<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
March 31, 1997 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
May 5, 1997)
<PAGE> 2
SHOP AT HOME, INC. AND SUBSIDIARIES
INDEX
THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
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 12-13
</TABLE>
2
<PAGE> 3
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
Cash $ 3,334,581 $ 1,914,759
Accounts receivable 1,028,519 387,757
Inventories 2,647,530 2,611,142
Prepaid expenses 379,794 279,505
Deferred tax assets 100,000 80,000
------------- -------------
Total current assets 7,490,424 5,273,163
Property & equipment, net 4,284,966 3,470,226
FCC License, net 12,209,559 10,516,041
Goodwill, net 593,517 605,154
Other assets 1,516,638 422,086
------------- -------------
Total assets $ 26,095,104 $ 20,286,670
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 11,642,317 $ 6,616,796
Current portion - capital leases and long term debt 906,232 850,706
Deferred revenue 59,057 1,512,291
------------- -------------
Total current liabilities 12,607,606 8,979,793
Long-term debt 6,440,435 5,722,712
Deferred income taxes 2,395,961 2,082,336
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
139,343 shares issued and outstanding 1,393,430 1,393,430
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,714,414 and 10,575,255 shares issued at
March 31, 1997 and June 30, 1996, respectively 26,786 26,438
Additional paid in capital 10,066,555 9,927,787
Accumulated deficit (6,835,669) (7,845,826)
------------- -------------
Total liabilities and stockholders' equity $ 26,095,104 $ 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 March 31, Nine Months Ended March 31,
1997 1996 1997 1996
----------- ------------ ----------- ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $17,981,856 $ 10,557,388 $47,778,121 $ 27,683,861
Cost of sales 10,731,692 6,467,587 28,877,910 17,096,390
----------- ------------ ----------- ------------
Gross profit 7,250,164 4,089,801 18,900,211 10,587,471
Infomercial income 288,936 180,498 745,755 431,901
Operating expenses 7,062,805 4,211,205 18,232,697 12,026,875
----------- ------------ ----------- ------------
Operating income (loss) 476,295 59,094 1,413,269 (1,007,503)
Interest expense 208,894 231,644 597,397 591,767
Other income 61,360 8,179 129,317 48,161
----------- ------------ ----------- ------------
Income (loss) before income taxes 328,761 (164,371) 945,189 (1,551,109)
Income tax benefit 55,000 25,000 65,000 75,000
----------- ------------ ----------- ------------
Net income (loss) $ 383,761 ($ 139,371) $ 1,010,189 $ 1,476,109
=========== ============ =========== ============
Primary and fully diluted net
earnings (loss) per common
and equivalent share $ 0.03 ($ 0.01) $ 0.08 ($ 0.14)
=========== ============ =========== ============
Weighted average number of
common and equivalent
shares outstanding 13,914,234 10,273,161 14,044,855 10,243,074
=========== ============ =========== ============
</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
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,010,189 ($ 1,476,109)
Non-cash expenses included in net loss
Depreciation and amortization 600,199 700,260
Loss on sale of equipment -- 19,165
Deferred income taxes (65,000) (75,000)
Deferred interest charge -- 33,333
Provision for bad debt 18,800 --
Changes in current and non-current items
Accounts receivable (659,562) 60,323
Inventories (36,388) 2,952
Prepaid expenses and other assets (162,904) (149,336)
Accounts payable and accrued expenses 5,048,379 92,732
Deferred revenue (1,453,234) 342,900
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Net cash (used)/provided by operations 4,300,479 (448,780)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,176,093) (423,616)
Proceed from sale of equipment -- 20,000
Other assets (1,100,000) (3,050)
FCC licenses (84,071) (39,500)
------------- -------------
Net cash (used) by investing activities (2,360,164) (446,166)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (13,742) --
Exercise of stock options 120,000 27,440
Repayments of debt (626,751) (864,212)
Additional long-term debt -- 2,030,000
------------- -------------
Net cash (used)/provided by financing activities (520,493) 1,193,228
------------- -------------
NET INCREASE IN CASH 1,419,822 298,282
Cash beginning of period 1,914,759 202,146
------------- -------------
Cash end of period $ 3,334,581 $ 500,428
============= =============
</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)
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(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
MARCH 31, 1997 (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 March 31, 1997, options to purchase up to 1,419,822 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.
At March 31,1997, warrants to purchase 3,300,000 shares of common stock
exercisable at $1 were outstanding. In addition, options to purchase 650,000
shares of common stock at prices ranging from $1 to $2.50 expiring in 1999 are
outstanding.
7
<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.
NOTE 5 - INVESTMENT
In February 1997, the Company purchased $750,000 of preferred stock convertible
into common stock of Collector's Edge, a licensee of sports trading cards. The
stock is convertible at the option of Shop at Home. The company also advanced
$400,000 as a working capital loan. In March of 1997, Collector's Edge repaid
$50,000 of this amount. The net amount of $1,100,000 has been recorded in Other
Assets as of March 31, 1997.
In addition and in conjunction with this transaction, the Company pledged
certain assets and guaranteed approximately $2,900,000 of indebtedness of
Collector's Edge to a bank.
NOTE 6 - SUBSEQUENT EVENT
In April 1997, the Company financed the acquisition of approximately $437,000 in
new computer and telephone equipment.
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 March 31, 1997, the Company had total current assets of $7,483,000 and
total current liabilities of $12,608,000 for negative working capital of
$5,125,000. 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.
The main components of the net working capital decrease of $1,400,000 are an
increase in accounts payable of approximately $5,000,000 due to the increase in
the level of business, reduced by, (a) $1,200,000 cash outlay to purchase fixed
assets, (b) $750,000 to purchase convertible preferred stock of Collector's
Edge, a licensee of sports trading cards, (c) net advance of $350,000 in working
capital loans to Collector's Edge and (d) $1,400,000 increase in cash.
The Company believes internally generated funds from operations (which should
continue to improve significantly as carriage penetration increases and new 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. In addition, the Company has excess
value in its collateralized assets and believes that debt restructuring will
free up much of the assets now encumbered and make them available for future
borrowing collateral. 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 AND NINE MONTH PERIODS ENDED
MARCH 31, 1997 AND 1996.
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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 59.7 61.3 60.4 61.8
----- ----- ----- -----
Gross profit 40.3 38.7 39.6 38.2
Other operating income 1.6 1.7 1.6 1.6
Operating expenses 39.3 39.9 38.2 43.5
Interest expense 1.1 2.2 1.3 2.1
Other income .3 .1 .3 .2
----- ----- ----- -----
Net income (loss) before income taxes 1.8% (1.6)% 2.0% (5.6)%
===== ===== ===== =====
</TABLE>
The Company's net revenues for the three and nine months ended March 31, 1997,
were $17,982,000 or 70% and $47,778,000 or 72% over the comparable three and
nine 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 7,100,000 by March 31, 1997, compared to
approximately 5,200,000 at March 31, 1996. The gross profit margin for the three
and nine month period ended March 31, 1997 was 40.3% and 39.6% compared to 38.7%
and 38.2% respectively for the same 1996 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 $289,000 and $746,000 during the three and
nine months period ended March 31, 1997, compared to $180,000 and $432,000 in
the comparable three and nine month periods in 1996. 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 nine months ended March 31,
1997, increased $2,852,000 or 38% and $6,206,000 or 31% respectively. Expressed
as a percentage of net revenue, operating expenses decreased to 39% from 40% and
to 38% from 43% for the three and nine month periods respectively, reflecting
the semi-variable nature of the Company's operating expenses. The
10
<PAGE> 11
Company instituted cost reduction programs in its phone center which should
reduce expenses by approximately $50,000 a month. In addition, the Company
completed the automation of its Boston and Houston operations which are expected
to reduce operating expenses by approximately $35,000 a month. Although the
total operating expenses expressed as a percentage of sales declined, carriage
distribution cost which is included in operating expense, increased $2,238,000
or 30.1% and $4,811,000 or 24% for the three and nine months periods over the
comparable 1996 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 Tele-Communication,
Inc. Operating expenses net of distribution cost increased only 7% over the
comparable nine month period of the prior year compared to the Company's 73%
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
$384,000 and $1,010,000 for the three and nine months periods ended March 31,
1997, compared to net losses of $139,000 and $1,476,000 incurred during the same
periods in 1996.
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 11 - Schedule of Computation of Net Earnings Per Share.
Exhibit 27 - Financial Data Schedule is filed as a part of this
Quarterly Report (for SEC use only)
(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: May 13, 1997
/S/ Joseph Nawy
- -----------------------------------
Joseph Nawy, Vice President Finance
Date: May 13, 1997
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 Nine months ended
March 31, March 31,
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net earnings (loss) $383,761 ($139,371) $1,010,189 ($1,476,109)
Interest expense saved from
conversion of debt 29,582 0 88,746 0
-------- --------- ---------- ----------
Adjusted net earnings (loss) $413,613 ($139,371) $1,098,935 ($1,476,109)
======== ========= ========== ==========
Common shares outstanding 10,699,970 10,273,161 10,630,568 10,243,074
Common equivalent shares
issuable upon exercise of
stock options and warrants(1) 2,513,175 0 2,713,199 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 13,914,234 10,273,161 14,044,855 10,243,074
========== ========== ========== ==========
Primary and fully diluted net
earnings per common and
equivalent share $0.03 ($0.01) $0.08 ($0.14)
===== ======= ===== ======
</TABLE>
Notes:
(1) Amount calculated using the modified treasury stock method and fair market
values.
(2) The 1997 computations of weighted average shares include the effect of
approximately 5,370,000 shares which could be exercised under various
warrants and options. These amounts are necessary for inclusion since the
Company has become profitable.
<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,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,334,581
<SECURITIES> 0
<RECEIVABLES> 1,047,319
<ALLOWANCES> 18,800
<INVENTORY> 2,647,530
<CURRENT-ASSETS> 7,490,424
<PP&E> 6,391,937
<DEPRECIATION> 2,106,971
<TOTAL-ASSETS> 26,095,104
<CURRENT-LIABILITIES> 12,607,606
<BONDS> 0
0
1,393,430
<COMMON> 26,786
<OTHER-SE> 3,230,886
<TOTAL-LIABILITY-AND-EQUITY> 26,095,104
<SALES> 17,981,856
<TOTAL-REVENUES> 18,332,152
<CGS> 10,731,692
<TOTAL-COSTS> 17,794,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208,894
<INCOME-PRETAX> 328,761
<INCOME-TAX> 55,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 383,761
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
