<PAGE> 1
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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
December 31, 1995 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 10,272,080
- ----------------------------- ----------------------
(Title of class) (Shares outstanding at
February 20, 1996
<PAGE> 2
SHOP AT HOME, INC. AND SUBSIDIARIES
INDEX
THREE AND SIX MONTHS ENDED DECEMBER 31, 1995
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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
Notes to Condensed Consolidated Financial Statements - unaudited 6-7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-10
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
2
<PAGE> 3
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
December 31 June 30,
1995 1995
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
Cash $ 557,159 $ 202,146
Accounts receivable 554,915 507,166
Inventories 2,160,821 1,683,472
Prepaid expenses 242,589 159,300
Deferred tax assets 198,572 198,572
----------- -----------
Total current assets 3,714,056 2,750,656
Property & equipment, net 3,937,621 3,937,939
FCC License, net 10,661,465 10,745,106
Goodwill, net 630,357 630,416
Other assets 323,893 93,314
----------- -----------
Total assets $19,267,392 $18,157,431
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 6,381,852 $ 5,811,341
Current portion - capital leases and long term debt 613,483 1,064,922
Deferred revenue 778,815 495,337
----------- -----------
Total current liabilities 7,774,150 7,371,600
Long-term debt 6,377,900 4,561,192
Deferred income taxes 2,254,302 2,304,301
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
137,943 and 140,000 shares issued
and outstanding at December 31, 1995 and
June 30, 1995, respectively 1,379,430 1,400,000
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,272,080 and 10,144,080 shares issued at
December 31, 1995 and June 30, 1995, respectively 25,680 25,360
Additional paid in capital 9,233,022 8,935,332
Accumulated deficit (7,777,092) (6,440,354)
----------- -----------
Total liabilities and stockholders' equity $19,267,392 $18,157,431
=========== ===========
</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
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<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 9,315,379 $ 6,561,742 $17,126,473 $12,807,091
Cost of sales 5,997,051 4,130,448 10,628,803 7,954,465
----------- ----------- ----------- -----------
Gross profit 3,318,328 2,431,294 6,497,670 4,852,626
Other operating income 110,006 33,323 251,403 49,904
Operating expenses 4,237,305 2,417,827 7,817,401 4,782,250
----------- ----------- ----------- -----------
(808,971) 46,790 (1,068,328) 120,280
Interest expense 190,287 15,936 360,122 34,683
Other income 33,416 (5,547) 41,712 17,450
----------- ----------- ----------- -----------
Income (loss) before income taxes (965,842) 25,307 (1,386,738) 103,047
Income tax expense (benefit) (23,000) 15,213 (50,000) 17,975
----------- ----------- ----------- -----------
Net income (loss) ($942,842) $10,094 ($1,336,738) $85,072
=========== =========== =========== ===========
Net income (loss) per share ($0.09) $0.001 ($0.13) $0.01
=========== =========== =========== ===========
Weighted average number of shares 10,262,274 8,968,156 10,228,177 8,912,414
=========== =========== =========== ===========
</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
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<TABLE>
<CAPTION>
Six Months Ended December 31,
1995 1994
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) ($1,336,738) $ 85,072
Non-cash expenses included in net income (loss)
Depreciation and amortization 423,807 211,009
Deferred income taxes (50,000) 0
Changes in current and non-current items
Accounts receivable (47,749) (91,188)
Inventories (477,349) 170,099
Prepaid expenses and other assets (83,289) (314,717)
Accounts payable and accrued expenses 570,511 422,484
Deferred revenue 283,478 1,546
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Net cash (used) provided by operations (717,329) 484,305
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (298,018) (39,067)
Other assets (203,520) (531,744)
FCC licenses 208,611 0
Payment in connection with purchase of BCST (275,000)
----------- ----------
Net cash used by investing activities (292,927) (845,811)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (664,731) (190,320)
Additional long-term debt 2,030,000 0
----------- ----------
Net cash (used) provided by financing activities 1,365,269 (190,320)
----------- ----------
NET INCREASE (DECREASE) IN CASH 355,013 (551,826)
Cash beginning of period 202,146 1,075,026
----------- ----------
Cash end of period $ 557,159 $ 523,200
=========== ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 (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
period. 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
Income (loss) per share is computed by dividing net income (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 December 31, 1995, 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
On August 16, 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.
6
<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 - PAXSON ACQUISITION
In October 1995, the Company entered into a letter of intent with Paxson
Communication Corporation (PCC), which would grant PCC the right to acquire
more than 50% of the outstanding stock of the Company. The acquisition
negotiations were ended in December of 1995 when recently enacted
communications legislation excluded provisions for dual ownership of television
stations in a single market, effectively eliminating any acquisition potential
by Paxson. Costs involved with the acquisition negotiations totaled
approximately $150,000.
7
<PAGE> 8
SHOP AT HOME, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company had total current assets of $3,714,000 and
total current liabilities of $7,724,000 for negative working capital of
$4,060,000. 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 December 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 $717,000 for
the six months ended December 31, 1995. 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 $355,000; an
increase in inventory of $477,000; an increase in prepaid expense of $83,000;
an increase in trade payables and accrued expenses of $571,000; and an increase
in deferred revenue of $283,000.
As of December 31, 1995, the Company has approximately $25,000 in commitments
for capital expenditures.
The Company believes internally generated funds from operations (which should
improve significantly as carriage penetration increases and cost control
programs take effect), 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 foreseeable future.
8
<PAGE> 9
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994.
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>
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
------------ --------- ------------ --------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 64.4 62.9 62.1 62.1
----- ----- ----- -----
Gross profit 35.6 37.1 37.9 37.9
Other operating income 1.2 .5 1.5 .3
Operating expenses 45.8 36.8 45.6 37.3
Interest expense 2.0 .2 2.1 .3
Other income (expenses) .4 (.1) .2 .1
----- ----- ----- -----
Net income (loss) before
income taxes (10.6) .4 (8.1) .7
===== ===== ===== =====
</TABLE>
The Company's net revenues for the three and six months ended December 31,
1995, increased $2,754,000 or 42% and $4,319,000 or 34% over the comparable
three and six month periods in the prior year. These increases reflect
expanded carriage and market penetration and stronger sales with the Company's
core customer base, which is a continuation of the Company's plan to increase
its market share.
The gross profit margin for the three month period ended December 31, 1995, was
35.6%, compared to 37.1% for the same period ended December 31, 1994. The
margin for the six month period ended December 31, 1995, was 37.9% equaling the
margin for the same six month period in 1994. Competitive retail pricing during
the holiday season attributable to overall retail sales weakness and an
increase in sales mix of lesser margin inventory items resulted in reduced
margins for the three month period ended December 31, 1995. This soft pricing
offset increased margins from improved acquisition costs and merchandising
practices during the first three months of the six month period.
The Company had other operating income during the six months ended December 31,
1995, resulting from infomercial income generated by MFP in Boston and KZJL in
Houston.
9
<PAGE> 10
The Company's operating expenses for the three and six months ended December
31, 1995, increased $1,819,000 or 75% and $3,035,000 or 63%, respectively. As
a percentage of net revenue, operating expenses increased to 45.8% from 36.8%,
and to 45.6% from 37.3% for the three and six month periods ended December 31,
1995, respectively.
The Company did incur significant operating expense increases during the six
months ended December 31, 1995, primarily attributed to a $1,265,000 increase
in broadcast distribution costs resulting from the Company's aggressive market
penetration strategy, the costs of which typically precede the corresponding
revenue increases; and continued higher level of expenses related to the
operation of MFP in Boston and KZJL in Houston, whose revenue streams are
continuing to mature. Other increases for the six months include a $440,000
increase in salaries and wages related to order entry personnel and management
additions; an $88,000 increase in depreciation and amortization from the
acquisition of MFP in Boston and KZJL in Houston; $120,000 in credit card
discounts and $113,000 in telephone increases resulting from increased
revenues; and a $100,000 increase in advertising related to the Company's
marketing strategy and increased cable carriage commitments. Interest expense
pertaining to the additional debt incurrence increased by $325,000 over the six
month period for the prior year. Expenses in the form of legal, travel,
accounting, consulting, etc., amounting to approximately $150,000 were incurred
during the Paxson Communications acquisition negotiations in the six month
period ended December 31, 1995.
As a result of the foregoing, the Company incurred net losses of $943,000 and
$1,337,000 for the three and six month periods ended December 31, 1995.
Decreases in net income of $953,000 and $1,422,000 for the three and six month
periods, respectively, from the prior year are attributable to broadcast
distribution increases incurred to enhance carriage; increased costs related to
the Boston and Houston operations; Paxson acquisition costs; and interest
expense increases.
The Company believes that its increased investment in cable carriage will
result in improved returns during the balance of the fiscal year and that
expense control programs will improve cost/revenue relationships; resulting in
enhanced operational results.
SHOP AT HOME, INC.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule (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: February 20, 1996
------------------------------
/S/ Joseph Nawy
- -----------------------------------
Joseph Nawy, Vice President Finance
Date: February 20, 1996
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SHOP AT HOME, INC.
11
<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 DECEMBER
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 557,159
<SECURITIES> 0
<RECEIVABLES> 554,915
<ALLOWANCES> 0
<INVENTORY> 2,160,821
<CURRENT-ASSETS> 3,714,056
<PP&E> 5,754,323
<DEPRECIATION> 1,816,702
<TOTAL-ASSETS> 19,267,392
<CURRENT-LIABILITIES> 7,774,150
<BONDS> 6,377,900
0
1,379,430
<COMMON> 25,680
<OTHER-SE> 1,455,930
<TOTAL-LIABILITY-AND-EQUITY> 19,267,392
<SALES> 17,126,473
<TOTAL-REVENUES> 17,419,588
<CGS> 10,628,803
<TOTAL-COSTS> 7,817,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,122
<INCOME-PRETAX> (1,386,738)
<INCOME-TAX> (50,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,336,738)
<EPS-PRIMARY> ($.13)
<EPS-DILUTED> ($.13)
</TABLE>
