<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
December 31, 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.
Common Stock $.0025 par value 10,714,414
- ----------------------------- ----------------------
(Title of class) (Shares outstanding at
January 24, 1997)
2
<PAGE> 2
SHOP AT HOME, INC. AND SUBSIDIARIES
INDEX
THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
- ------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Condensed Consolidated Balance Sheets - unaudited 4
Condensed Consolidated Statements of Operations - unaudited 5
Condensed Consolidated Statements of Cash Flows - unaudited 6-7
Notes to Condensed Consolidated Financial Statements - unaudited 8-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-12
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 13-14
</TABLE>
3
<PAGE> 3
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Cash $ 3,244,061 $ 1,914,759
Accounts receivable 544,146 387,757
Inventories 2,899,083 2,611,142
Prepaid expenses 395,507 279,505
Deferred tax assets 100,000 80,000
----------- -----------
Total current assets 7,182,797 5,273,163
Property & equipment, net 3,744,229 3,470,226
FCC License, net 12,289,268 10,516,041
Goodwill, net 597,396 605,154
Other assets 297,206 422,086
----------- -----------
Total assets $24,110,896 $20,286,670
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 9,881,007 $ 6,616,796
Current portion - capital leases and long term debt 840,940 850,706
Deferred revenue 74,855 1,512,291
----------- -----------
Total current liabilities 10,796,802 8,979,793
Long-term debt 6,711,789 5,722,712
Deferred income taxes 2,420,961 2,082,336
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
137,943 and 140,000 shares issued
and outstanding at December 31, 1996 and
June 30, 1996, respectively 1,393,430 1,393,430
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,614,414 and 10,575,255 shares issued at
December 31, 1996 and June 30, 1996, respectively 26,536 26,438
Additional paid in capital 9,980,805 9,927,787
Accumulated deficit (7,219,429) (7,845,826)
----------- -----------
Total liabilities and stockholders' equity $24,110,896 $20,286,670
=========== ===========
</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
================================================================================
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1996 1995 1996 1995
------------ ------------ ----------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $16,054,772 $ 9,315,379 $29,796,265 $ 17,126,473
Cost of sales 9,671,430 5,997,051 18,146,217 10,628,803
----------- ----------- ----------- ------------
Gross profit 6,383,342 3,318,328 11,650,048 6,497,670
Infomercial income 229,985 110,006 456,819 251,403
Operating expenses 5,979,373 4,237,305 11,169,892 7,817,401
----------- ----------- ----------- ------------
Operating income (loss) 633,954 (808,971) 936,975 (1,068,328)
Interest expense 201,684 190,287 388,504 360,122
Other income 42,666 33,416 67,958 41,712
----------- ----------- ----------- ------------
Income (loss) before income taxes 474,936 (965,842) 616,429 (1,386,738)
Income tax benefit / (expense) (15,000) 23,000 10,000 50,000
----------- ----------- ----------- ------------
Net income (loss) $ 459,936 ($ 942,842) $ 626,429 ($ 1,336,738)
=========== =========== =========== ============
Primary and fully diluted net
earnings (loss) per common
and equivalent share $0.04 ($0.09) $0.05 ($0.13)
=========== =========== =========== ============
Weighted average number of
common and equivalent
shares outstanding 14,784,816 10,262,274 14,777,886 10,228,177
=========== =========== =========== ============
</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
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 626,429 $(1,336,738)
Non-cash expenses included in net loss
Depreciation and amortization 415,396 423,807
Deferred income taxes (10,000) (50,000)
Changes in current and non-current items
Accounts receivable (156,389) (47,749)
Inventories (287,941) (477,349)
Prepaid expenses and other assets (79,153) (83,289)
Accounts payable and accrued expenses 3,277,295 570,511
Deferred revenue (1,437,436) 283,478
----------- -----------
Net cash (used)/provided by operations 2,348,201 (717,329)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (534,139) (298,018)
Other assets ---------- 44,591
FCC licenses (84,071) (39,500)
----------- -----------
Net cash (used) by investing activities (618,210) (292,927)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 20,000 -------
Repayments of debt (420,689) (664,731)
Additional long-term debt 0 2,030,000
----------- -----------
Net cash (used)/provided by financing activities (400,689) 1,365,269
----------- -----------
NET INCREASE IN CASH 1,329,302 355,013
Cash beginning of period 1,914,759 202,146
----------- -----------
Cash end of period $ 3,244,061 $ 557,159
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
6
<PAGE> 6
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 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.
7
<PAGE> 7
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 (loss) 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, unless anti-dilutive, in
the computation through the use of the modified 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 December 31, 1996, options to purchase up to 1,649,500 shares of common
stock at prices ranging from $1.00 thru $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.
8
<PAGE> 8
NOTE 4 - 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.
9
<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 December 31, 1996, the Company had total current assets of $7,183,000 and
total current liabilities of $10,797,000 for negative working capital of
$3,614,000. 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 six months, the Company experienced an increase of $3,300,000 in
accounts payable and accrued expenses basically due to the increased volume of
business. This increase helped fund the Company's transition to billing at
time of shipment which is shown as the $1,400,000 reduction in deferred
revenue. The $2,348,000 of cash flow generated, is largely the result of the
combination of $600,000+ of net income and $400,000+ of non cash items. The
cash was used to purchase approximately $500,000 worth of equipment, repay debt
of approximately $400,000 and to increase cash by approximately $1,300,000.
The Company believes internally generated funds from operations (which should
improve significantly as carriage penetration increases and cost control
programs take effect), outside financing sources 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.
10
<PAGE> 10
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 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 Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 60.2 64.4 60.9 62.1
----- ----- ----- -----
Gross profit 39.8 35.6 39.1 37.9
Other operating income 1.4 1.2 1.5 1.5
Operating expenses 37.2 45.8 37.5 45.6
Interest expense 1.3 2.0 1.3 2.1
Other income .3 .4 .3 .2
----- ----- ----- -----
Net income (loss) before income taxes 3.0% (10.6)% 2.1% (8.1)%
===== ===== ===== =====
</TABLE>
The Company's net revenues for the three and six months ended December 31,
1996, were $16,055,000 or 72% and $29,796,000 or 74 % over the comparable three
and six month periods in the prior year. These increases represent expanded
carriage and market penetration and reflect the increase in full-time
equivalent house holds (FTEs) to approximately 7,300,000 by December 31, 1996,
compared to approximately 4,350,930 at December 31, 1995. The gross profit
margin for the three and six month period ended December 31, 1996 was 39.8% and
39.1% compared to 35.6% and 37.9% respectively for the same 1995 periods.
These increases are primarily the result of tighter inventory control and a
shift in the product mix towards lines yielding slightly higher profit margins.
The Company had infomercial income of $230,000 and $457,000 during the three
and six months period ended December 31, 1996, compared to $110,000 and $251,000
in the comparable three and six month periods in 1995. This represents income
generated by WMFP (TV) in Boston and KZJL (TV) in Houston. The increase in
informerical revenue is attributable to the continuing development of these
maturing markets.
The Company's operating expenses for the three and six months ended December
31, 1996, increased $1,742,000 or 41% and $3,352,000 or 43% respectively.
Expressed as a percentage of net revenue,
11
<PAGE> 11
operating expenses decreased to 37.2% from 45.8% and to 37.5% from 45.6% for
the three and six month periods respectively, reflecting the semi-variable
nature of the Company's operating expenses. Although the total operating
expenses expressed as a percentage of sales declined, distribution cost which
is included in operating expense, increased $1,270,000 or 87% and $2,534,000 or
102% for the three and six months periods over the comparable 1995 periods.
This increase in distribution cost is attributable to the Company's market
strategy to gain wider coverage through agreements with multiple service
organizations and cable systems such as TCI. Operating expenses net of
distribution cost increased only 15% over the comparable six month period of
the prior year compared to the Company's 74% increase in revenue over the
comparable prior year period.
As a result of the increased sales level, improved gross profit margins, and
overall containment of operating expenses, the Company generated net income of
$460,000 and $626,000 for the three and six months periods ended December 31,
1996, compared to net losses of $943,000 and $1,337,000 incurred during the
same periods in 1995.
12
<PAGE> 12
EXHIBIT 11
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ 459,936 $ (942,842) $ 626,429 $(1,336,738)
Interest expense saved from 29,582 0 59,164 0
conversion of debt
Interest expense saved from
payoff of debt with excess
proceeds from conversion
of options and warrants 56,399 0 93,887 0
----------- ----------- ----------- -----------
Adjusted net earnings (loss) $ 545,917 $ (942,842) $ 779,480 $(1,336,738)
=========== =========== =========== ===========
Common shares outstanding 10,605,284 10,262,274 10,596,621 10,228,177
Common equivalent shares
issuable upon exercise of
stock options and warrants (1) 3,478,443 0 3,480,176 0
Common equivalent shares
issuable upon conversion
of debt 563,146 0 563,146 0
Common equivalent shares
issuable upon conversion
of preferred stock 137,943 0 137,943 0
----------- ----------- ----------- -----------
Total weighted average shares 14,784,816 10,262,274 14,777,886 10,228,177
=========== =========== =========== ===========
Primary and fully diluted net
earnings per common and
equivalent share $ 0.04 $ (0.09) $ 0.05 $ (0.13)
=========== =========== =========== ===========
</TABLE>
Notes:
(1) Amount calculated using the modified treasury stock method and fair market
values.
13
<PAGE> 13
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 is filed as a
part of this Quarterly Report and Financial Data Schedule (for
SEC use only)
Exhibit 11 - Schedule of Computation of Net Earnings Per Share on
page 13.
(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: February 5, 1997
---------------------------------------
/S/ Joseph Nawy
- --------------------------------------------
Joseph Nawy, Vice President Finance
Date: February 5, 1997
---------------------------------------
14
<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 JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL SATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,244,061
<SECURITIES> 0
<RECEIVABLES> 544,146
<ALLOWANCES> 0
<INVENTORY> 2,899,083
<CURRENT-ASSETS> 7,182,797
<PP&E> 5,749,983
<DEPRECIATION> 2,005,754
<TOTAL-ASSETS> 24,110,896
<CURRENT-LIABILITIES> 10,796,802
<BONDS> 0
0
1,393,430
<COMMON> 26,536
<OTHER-SE> 2,787,912
<TOTAL-LIABILITY-AND-EQUITY> 24,110,896
<SALES> 16,054,772
<TOTAL-REVENUES> 16,327,423
<CGS> 9,671,430
<TOTAL-COSTS> 15,650,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,684
<INCOME-PRETAX> 474,936
<INCOME-TAX> (15,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 459,936
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
