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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
Amendment No. 1
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1997
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File number 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 Number)
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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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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COMMON STOCK, $.0025 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the Common Stock held by non-affiliates of
the registrant on September 22,1997 was: $43,633,191
Number of shares of Common Stock outstanding as of October 1, 1997:
11,074,414
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Documents Incorporated by Reference
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The Registrant's definitive Proxy Statement in connection with the 1997
Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission within 120 days after the end of the Registrant's fiscal
year ended June 30, 1997 is incorporated by reference in Part III of this Annual
Report on Form 10-K
The undersigned Registrant hereby amends the Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 as set forth below.
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations - of the Form 10-K for the year ended June 30, 1997 is
amended and restated as follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to total revenue of certain items included in the Company's
Statements of Operations.
<TABLE>
<CAPTION>
Year ended June 30
1997 1996 1995
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<S> <C> <C> <C>
Net Sales 100% 100% 100%
Cost of goods sold 59.9 61.3 63.9
Gross profit 40.1 38.7 36.1
Other operating income 1.5 1.7 0.7
Promotion and advertising charges .7 .6 1.0
Salaries and wages 8.2 10.3 12.6
Transponder and cable charges 17.9 15.1 12.0
Other general operating
and administrative expenses 9.8 14.1 13.6
Depreciation and amortization 1.5 2.2 2.0
Other expense (1.3) (1.9) (0.3)
Income tax benefit .1 .3 .0
Net income (loss) 2.3 (3.5) (4.7)
</TABLE>
RESULTS OF OPERATIONS
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FISCAL 1997 VS. FISCAL 1996
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The Company's total revenues, consisting of net sales, infomercial and
miscellaneous revenues, for the year ended June 30, 1997, were $69,064,000, an
increase of $28,332,000 or 70% over the prior year. The major component of this
increase in revenues was net sales which increased to $67,817,000, an increase
of $27,801,000 or 59% over the prior year. The increase was primarily
attributable to the addition of approximately 3,200,000 full-time equivalent
households (FTEs) resulting in a total of 8,600,000 full-time equivalent
households (FTEs) at the end of June 1997. This increase in households is
attributable mainly to the expanded coverage through greater market penetration
of approximately 2,200,000 full power television station FTEs and approximately
600,000 FTEs through the agreement with TCI. The sales increase was principally
the result of increased sales volume rather than an increase in price points.
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The Company's product mix trended away from jewelry and more toward
male related merchandise, including sports and collectibles in keeping with its
predominately male audience.
Gross profit increased by $11,692,000 or 75.4%, primarily as a result
of increased sales related to expanded carriage throughout the United States and
increased gross margins. The Company's average gross profit margin increased to
40.1% from 38.7% in the previous year as a result of improved purchasing,
selection and development of more unique merchandise and product lines. Higher
margins were obtained throughout most product categories, particularly in the
sports product lines.
The Company generated $1,051,000 in informercial revenue from WMFP in
Boston and KZJL in Houston. This represented a 59.5% increase over the
infomercial revenue of the prior year. The Company continued improvement in this
area although future increases should be smaller.
The Company develops a market by broadcasting its programming over a
period of time. Consequently there is a timing difference of approximately 6 to
9 months whereby the distribution expenses outpace future revenues. In these
instances, the Company's profitability in a specific new market will be
initially depressed until future revenue streams exceed expenses.
Operating expenses for fiscal 1997 increased $8,953,000, or 52.9% over
1996. The major items resulting in the increase were: (a) additional cable
carriage and signal distribution costs of approximately $6,094,000 or 101.1%;
(b) an increase in salaries of approximately $1,452,000 or 35.3% primarily
related to variable labor costs associated with the higher volume of customer
calls and some additions to management; (c) an increase in depreciation and
amortization of approximately $179,000 or 20.4% primarily associated with the
operating costs and acquisitions of fixed assets of the Boston and Houston
television stations, and Collector's Edge; (d) an increase in telephone cost of
$255,000 or 39.3%; and (e) credit card discounts of $490,000 or 48.2% related
primarily to the higher business revenues in 1997.
FISCAL 1996 VS. FISCAL 1995
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The Company's total revenues, consisting of net sales, infomercial, and
miscellaneous revenues, for the year ended June 30, 1996, were $40,732,000, an
increase of $13,667,000 or 50% over the prior year. The major component of this
increase in revenues was net sales which increased to $40,016,000 an increase of
$13,229,000 or 49% over the prior year. The increase was primarily attributable
to greater cable coverage which resulted from the addition of approximately
2,700,000 full time equivalent households (FTEs) resulting in a total of
5,400,000 FTE households by the end of June 1996. This two-fold increase in
households is attributable mainly to the combined carriage in the Boston,
Houston, and Dallas markets to which the Company did not broadcast in the prior
fiscal year (approximately 60%) and the additional part-time carriage on various
full power stations throughout the United States (approximately 40%). The sales
increase was the result of increased sales volume and not an increase in sales
prices.
During fiscal 1996, the Company introduced and developed new product
lines in Health & Beauty, Fitness, and Collectible Knives. In addition, there
was a broadening of the Coin product line, and the Company re-introduced its
"Dominator" collectible card. These new and expanded product lines helped
generate new sales to broaden the customer base.
Gross profit increased by $5,834,000 or 60.4%, primarily as a result of
increased sales related to expanded carriage throughout the United States and
increased gross margins. The Company's average gross profit margin increased to
38.7% from 36.1% in the previous year as a result of improved purchasing,
selection and development of more unique merchandise and product lines. Higher
margins were obtained throughout most product categories, particularly in the
jewelry and sports product lines.
The Company generated $659,000 in infomercial revenue from WMFP in
Boston and KZJL in Houston. This represented a 248% increase over the
infomercial revenue of the prior year and was the first full year of infomercial
revenue.
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The Company develops a market by broadcasting its programming over a
period of time. Consequently there is a timing difference of approximately 6 to
9 months whereby the distribution expenses outpace future revenues. In these
instances, the Company's profitability in a specific new market will be
initially depressed until future revenue streams exceed expenses.
Operating expenses for fiscal 1996 increased $5,920,000, or 53.8% over
1995. The major items resulting in the increase were: (a) additional cable
carriage and signal distribution costs of approximately $2,798,000 or 86.7%; (b)
an increase in salaries of approximately $756,200 or 22.5% related to variable
labor costs associated with the higher volume of customer calls and some
additions to management; (c) an increase of $367,900 or 162.0% in legal expenses
associated with the unsuccessful Paxson merger and certain litigation; (d) an
increase in depreciation, amortization, station management costs and utilities
of approximately $975,000 or 22.7% primarily associated with the operating costs
and acquisitions of fixed assets of the Boston and Houston television stations,
which were owned for a full year in 1996; (e) the Company's operating expenses
for Houston exceeded revenues by $305,000 until January 1996 when Houston became
profitable; (f) an increase in telephone cost of $179,000 or 38.3%; and (g)
credit card discounts of $354,000 or 53.5% related primarily to the higher
business revenues in 1996.
Other expenses were negatively impacted by $610,000 or 479.1% primarily
due to increased interest expense on the additional $2,000,000 in debt secured
in August 1995 and the full year of expense from new debt incurred in fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
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Fiscal 1997 was a year of dramatic growth for the Company which was
mostly achieved by a 59% increase in FTEs primarily through broadcast stations,
cable system and carriage agreements. Management believes the growing market
value of these broadcast assets and the addition of long-term, full-time,
predictable coverage will significantly and positively add long term value and
revenue to the Company.
The Company believes internally generated funds from operations,
together with borrowings, and the sale of common stock and warrant rights, if
needed, will be sufficient to meet the Company's capital requirements during the
next fiscal year. Additionally, the Company believes it will be successful in
raising capital necessary to fund its bid to acquire the assets of Global
Shopping Network.
In January 1997, the Company completed the installation of an Aspect
Callcenter telephone system, which increases the Company's ability to meet the
higher sales volumes while reducing operator and telephone costs. This system
integrates the Company's database with caller ID capability and will reduce the
time necessary to process calls. In July 1996, the Company instituted a new
credit card processing system, which provides instant credit card verification
at the time of sale. These capital expenditures improve the Company's operating
efficiency in terms of cash flow. They are consistent with management's goal to
invest in current technology to improve the ratio of costs which support sales.
At June 30, 1997 the Company had a negative net working capital
position of ($4,641,439), a decrease of $934,809. This decrease was attributable
primarily to the $1,100,000 invested in Collector's Edge of Tennessee, Inc. Much
of the growth in liabilities is reflective of the Company's increased sales
volume. The Company believes that it enjoys strong, long-term relationships with
its vendors. It is common in the retail business to have a low working capital
ratio, and the Company believes that its ability to meet future vendor
obligations will be adequate.
RECENT ACCOUNTING PRONOUNCEMENTS
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In February 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
which changes the calculations used for earnings per share (EPS) and makes
them comparable to international EPS standards. It replaces the presentation
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of primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. The effect of the change in the
standard on the consolidated financial statements results in $0.15 and ($0.14)
of basic EPS for the years ended June 30, 1997 and 1996. The standard would have
no effect on the diluted EPS. The Statement is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure." The Statement establishes standards for disclosing
information about an entity's capital structure. The Statement is effective for
periods ending after December 15, 1997. Management has determined that the
adoption of this Statement will not have a material impact on the financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Statement is
effective for financial statements issued for periods beginning after December
15, 1997. Management has not yet determined the full effect of this Statement on
its financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company currently has no
items that would be classified as other comprehensive income. Thus, management
has determined that the adoption of this Statement will not have a material
impact on the financial statements.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie Date: 10/28/97
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Kent E. Lillie
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Joseph Nawy Date: 10/28/97
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Joseph Nawy
(Vice President -Finance)
