.
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.
/S/ Kent Lillie
- ------------------------------------
Kent E. Lillie, President
Date: November 7, 1996
------------------------------
/S/ Joseph Nawy
- ------------------------------------
Joseph Nawy, Vice President Finance
Date: November 7, 1996
------------------------------
12
<PAGE> 1
EXHIBIT 11
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
1996 1995
----------- ------------
<S> <C> <C>
Net earnings (loss) $ 166,493 $ (393,897)
Interest expense saved from
conversion of debt 29,582 0
Interest expense saved from
payoff of debt with excess
proceeds from conversion
of options and warrants 24,848 0
----------- -------------
Adjusted net earnings (loss) $ 220,923 $ (393,897)
=========== =============
Common shares outstanding 10,587,958 10,194,423
Common equivalent shares
issuable upon exercise of
stock options and warrants (1) 3,523,408 0
Common equivalent shares
issuable upon conversion
of debt 563,146 0
Common equivalent shares
issuable upon conversion
of preferred stock 137,943 0
----------- -------------
Total weighted average shares 14,812,455 10,194,423
=========== =============
Primary and fully diluted net
earnings per common and
equivalent share $ 0.01 $ (0.04)
=========== =============
</TABLE>
Notes:
(1) Amount calculated using the modified treasury stock method and fair market
values.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHOP AT HOME, INC. FOR THE QUARTER ENDED SEPTEMBER
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,983,112
<SECURITIES> 0
<RECEIVABLES> 484,167
<ALLOWANCES> 0
<INVENTORY> 2,777,463
<CURRENT-ASSETS> 5,557,628
<PP&E> 5,388,612
<DEPRECIATION> 1,885,137
<TOTAL-ASSETS> 22,341,059
<CURRENT-LIABILITIES> 9,241,948
<BONDS> 0
0
1,393,430
<COMMON> 26,486
<OTHER-SE> 2,305,881
<TOTAL-LIABILITY-AND-EQUITY> 22,341,059
<SALES> 13,741,493
<TOTAL-REVENUES> 13,993,619
<CGS> 8,474,787
<TOTAL-COSTS> 13,665,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,820
<INCOME-PRETAX> 141,493
<INCOME-TAX> (25,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,493
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
