<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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
March 31, 1996 0-25596
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SHOP AT HOME, INC.
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(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5210 Schubert Road
P. O. Box 12600
Knoxville, Tennessee 37912
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(Address of principal executive offices)
Registrant's telephone number, including area code: (423) 688-0300
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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.
Common Stock $.0025 par value 10,327,555
- ----------------------------- ----------------------
(Title of class) (Shares outstanding at
May 9, 1996)
2
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SHOP AT HOME, INC. AND SUBSIDIARIES
INDEX
THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995
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<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - unaudited 4
Condensed Consolidated Statements of Operations - unaudited 5
Condensed Consolidated Statements of Cash Flows - unaudited 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
</TABLE>
3
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SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1996 1995
(Unaudited) (Audited)
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<S> <C> <C>
Cash $ 500,428 $ 202,146
Accounts receivable 866,008 507,166
Inventories 1,680,520 1,683,472
Prepaid expenses 373,566 159,300
Deferred tax assets 198,572 198,572
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Total current assets 3,619,094 2,750,656
Property & equipment, net 3,435,260 3,937,939
FCC License, net 10,566,697 10,745,106
Goodwill, net 618,654 630,416
Other assets 411,903 93,314
----------- -----------
Total assets $18,651,608 $18,157,431
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 5,904,073 $ 5,811,341
Current portion - capital leases and long term debt 859,936 1,064,922
Deferred revenue 838,237 495,337
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Total current liabilities 7,602,246 7,371,600
Long-term debt 5,931,966 4,561,192
Deferred income taxes 2,229,302 2,304,301
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
137,943 and 140,000 shares issued
and outstanding at March 31, 1996 and
June 30, 1995, respectively 1,379,430 1,400,000
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,327,555 and 10,144,080 shares issued at
March 31, 1996 and June 30, 1995, respectively 25,819 25,360
Additional paid in capital 9,399,308 8,935,332
Accumulated deficit (7,916,463) (6,440,354)
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Total liabilities and stockholders' equity $18,651,608 $18,157,431
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 4
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
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<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1996 1995 1996 1995
----------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $10,557,388 $6,262,081 $27,683,861 $19,069,172
Cost of sales 6,467,587 3,953,270 17,096,390 11,907,735
----------- ---------- ----------- -----------
Gross profit 4,089,801 2,308,811 10,587,471 7,161,437
Other operating income 180,498 70,436 431,901 70,436
Operating expenses 4,211,205 2,789,518 12,026,875 7,571,768
----------- ---------- ----------- -----------
Operating income (loss) 59,094 (410,271) (1,007,503) (339,895)
Interest expense 231,644 20,976 591,767 55,659
Other income 8,179 16,924 48,161 66,303
----------- ---------- ----------- -----------
Loss before income taxes (164,371) (414,323) (1,551,109) (329,251)
Income tax benefit (25,000) 0 (75,000) 0
----------- ---------- ----------- -----------
Net loss $ (139,371) $ (414,323) $(1,476,109) $ (329,251)
=========== ========== =========== ===========
Net loss per share ($0.01) ($0.04) ($0.14) ($0.04)
=========== ========== =========== ===========
Weighted average number of
shares outstanding 10,273,161 9,605,922 10,243,074 9,166,355
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 5
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
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<TABLE>
<CAPTION>
Nine Months Ended March 31,
1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,476,109) $ (329,251)
Non-cash expenses included in net loss
Depreciation and amortization 700,260 338,691
Loss on sale of equipment 19,165
Deferred income taxes (75,000) 0
Deferred interest charge 33,333
Changes in current and non-current items
Accounts receivable 60,323 (131,559)
Inventories 2,952 (169,469)
Prepaid expenses and other assets (149,336) (275,075)
Accounts payable and accrued expenses 92,732 1,559,970
Deferred revenue 342,900 330,017
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Net cash (used) provided by operations (448,780) 1,323,324
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (423,616) (872,344)
Proceeds from sale of equipment 20,000
Other assets (3,050) (16,957)
FCC licenses (39,500) 0
Payment in connection with purchase of BCST (362,000)
Payment in connection with purchase of MFP (1,174,813)
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Net cash used by investing activities (446,166) (2,426,114)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 27,440
Repayments of debt (864,212) (297,801)
Additional long-term debt 2,030,000 750,000
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Net cash used provided by financing activities 1,193,228 452,199
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NET INCREASE (DECREASE) IN CASH 298,282 (650,591)
Cash beginning of period 202,146 1,075,026
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Cash end of period $ 500,428 $ 424,435
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</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE> 6
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 (UNAUDITED)
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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, 1995 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, 1995.
NOTE 2 - NET INCOME (LOSS) PER SHARE
Loss per share is computed by dividing net loss by the weighted average number
of common shares and equivalents outstanding. Common stock equivalents
represented by options and warrants outstanding have been included in the
computation through the use of the treasury stock method.
NOTE 3 - MANAGEMENT STOCK OPTIONS OUTSTANDING
At March 31, 1996, options to purchase up to 900,000 shares of common stock at
prices ranging from $1.00 - $2.88 per share were outstanding to members of
management. Options vest annually over a period of five years. The options
expire the earlier of 5 years from date of vesting or 30 days after termination
of employment.
NOTE 4 - LONG-TERM DEBT
In August, 1995, the Company issued its $2,000,000 Variable Rate Convertible
Secured Note due 2000 to Global Network Television, Inc. J. D. Clinton, a
director of the Company, is the sole shareholder and Chairman of Global Network
Television, and that corporation is a principal shareholder of the Company.
The loan bears interest at the prime rate plus 2%, and is payable in 60 monthly
installments. The loan is collateralized by a security interest in the
inventory, accounts receivable, and certain equipment, furniture and fixtures
of the Company, as well as the stock of MFP, Inc., a subsidiary of the Company,
and an assignment of the proceeds of any sale of the Federal Communications
Commission license of Television Station WMFP.
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<PAGE> 7
For consideration of the loan, Shop at Home, Inc., issued 100,000 shares of
common stock to Global Network Television, Inc., who then assigned the shares
to Mortgage Funding Corporation. J. D. Clinton, a director of the Company, is
the sole shareholder of Mortgage Funding Corporation.
NOTE 5 - ISSUANCE OF COMMON STOCK
During the nine month period ended March 31, 1996, the Company issued a total
of 183,532 shares of common stock, comprised as follows: a) 100,000 shares as
consideration for the $2,000,000 convertible secured note, b) 26,000 shares
through the exercise of stock options, c) a total of 55,475 shares in
connection with the purchase of merchandise, and d) 2,057 shares from the
conversion of preferred stock.
8
<PAGE> 8
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 March 31, 1996, the Company had total current assets of $3,619,000 and
total current liabilities of $7,602,000 for negative working capital of
$3,983,000. At June 30, 1995, the Company had current assets of $2,751,000 and
current liabilities of $7,372,000 for a negative working capital of $4,621,000.
The improvement in working capital position from June 30 to March 31, resulted
primarily from cash infused of $2,000,000 from long-term borrowings subsequent
to June 30, 1995, offset by cash used by operations of $449,000 for the nine
months ended March 31, 1996. Approximately $1,400,000 of the borrowings was
used to finance certain equipment additions, provide working capital, and pay
off certain short-term bank indebtedness. Significant changes affecting net
working capital included an increase in cash of $298,000; and an increase in
deferred revenue of $343,000.
As of March 31, 1996, the Company has approximately $500,000 in commitments for
the purchase of inventory and $25,000 in commitments for capital expenditures.
The Company achieved positive cash flow of $136,000 in the quarter ended March
31, 1996 and believes internally generated funds from operations (which should
improve significantly as carriage penetration increases and cost control
programs take effect), and the sale of certain assets together with borrowings
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 mid-future.
9
<PAGE> 9
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED
MARCH 31, 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 Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.3 63.1 61.8 62.4
----- ----- ----- -----
Gross profit 38.7 36.9 38.2 37.6
Other operating income 1.7 1.1 1.6 .4
Operating expenses 39.9 44.5 43.5 39.7
Interest expense 2.2 .3 2.1 .3
Other income .1 .2 .2 .3
----- ----- ----- -----
Net loss before income taxes (1.6) (6.6) (5.6) (1.7)
===== ===== ===== =====
</TABLE>
The Company's net revenues for the three and nine months ended March 31, 1996,
increased $4,295,000 or 69% and $8,615,000 or 45% over the comparable three and
nine month periods in the prior year. These increases reflect expanded carriage
and market penetration as well as maturing revenues in the Boston and Houston
markets. In addition, stronger sales from the Company's customer base reflects
a continuation of the Company's plan to increase its market share.
The gross profit margin for the three month period ended March 31, 1996, was
38.7%, compared to 36.9% for the same period in 1995. The margin for the nine
month period ended March 31, 1996, was 38.2% increasing from the 37.6% margin
for the nine month period in 1995. This increase is primarily the result of
more effective purchasing coupled with the addition of new vendors with a
greater variety of merchandise.
The Company had other operating income of $181,000 during the nine months,
which represents infomercial income generated by WMFP (TV) in Boston and KZJL
(TV) in Houston.
The Company's operating expenses for the three and nine months ended March 31,
1996, increased $1,422,000 or 51% and $4,455,000 or 59%, respectively.
Expressed as a percentage of net revenue,
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<PAGE> 10
operating expenses decreased to 39.9% from 44.5%, and increased to 43.5% from
39.7% for the three and nine month periods ended March 31, 1996, respectively.
The decrease in the percentage of operating expenses for the quarter was
achieved primarily as a result of the 69% increase in revenues compared with
the leveling of fixed operating expenses. Although the Company experienced a
significant increase in cable costs (related to expanded carriage) and
depreciation and amortization (related to the acquisition of the Boston and
Houston stations); however, total operating expenses expressed as a percentage
of sales are declining. For the nine month period, the Company experienced
increases in carriage costs, depreciation, and amortization, over the
comparable 1995 period. The cable costs precede the subsequent increase in
revenues when expanding into new markets.
As a result of the foregoing, the Company incurred net losses of $139,000 and
$1,476,000 for the three and nine month periods ended March 31, 1996. The net
loss incurred by the Company for the three month period ended March 31, 1996,
decreased by $275,000 compared to the same period from the prior year. The net
loss for the nine month period increased $1,147,000 when compared to the prior
year. The Company believes that the improvement in the third quarter results
are attributable to its investment in cable carriage and implemented expense
control programs.
In March 1995, the FASB issued Statement of Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which i) requires that long-lived assets to be held and used be
reviewed for impairment whenever events or circumstances indicate that the
carrying value of an asset may not be recoverable, ii) requires that long-lived
assets to be disposed of be reported at the lower of the carrying amount or the
fair value less costs to sell, and iii) provides guidelines and procedures for
measuring impairment losses that are different from previously existing
guidelines and procedures. The Company plans to adopt the provisions of
Statement 121 in fiscal year 1996 and the change is not expected to have a
material effect on the Company's financial position or results of operations.
Additionally, in October 1995, the FASB issued Statement of Accounting
Standards No. 123, Accounting and Disclosure of Stock-Based Compensation, which
encourages but does not require companies to recognize stock awards based on
their fair value at the date of grant. The Company currently follows, and
expects to continue to follow, the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equal the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Although the Company is permitted to continue to follow
the provisions of APB 25 under Statement 123, certain pro forma disclosure will
be required beginning in 1996, as if the Company had accounted for its stock
options under the Statement 123 fair value method.
11
<PAGE> 11
SHOP AT HOME, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only).
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
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Kent E. Lillie, President
Date: May 10, 1996
-----------------------------
/S/ Joseph Nawy
- -----------------------------------
Joseph Nawy, Vice President Finance
Date: May 10, 1996
-----------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHOP AT HOME, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 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> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 500,428
<SECURITIES> 0
<RECEIVABLES> 866,008
<ALLOWANCES> 0
<INVENTORY> 1,680,520
<CURRENT-ASSETS> 3,619,094
<PP&E> 5,071,100
<DEPRECIATION> 1,635,840
<TOTAL-ASSETS> 18,651,608
<CURRENT-LIABILITIES> 7,602,246
<BONDS> 0
0
1,379,430
<COMMON> 25,819
<OTHER-SE> 1,482,845
<TOTAL-LIABILITY-AND-EQUITY> 18,651,608
<SALES> 10,557,388
<TOTAL-REVENUES> 10,737,886
<CGS> 6,467,587
<TOTAL-COSTS> 4,203,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,644
<INCOME-PRETAX> (164,371)
<INCOME-TAX> (25,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,371)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
