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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1996
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee Required]
For the transition period from to
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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 18,1996 was: $39,657,206.
Number of shares of Common Stock outstanding as of September 18, 1996:
10,575,255.
Documents Incorporated by Reference
The Registrant's definitive Proxy Statement in connection with the 1996
Annual Meeting of Shareholders planned to be held December 6, 1996 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, 1996 is incorporated by
reference in Part III of this Annual Report on Form 10-K.
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SHOP AT HOME, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Shop at Home, Inc. ("Company"), a Tennessee corporation, is headquartered
in Knoxville, Tennessee, and was incorporated in 1986. The Company's principal
business is the sale of merchandise and retail products through televised
programs broadcast to owners of satellite dish receivers, cable television
system subscribers, and television station viewers. The Company creates
twenty-four hours of live programming each day, and broadcasts that programming
by satellite. It is viewable by up to 35 million (estimated) households
throughout North America. This same programming (and occasionally other
programs also produced live or on tape) is provided to the Company's owned and
operated television stations in Boston and Houston, and to an "ad hoc" network
of over 50 independently owned television stations and cable systems around the
country for all or a portion of each broadcast day.
The Company's business offices, broadcast studios, inbound call center,
and fulfillment operations are headquartered in Knoxville, Tennessee. In
addition to its Tennessee office, the Company owns and operates television
stations in Boston (WMFP), and in Houston (KZJL), and manages cable affiliate
development offices in Atlanta, Georgia, and Denver, Colorado.
The Company's programming features a variety of consumer products
including, but not limited to, sports collectibles and memorabilia, collectible
coins, collectible knives and swords, fitness products, health and beauty
products, jewelry, individual gemstones and opals, and other merchandise that
appeals to collectors, catalog customers, and TV home shoppers. The Company
offers its products at competitive prices that represent enticing values to the
consumer. The Company uses show hosts to present and explain the benefits and
values of its products to its television audience, takes customer orders at its
own call center and ships customer orders through its own fulfillment center or
through its affiliated vendors.
The Company differentiates itself from its competitors in a variety of
ways including emphasis on unique collectible items and packages in sports
memorabilia, coins and other predominantly male oriented product categories.
Additionally, the Company selects and offers higher quality, higher priced
merchandise in jewelry,
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gemstones, and cosmetics. The Company has also successfully developed and
utilized proprietary products and brand names in its jewelry and cosmetic
lines.
BUSINESS STRATEGY
The Company's primary mission is to achieve positive earnings per share by
attaining accelerated revenue growth and a consistent level of profitability.
A key factor in achieving these objectives is the Company's marketing strategy
of establishing dominance in niche markets that are underserved by other TV
home shopping and retail competitors. The Company constantly strives to broaden
its niche product categories, offer unique items and improve its level of
customer service.
Management has focused internal emphasis on revenue growth, improvement in
gross margins, expense control, cable distribution growth and building its
infrastructure to maintain its fast growth pace. The Company has recently
increased the capacity of the organization in systems, finance, physical
distribution, planning, customer service, and affiliate relations. Areas of
emphasis during the upcoming fiscal year include merchandising, call center
operations, investor relations, and TV cable carriage distribution.
RECENT DEVELOPMENTS
In October 1995, the Company signed an agreement giving it the right to
acquire 49% of the ownership of Television station KLDT, in the Dallas, Texas
market. The Company is responsible for the programming of this station which
broadcasts to over 600,000 cable television households. Dallas is the
country's 8th largest market with over 1.8 million television households.
The Company recently completed its acquisition of the remaining 51%
portion of Television station KZJL, Houston, Texas, that it did not own.
Houston is the nation's 10th largest television market with approximately 1.5
million television households.
The Company recently sold the operating assets of its wholly owned
subsidiary, RF Scientific Transportables, which provided mobile uplink
services. This subsidiary had not operated profitably over the past few years,
and its closing will eliminate the continuing operating loss in excess of
$100,000.
A priority for the Company in the past four years has been the attainment
of higher gross margins. Internal programs focused on improved buying
techniques, stronger vendor partnerships, and a more favorable merchandise mix
have enabled the
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Company to improve its gross margin percentage to 38.7% from 36.1% and 34.3% in
fiscal 1996, 1995 and 1994 respectively.
The Company successfully completed two agreements with Telecommunications,
Inc. (TCI), the first of which will add at least 4 million up to 10 million,
cable households as early as November 1996 on a part time basis. The second
agreement gives the Company the right to solicit and negotiate with each of the
individual cable systems in TCI's network of over 12 million cable households.
The Company is in the initial development stage of creating an Internet
Website. Since a significant portion of the Company's revenues are derived
from the sale of collectible merchandise, especially to male consumers (who are
major users of PCs and the Internet), the Company sees this as an excellent
opportunity to extend and promote its products.
The Company expects to continue its accelerated growth rate which is
taxing the limits of its current facility in Knoxville, Tennessee.
Accordingly, the Company has retained the services of the James N. Gray
Construction Co., Inc. to advise on site location, facility requirements, and
transition planning as the Company evaluates its physical facility needs for
the next several years.
"MUST CARRY" REGULATIONS
Television station ownership allows the Company to take advantage of the
"must carry" rules of the Federal Communications Commission ("FCC") under the
Cable Act of 1992 (the "Cable Act"). Generally, the "must carry" rules require
most cable systems to use up to one-third of their channels to carry the
broadcast signals of local, full power television stations, including those
which broadcast predominantly home shopping programming.
The current strategy of the Company has been developed based on the
present status of the "must carry" provisions of the Cable Act of 1992. The
long term strategy of the Company is largely dependent on the ultimate outcome
of the lawsuit known as Turner Broadcasting System v. FCC, challenging the
validity of the must carry provisions of the Cable Act. Under the must carry
provisions, cable systems (with the exception of some small systems) are
required to set aside up to one-third of their channels for local, full power
broadcast stations that request to be carried. These signals must be carried
on a continuous, uninterrupted basis and must be placed in the same numerical
channel position as when broadcast over-the-air, or on a mutually agreeable
channel. Further, with some exceptions, the cable operator may not charge a
fee for carrying these broadcast signals.
On June 27, 1994, the United States Supreme Court issued an opinion in the
Turner case in which the Court decided that cable system operators engage in
"speech" protected by the First Amendment by virtue of their decisions
regarding the programming broadcast over their systems, and the Cable Act
constituted a governmental restriction on that speech. The Court held that
restriction would be permissible only if (i) the restriction furthers an
important governmental interest, (ii) the governmental interest is not
suppression of free expression, and (iii) the incidental restriction on the
cable system operators' free speech is not greater than is essential to the
furtherance of the government interest. The Court remanded the case to the
District Court for trial in accordance with this standard.
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On December 12, 1995, a three judge panel of the District Court issued its
decision upholding the validity of the must carry provisions of the Act. The
Court (with one judge dissenting) found that these provisions did not violate
the First Amendment in that there was substantial evidence from which the
Congress could have drawn reasonable inferences that the must carry regulations
were necessary to protect the economic health of the broadcast television
industry and the burden imposed on the cable industry was not substantial.
Since that date, the Supreme Court has agreed to review this decision, and
the matter is set for oral arguments to be made to the Court on October 7,
1996. It cannot be reasonably predicted when the resulting decision of the
Supreme Court will be issued, but a decision would be expected before the end
of the Court's annual session in early summer of 1997.
As of this date, the must carry provisions remain effective and cable
system operators must continue to adhere to them until, and unless, the Court
rules otherwise. There is no assurance that the Supreme Court will ultimately
uphold the validity of the must carry provisions of the Cable Act. In the
event the must carry requirements are not in force, the Company anticipates
that it would continue to seek carriage of its programming on commercial
television stations and directly with cable television systems by purchasing
broadcast time. These additional expenditures would significantly increase the
Company's operating costs, and there is no assurance that the Company could
readily replace the households it might lose as a result of an adverse court
decision.
OWNED AND OPERATED STATIONS
In the pursuit of its strategy to build full time distribution, the
Company purchased its first television station in February of 1995, WMFP,
Channel 62, licensed to Lawrence, Massachusetts and serving the greater Boston
area. The station broadcasts at maximum FCC allowable power from atop the 35th
floor of #1 Beacon Street, in downtown Boston. Boston is the 6th largest
television market in the country with 2,105,100 television households, and
1,571,610 cable households. Metropolitan Boston's 5,717,000 residents spend in
excess of $47 billion on total annual retail sales.
Total consideration for the purchase of WMFP was $7,000,000 comprised of
cash, long term debt, common stock, and series A preferred stock.
In fiscal 1995, the Company also purchased a 49% interest and an option to
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acquire the remaining 51% of television station KZJL, Channel 61, licensed to
Houston, Texas. On September 5, 1996, the Company acquired this 51% interest.
The station signed on the air on June 3, 1995 and broadcasts from a 1500 foot
tower in the Houston "antenna farm". Houston is the 10th largest Designated
Marketing Area with 1,561,350 television households and 834,900 cable
households. Houston is ranked 8th in the United States Buying Power Index and
has total retail sales of over $28 billion. Shop At Home programming runs
exclusively on the station for the majority of each broadcast day.
Total consideration for the 49% interest was a total of $2,500,000 in
cash, long term debt and common stock. The remaining 51% was purchased for
$1,400,000 payable over 11 years at 6%. Cost to the Company to construct the
station was approximately $2.2 million.
CABLE CARRIAGE AFFILIATIONS
The business planning of the Company for future revenue growth and the
general expansion of the opportunities for the Company center upon carriage.
Carriage is the distribution of the Company's programming into television
homes in the United States and some coverage into other North American homes.
A Company priority is to achieve an increase in the number of cable homes which
receive the programming of the Company's home shopping format.
In mid-1993, an aggressive strategy was launched to build a cable
distribution for the Company's programming. Since that time, the Company has
been successful in continuously increasing its cable distribution and increasing
its aggressiveness in building strong ties to major cable Multiple System
Operators. The Company's programming is now viewed in more than 50 cable
markets, including nine of the country's top ten Designated Market Areas.
During fiscal 1996, the Company has added over 25 new cable markets on
either a full time or part time basis. In addition, the Company has secured
coverage on superstation WWOR which gives the Company access to more than 23
million households for some portion of each week.
The Company has also entered into two carriage agreements with
Telecommunications, Inc. (TCI), one of which will add at least 4 million
households (800,000 FTE's) as early as November 1996, and can grow to a
total of 10 million households within a year of initiation of carriage. The
second agreement gives the Company the right to solicit and negotiate with
the individual cable systems in TCI's network of over 12 million cable
households.
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The Company anticipates that it will continue to be successful in securing
similar additional cable distribution during the next year and accordingly has
increased its Affiliate Relations staff.
BROADCAST OPERATIONS
The Company's programming is distributed to satellite dish owners,
television stations and cable television systems, from the Company's studios in
Knoxville, Tennessee. The programming is transmitted by means of the Company's
satellite uplink facilities to transponders leased or subleased by the Company
on domestic communications satellites. The transponders then re-transmit the
signals received from the Company to satellite dish receivers located
throughout the United States and parts of Canada and Mexico. Owners of home
satellite dish receivers, the Company's principal market of customers prior to
mid-1993, are generally able to receive programming directly from the
satellite. The signal is also received by affiliated cable television systems
and television stations who re-broadcast the Company's signal.
On December 1, 1995, the Company commenced broadcasting on transponder 4C
of AT&T's state of the art satellite 402R, thereby terminating its use of the
S3-18 transponder.
PRODUCT ASSORTMENT
The Company's programming features a variety of consumer products including
jewelry, gemstones, opals, sports cards and memorabilia, rare coins and
currency, collectible knives and swords, electronics, fitness equipment,
health and beauty products, and home related items. The Company seeks to offer
high quality products that are not readily available or are differentiated from
its competitors. From time to time, the Company also offers exceptional values
when it is able to take advantage of close-out merchandise and pricing from
selected vendors.
The Company has multiple sources of products and believes its
relationships with most of its vendors is excellent. The Company believes
certain products which it sells are readily available through multiple
suppliers. The Company also acquires unique products from a select group of
vendors (some of whom are shareholders) and believes it will be able to
continue to identify sources of specialty products. These unique products are
what the Company believes help to differentiate it from its competitors.
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The Company's programs use a show host approach whereby information is
conveyed about the products with a demonstration of the use of the products to
the television audience. The viewer may purchase any product the Company offers
at any time after such product's offering, subject to availability. Thus a
viewer is not limited to purchasing a product only during that particular
product's air time. The Company continually monitors product sales and revises
its product offerings in an effort to maintain a productive and profitable
product mix.
The Company is continuously evaluating new products and vendors as it
strives to broaden its merchandise selection.
PROGRAMMING
The Company segments most of its programming into product or theme
categories. The Company often provides multiple broadcasts (two or more) during
peak viewing times. The Company provides one full-time live broadcast and
part-time live, taped, or simulcast broadcasts on two satellite transponders
that the Company leases from ESPN. The Company has studio and broadcasting
capacity to produce two live shows simultaneously.
The Company seeks to differentiate itself from other televised home
shopping programmers by utilizing an informal, personal style of presentation
and by offering unique and more "upscale" types of products with a heavy
emphasis on sports and sports related products. Rare coins, collectible sports
items, and other limited-availability items provide viewers with alternatives
to the products offered on other home shopping programming. Specialized
products are presented and described by knowledgeable on-air hosts. The
Company believes that continued use of such "niche" programming is important to
the future growth of the Company.
CUSTOMER RELATIONS
The Company maintains its own call center and customer service operations
at its headquarters in Knoxville, Tennessee. Customers can place orders with
the Company 24 hours a day, seven days a week via the Company's toll free 800
numbers. The Company uses both Customer Sales Representatives (CSRs) and an
automated touch-tone ordering system to accept customer orders. A majority of
the Company's customers pay for their purchases by credit card and the Company
also accepts payment by money order, personal check, certified check, debit
cards and wire transfers. The Company has recently developed and implemented a
new training program to further raise its service and productivity levels.
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The Company ships customer orders as quickly as possible utilizing UPS,
Federal Express, and Parcel Post for the majority of its shipments. To
increase speed of service the Company ships both from its warehouse facility in
Knoxville and directly to the customer from selected vendors with whom it has
arranged "drop ship" agreements. The Company also operates a separate customer
service department to facilitate and handle customer inquiries about ship
dates, product, and billing information.
The Company offers a full 30 day return policy to insure customer
satisfaction and to promote the purchase of its merchandise. Mechanical,
electronic, and other items may be covered by additional manufacturer
warranties; however, the Company does not offer additional warranties on the
products it sells. The Company strives to continuously improve its customer
service and utilizes outside agencies to conduct objective comparisons with
other TV home shopping competitors. Additionally, the Company periodically
surveys and researches its customers to solicit ideas for better products,
programming, and service.
From time to time the Company conducts promotional campaigns to launch new
shows and products, increase its revenue per household, and introduce new
viewers to its programming. Multiple media are used to communicate these
events including on-air promotion, show host emphasis, package stuffers, direct
response mailers and TV commercials.
FEDERAL REGULATION AND LEGISLATION
The FCC grants licenses to construct and operate uplink equipment, which
transmits signals to satellites. These licenses are generally issued without a
hearing if suitable frequencies are available. Presently, the Company has
licenses issued by the FCC for the operation of two domestic fixed satellite
service earth stations that are renewable on a one (1) year basis. In the
event the FCC fails to renew or terminates the licenses for one or both of
these vehicles, the Company's ability to provide programming will be
significantly affected. The Company does not have any agreements for backup
transmission of its programming to satellites, but it believes it could obtain
such services, although it might incur substantial additional costs in entering
into new arrangements. In addition, the Company's ability to expand its
programming capability is limited by the requirement that it obtain licenses
for additional uplink facilities.
Each of the Company's television stations operate pusuant to a license
issued by the FCC. Television broadcast licenses are issued for a period of
five (5) years, and the license for KZJL will expire in 1998 and the license
for WMFP will expire in 1999. The Company may apply to renew these licenses,
and third parties may challenge those applications or file competing
applications. Although the Company has no reason to believe its licenses will
not be renewed in the ordinary course, there can be no assurance that the
licenses will be renewed.
The television broadcast industry is subject to extensive and changing
regulation. The Communications Act of 1934, as amended, and FCC rules require
the FCC to consent to assignments of FCC licenses or the transfer of control of
FCC licensees. There are currently under consideration new regulations
regarding a variety of matters which could have an adverse affect of the
ownership and operation of broadcast properties, or which could increase the
value of such holdings. FCC regulations also require broadcast stations to
maintain certain records for public inspection and to submit periodic reports
to the FCC, including reports concerning the ownership of the licensee, the
employment practices of the station, and other matters. While the Company has
no reason to believe that it is not in full compliance with all applicable
regulations, it is subject to periodic inspections by the FCC and there can be
no assurance of full compliance. The FCC has the power to assess monetary
penalties for violations of applicable law and regulations, and it can, in
particularly egregious cases, seek to revoke the station's license or to
decline to renew the license.
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COMPETITION
The television home shopping industry is highly competitive and is
dominated by two companies, Home Shopping Network and QVC Network. The
Company's programming competes directly with Home Shopping Network, QVC, or
other home shopping networks in almost all of the Company's markets. Home
Shopping Network and QVC are well-established and significantly better
capitalized than the Company, and each network reaches a significantly larger
percentage of U.S. television households. The Company is at a competitive
disadvantage in attracting viewers for a number of reasons, including the fact
that the Company's programming is often not carried by cable systems on a full
time basis and the Company may have less desirable television channel placement
on cable systems. The Company expects the home shopping industry to grow and
expand. As a result, the Company expects increased competition for viewers,
personnel, and television station carriage from present competitors, as well as
new entries into the market. New companies that announced or launched
competitive services during the last year were largely unsuccessful including
Global Shopping Network, Outlet Mall Network, and Hollywood Showcase.
The Company believes that there is significant value in its long (10 year)
operating history, and the fact that it is one of only four broadly distributed
electronic retailers in America.
As a seller of merchandise at retail, the Company competes for consumer
expenditures with other types of retail businesses, including department,
discount, warehouse, jewelry and specialty stores, mail order, and catalog
companies and other direct sellers.
SEASONALITY
Although the television home shopping business in general is seasonal,
with the major selling season occurring during the last quarter of the calendar
year, the Company has not experienced the usual seasonality primarily because
it has, over the past three years, significantly increased its carriage and
therefore, each quarter has
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increased over the sales of the previous quarter. The home shopping industry
is also sensitive to general economic conditions and business conditions
affecting consumer spending. The Company's product lines include jewelry,
sports cards, sports memorabilia, collectibles, and other unique items that may
make it more sensitive to economic conditions. Over the last five years, the
Company's revenues in the last quarter of the calendar year approximated 26%.
EMPLOYEES
The Company had approximately 236 paid employees as of June 30, 1996, some
of whom are part time. The Company believes its relationship with its
employees is good. Presently no collective bargaining agreements exist between
the Company and its employees.
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SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 2. PROPERTIES
The Company leases office space in Atlanta, Georgia primarily to house its
executive office and a portion of its affiliate relations department. The
Company currently leases approximately 17,000 square feet of studio, office,
and warehouse space in Knoxville, Tennessee from a corporation controlled by W.
Paul Cowell, a director. As the Company grows, it will need additional office,
studio, and warehouse space. Although no additional space is available at the
Company's current location in Knoxville, management believes the Company can
obtain suitable large facilities at other locations, if needed. The Company's
Knoxville lease is currently on a term lease with a scheduled expiration date
of June 30, 1997. The Company is in the process of extending this lease to
December 31, 1997 if needed.
In addition, the Company through its subsidiaries WMFP in Boston, MA and
KZJL in Houston, Texas leases space to house their station transmitters.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation which arises in the normal course of
its business. The Company is not currently a party to any litigation which, if
adversely determined, would have a material adverse effect on the Company, its
liquidity or its operations.
The Company is a defendant in a case filed in February, 1995 in the United
States District Court for the Southern District of California by Upper Deck
Authenticated, Ltd. The plaintiff alleges that it possesses the exclusive
right to market, sell and distribute sports memorabilia and collectibles
featuring the name, autograph, signature or likeness of certain famous
athletes. The plaintiff alleges that each of the defendants, including Shop at
Home, violated its exclusive rights by selling and marketing collectibles and
memorabilia featuring these athletes. In addition, the plaintiff alleges that
certificates of authenticity provided by the defendants, including Shop at
Home, to certain purchasers of autographed sports memorabilia and collectibles
failed to comply with the requirements of California law.
On this basis, the plaintiff asserts a right to relief based upon unfair
competition, section 43(a) of the Lanham Act, section 17200 of the California
Business and Professional Code, unjust enrichment, dilution and
misappropriation of the athletes' right of publicity. The plaintiff requests
that the court grant a preliminary and permanent injunction against each
Defendant, issue a declaratory judgment, impose a constructive trust, and grant
compensatory and punitive damages, together with attorney's fees.
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SHOP AT HOME, INC. AND SUBSIDIARIES
Shop at Home has filed its answer to the Complaint admitting that Shop at
Home has sold items featuring the athletes but denying the other allegations
made in the Complaint. Shop at Home's answer asserts, among other defenses,
the "first sale doctrine," which provides that once an item is sold in commerce
the originator of the item (in this case the athlete) loses all rights to
control the subsequent sale of the item. In addition, Shop at Home's answer
asserts that the plaintiff's "exclusive right" is not "exclusive" as other
organizations from whom Shop at Home acquires its merchandise, possess a lawful
right to the use the athletes' names, signatures, photographs or likenesses.
Further, Shop at Home asserts that its certificates of authenticity comply in
all respects with applicable law.
Recently, the plaintiff filed a motion for permission to amend its
complaint to add an additional plaintiff--Upper Deck Company--and to add
several new defendants. The Amended Complaint alleges that the plaintiffs'
rights extend not only to autographed memorabilia (the subject of the first
complaint), but also to any item that features an athlete's name, specimen
autograph, player number, likeness, biographical information or statistical
information. The Amended Complaint alleges that Shop at Home had advertised
and sold both autographed and unautographed merchandise featuring the indicia
of the athletes at issue, and that the plaintiffs have both exclusive and
nonexclusive licenses to exploit commercially the indicia of these athletes.
The Amended Complaint requests compensatory damages, restitution, punitive
damages, reasonable attorney's fees prejudgment interest and costs, all in an
unspecified amount.
As of this date, the Court has not ruled on the Plaintiff's motion. In
any event, Shop at Home believes that it has a valid defense in the action and
plans to defend the matter vigorously.
This case has not been set for trial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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SHOP AT HOME, INC. AND SUBSIDIARIES
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
In June 1995, the Company was approved by NASDAQ to be listed on the
NASDAQ SmallCap market.
The range of high and low bid quotations for the Company's Common Stock by
fiscal quarters during the two most recent years, as obtained from the National
Quotation Bureau, Inc., directly and by one of the Company's principal market
makers, is provided below.
These quotations reflect inter-dealer prices without retail markup,
markdown, or commissions and may not necessarily represent actual transactions.
Effective June 9, 1995, the Company's stock was listed on NASDAQ's SmallCap
Market and the bid prices shown after that date reflect the high-low closing
bid quote on NASDAQ.
High Bid Low Bid
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07/01/94 -- 09/30/94 $2.75 $2.00
10/01/94 -- 12/31/94 $2.625 $2.00
01/01/95 -- 03/31/95 $3.625 $3.00
04/01/95 -- 06/30/95 $3.50 $2.25
07/01/95 -- 09/30/95 $3.00 $2.625
10/01/95 -- 12/31/95 $5.19 $2.375
01/01/96 -- 03/31/96 $3.25 $2.00
04/01/96 -- 06/30/96 $3.875 $2.9375
The approximate number of shareholders of the Company's Common Stock of
record on June 30, 1996, was 694.
Since the Company's inception in 1986, the Company has paid no dividends
with respect to its Common Stock. It is reasonable to project that the Company
intends to retain earnings to finance the growth and development of the
Company's business and does not expect to pay any cash dividends on its Common
Stock in the foreseeable future.
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SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for the years ended June 30,
1996, 1995, 1994, 1993, and 1992 has been derived from the consolidated
financial statements of the Company and should be read in conjunction with the
financial statements, the related notes thereto, and other financial
information included elsewhere herein.
6/30/96 6/30/95 6/30/94 6/30/93 6/30/92
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Current assets $ 5,273,163 $ 2,750,656 $ 3,218,623 $ 1,541,712 $ 1,950,658
Current liabilities 8,993,793 7,371,600 3,779,660 3,975,204 1,944,491
Total assets 20,286,670 18,157,431 4,770,262 3,130,104 3,556,868
Long-term debt 7,805,048 6,865,493 283,275 161,384 178,223
Redeemable
preferred stock 1,393,430 1,405,000 - 0 - - 0 - - 0 -
Stockholders' equity 2,108,399 2,520,338 707,327 (1,006,484) 1,434,154
Net revenues 40,016,114 26,787,013 21,717,344 19,878,478 21,156,903
Infomercial Income 659,461 189,048 - 0 - - 0 - - 0 -
Net loss (1,405,472) (1,281,989) (1,052,335) (2,440,638) (60,104)
Net loss per
share of common stock (.14) (.14) (.13) (.33) (.01)
Cash dividends per
common share -0- - 0 - - 0 - - 0 - - 0 -
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SHOP AT HOME, INC. AND SUBSIDIARIES
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.
YEAR ENDED JUNE 30
1996 1995 1994
------ ------ ------
NET REVENUES 100% 100% 100%
COST OF GOODS SOLD 61.3 63.9 65.7
GROSS PROFIT 38.7 36.1 34.3
OTHER OPERATING INCOME 1.7 0.7 0.0
PROMOTION AND ADVERTISING CHARGES .6 1.0 1.0
SALARIES AND WAGES 11.3 12.6 13.4
TRANSPONDER AND CABLE CHARGES 15.1 12.0 8.9
OTHER GENERAL OPERATING AND ADMINISTRATIVE
EXPENSES 13.1 13.7 13.5
DEPRECIATION AND AMORTIZATION 2.2 2.0 1.9
OTHER EXPENSE (1.9) (0.5) (0.4)
INCOME TAX EXPENSE (BENEFIT) .3 0.0 0.0
NET LOSS (3.5) (4.6) (4.8)
RESULTS OF OPERATIONS
FISCAL 1996 VS. FISCAL 1995
The Company's net revenues for the fiscal year ended June 30, 1996, were
$40,016,000, an increase of $13,229,000 or 49.4% 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
resulting in a total of 5,400,000 full time equivalent 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 which the Company
did not broadcast to in the prior fiscal year (approximately 60%) and the
additional part time carriage on various full power
17
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SHOP AT HOME, INC. AND SUBSIDIARIES
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 the year, 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.
In addition to net revenues the Company generated $659,000 in informercial
revenue from its stations WMFP in Boston and KZJL in Houston. This represented
a 248% increase over the informercial revenue of the prior year and was the
first full year of informercial revenue. The Company anticipates continued
improvement in this area.
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 expenses out pace future revenues. In these instances,
the Company's profitability in a specific new market will be initially
depressed until future revenue streams exceeds 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 contemplated 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; and f) an increase in telephone cost of $179,000 or
38.3%; credit card discounts of $354,000 or 53.5% related primarily to the
higher business revenues in 1996.
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SHOP AT HOME, INC. AND SUBSIDIARIES
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.
FISCAL 1995 VS. FISCAL 1994
The Company's net revenues for the fiscal year ended June 30, 1995, were
$26,787,000, an increase of $5,070,000 or 23.3% over the prior year. The
increase was primarily attributable to greater cable coverage which resulted in
the addition of approximately 700,000 full time equivalent households to a
total of 2,700,000 full time equivalent households by the end of June 1995.
The sales increase was the result of increased sales volume and not the result
of an increase in sales prices.
During the year, the Company introduced a copyrighted line of specialty
jewelry called, Bella Luce. Bella Luce is high quality gold (14K) pieces,
(rings, bracelets, earrings, necklaces, etc.) with high quality, synthetic
gemstones.
Gross profit increased by $2,227,000 or 29.9%, primarily as a result of
increased sales related to expanded carriage throughout the United States. The
Company's average gross profit margin increased to 36.1% from 34.3% in the
previous year as a result of improved purchasing, selection of more unique
merchandise and better vendor pricing. Higher margins were obtained throughout
most product categories, particularly in the jewelry and sports product lines.
The Company generated other operating income of $189,000 in fiscal 1995
from the sale of infomercial time at its new station in Boston. The Company
anticipates further increases in this type of income in the future from the
Houston station in which it has acquired an ownership interest.
Operating expenses for fiscal 1995 increased $2,616,000, or 31.1%. The
major items resulting in the increase were: a) transponder and cable costs
increases of $1,298,000 or 67.3% of which approximately $480,000 related to the
necessary duplication of transponder costs for the period of January through
June 1995 and approximately $820,000 related to the cost of acquiring increased
cable coverage; b) an increase in salaries of approximately $440,000 or 15.1%
related to variable labor costs associated with the higher volume of customer
calls and also additions to management; c) an increase in other general and
administrative expenses of $703,000 or 24.0% which includes $180,000 related to
the resolution of issues pertaining to prior years activities; and d) an
increase in depreciation and amortization related to fixed
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SHOP AT HOME, INC. AND SUBSIDIARIES
and intangible assets resulting from the acquisitions of WMFP in Boston and KZJL
in Houston.
The acquisition of WMFP in Boston and the partial interest in KZJL in
Houston occurred in the latter part of the fiscal year and subsequently
revenues derived from these two stations did not have a material impact on
revenues in relation to the operational costs necessary to build the
infrastructure to handle the increased level of business from these stations.
In addition, when entering a new market, it is generally necessary to
promote and develop that market in order for the viewers to become aware of the
presence of a new station. Until the awareness fully occurs, the early stages
of development expenses could outpace revenues. With respect to Houston, the
future anticipated revenues will directly relate to the actual cable coverage.
As of June 30, 1995, KZJL had no cable coverage in Houston, approximately 10%
coverage as of September 1995, and increase to approximately 65% of the
market's available cable households by December 1995.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal 1996 was a year of continuing growth for Shop at Home. The Company
continued its aggressive approach of expansion into cable markets. Fiscal 1996
was the Company's first full year of operations for its subsidiaries, WMFP in
Boston and KZJL in Houston. The first six months of operation, the Houston
station operated at a loss of $305,000 until January 1996 when it became
profitable. As these subsidiaries continue to mature they should add increasing
amounts of working capital to the company. 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.
At June 30, 1996 the Company had a net working capital position of
($3,720,000), an increase of $861,000. This increase was attributable primarily
to the $400,000 cash conversion of non performing assets and the issuance of
common stock in payment of approximately $609,000 of accounts payable. By the
end of fiscal 1996, the Company had closed down R.F. Scientific Transportable,
Inc. and put in place operating efficiencies in its Houston subsidiary, the
combined effect of which should have a positive impact on carriages and cash
flow in the excess of $400,000. 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 Shop at Home
20
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SHOP AT HOME, INC. AND SUBSIDIARIES
believes that its ability to meet future vendor obligations will be adequate.
In 1996 the Company completed the installation of a new computer system
which facilitates Shop at Home's ability to meet increased sales demands. In
July 1996 the Company instituted a new credit card processing system which
provides instant sales verification and moves the point of cash receipts to the
time of shipment.
The Company believes internally generated funds from operations, together
with borrowings similar to the $2,000,000 loan consummated in August 1995, 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 that it possesses significant leverage in
its assets, particularly in its Boston and Houston television stations, which
it believes it can use for future financing possibilities, if necessary.
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 adopted the provisions of Statement 121
in fiscal year 1996 and the changes did not 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 Company had accounted for its stock
options under the Statement 123 fair value method. No such options were issued
in fiscal year 1996.
21
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SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Auditors 23
Consolidated Balance Sheets at June 30, 1996 and June 30, 1995 24-25
Consolidated Statements of Operations for the years ended June 30, 1996,
June 30, 1995, and June 30, 1994 26
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1996, June 30, 1995, and June 30, 1994 27
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, June 30, 1995, and June 30, 1994 28-29
Notes to Consolidated Financial Statements 30-46
22
23
SHOP AT HOME, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Shop at Home, Inc.
We have audited the accompanying consolidated balance sheets of Shop at
Home, Inc. and Subsidiaries as of June 30, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Shop at Home,
Inc. and Subsidiaries as of June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
Knoxville, Tennessee COOPERS & LYBRAND L.L.P.
September 6, 1996
23
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SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 1,914,759 $ 202,146
Accounts receivable - trade 380,077 507,166
Accounts receivable - related parties 7,680 -
Inventories 2,611,142 1,683,472
Prepaid expenses 279,505 159,300
Deferred tax assets 80,000 198,572
----------- -----------
Total current assets 5,273,163 2,750,656
PROPERTY & EQUIPMENT, NET 3,470,226 3,937,939
FCC LICENSES, NET 10,516,041 10,745,106
GOODWILL, NET 605,154 630,416
OTHER ASSETS 422,066 93,314
----------- -----------
TOTAL ASSETS $20,286,670 $18,157,431
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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SHOP AT HOME, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES
Current portion - capital leases $ 109,444 $ 140,202
Current portion of long-term debt 741,262 924,720
Accounts payable - trade 3,201,320 3,463,630
Accounts payable - related party 449,550 762,809
Credits due to customers 1,100,120 617,904
Other payables and accrued expenses 1,665,806 971,998
Deferred revenue 1,512,291 495,337
----------- -----------
Total current liabilities 8,979,793 7,366,600
----------- -----------
LONG-TERM LIABILITIES
Capital leases, less current portion 53,649 146,116
Long term debt, less current portion 5,669,063 4,415,076
Deferred income taxes 2,082,336 2,304,301
REDEEMABLE PREFERRED STOCK
$10 par value, 1,000,000 shares authorized,
137,943 and 140,000 issued and outstanding in 1,393,430 1,405,000
1996 and 1995 respectively
COMMITMENTS (NOTES 6, 8, 10, AND 14)
STOCKHOLDERS' EQUITY
Common stock - $.0025 par value,
30,000,000 shares authorized,
10,575,255 and 10,144,080 shares issued in
1996 and 1995 respectively 26,438 25,360
Additional paid and capital 9,927,767 8,935,332
Accumulated deficit (7,845,826) (6,440,354)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,286,670 $18,157,431
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AS OF JUNE 30,
1996 1995 1994
----------- ----------- -----------
NET SALES $ 40,016,114 $ 26,787,013 $ 21,717,344
COST OF SALES 24,516,348 17,120,791 14,278,024
------------ ------------ ------------
Gross Profit 15,499,766 9,666,222 7,439,320
OTHER OPERATING INCOME 659,461 189,000 -
------------ ------------ ------------
OPERATING EXPENSES
Promotion and advertising costs 241,170 269,420 224,314
Salaries and wages 4,112,858 3,356,624 2,917,045
Transponder and cable charges 6,024,743 3,226,481 1,928,065
Other general operating and administrative expenses 5,673,540 3,639,749 2,936,338
Depreciation and amortization 877,861 517,523 399,773
------------ ------------ ------------
Total operating expenses 16,930,172 11,009,797 8,405,535
------------ ------------ ------------
LOSS FROM OPERATIONS (770,945) (1,154,576) (966,215)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest, net (794,558) (216,486) (71,935)
Miscellaneous 66,637 89,072 (14,185)
------------ ------------ ------------
Total other income (expense) (737,921) (127,414) (86,120)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,508,666) (1,281,989) (1,052,335)
INCOME TAX BENEFIT 103,394 - -
------------ ------------ ------------
NET LOSS $ (1,405,472) $ (1,281,989) $ (1,052,335)
============ ============ ============
NET LOSS PER SHARE
OF COMMON STOCK $ (0.14) $ (0.14) $ (0.13)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES 10,284,085 9,436,870 $ 8,224,583
============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
ADDITIONAL TREASURY
COMMON PAID IN ACCUMULATED STOCK
STOCK CAPITAL DEFICIT AT COST
------- ---------- ----------- --------
Balance - June 30, 1993
(7,378,864 shares) $18,447 $3,121,349 $(4,106,030) $(40,250)
Issuances of common stock
(1,525,454 shares) 3,813 1,992,333 - -
Proceeds from sales of
warrants and options - 770,000 - -
Net loss - - (1,052,335) -
------- ---------- ----------- --------
Balance - June 30, 1994
(8,904,118 shares) 22,260 5,883,682 (5,158,365) (40,250)
Issuances of common stock
(389,215 shares) 973 999,027 - -
Retirement of treasury stock (115) (40,135) - 40,250
(46,000 shares)
Issuances of common stock
(896,747 shares) 2,242 2,097,758 - -
Preferred stock dividend accrued - (5,000) - -
Net loss - - (1,281,988) -
------- ---------- ----------- --------
Balance - June 30, 1995
(10,144,080 shares) 25,380 8,935,332 (6,440,364) 0
Issuance of common stock
in connection with financing
(100,000 shares) 250 249,750 - -
Issuance of common stock in
connection with conversion
of preferred stock
(2,000 shares) 5 20,565 - -
Exercise of employee stock options
(126,000 shares) 315 127,125 - -
Issuance of common stock in
payment of payable obligations
(203,175 shares) 508 609,015 - -
Preferred stock dividend accrued - (14,000) - -
Net loss - - (1,405,472) -
------- ---------- ----------- --------
Balance - June 30, 1996
(10,575,255 shares) $26,438 $9,927,787 $(7,845,826) $ 0
======= ========== =========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
1996 1995 1994
----------- ----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,405,472) $(1,281,989) $(1,052,335)
Non-cash expenses included in net loss
Depreciation and amortization 877,861 517,523 399,773
Loss on sale of equipment 19,165 13,814
Deferred income taxes (103,394) - -
Change in provision for inventory obsolescence (88,122) - -
Changes in current and non-current items
Accounts receivable 119,409 (38,135) (312,853)
Inventories (230,024) (110,577) (119,738)
Prepaid expenses and other assets (197,019) 102,563 (142,830)
Accounts payable and accrued expenses 805,455 2,759,182 41,269
Deferred revenue 1,016,954 (5,888) 236,691
----------- ----------- -----------
Net cash (used) provided by operations 814,813 1,942,679 (936,209)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITES:
Cash payments for acquisitions - (1,289,072) -
Purchase of equipment (507,494) (2,370,582) (213,952)
Proceeds from sale of equipment 400,000 - 5,076
Other assets - - (4,300)
FCC licenses (38,000) - -
----------- ----------- -----------
Net cash used by investing activities (145,494) (3,659,654) (213,176)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 127,440 - 2,450,118
Repayments of debt (985,851) (662,115) (651,351)
Additional long-term debt 2,056,380 1,620,488 625,000
Capital lease payments (154,675) (114,278) (125,267)
----------- ----------- -----------
Net cash provided by financing activities 1,043,294 844,096 2,198,800
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 1,712,613 (872,880) 1,049,115
Cash beginning of period 202,146 1,075,026 25,911
----------- ----------- -----------
Cash end of period $ 1,914,759 $ 202,146 $ 1,075,026
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, AND 1994, CONTINUED
1996 1995 1994
-------- ---------- --------
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Stock issued for inventory and reduction
of accounts payable $609,015 $ - $316,028
======== ========== ========
Accounts payable recorded
for acquisition costs $ - $ - $ 59,433
======== ========== ========
Cost of equipment purchased through
capital lease obligation $ 31,450 $ 290,561 $ -
======== ========== ========
Notes payable issued for acqusitions
of BCST and MFP, Inc. $ - $3,750,000 $ -
======== ========== ========
Stock issued for acquisitions
of BCST and MFP, Inc. $ - $4,500,000 $ -
======== ========== ========
Stock issued in connection
with financing $250,000 $ - $ -
======== ========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $795,125 $ 139,097 $ 77,526
======== ========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Shop at Home, Inc. and its 100% owned subsidiaries, RF Scientific
Transportables, Inc, Broadcast Cable and Satellite Technologies, Inc., and MFP,
Inc., (collectively the "Company"). All of the operating assets of RF
Scientific Transportables, Inc., were sold in the latter part of the year and
subsequently, RF Scientific ceased operations. RF Scientific was in the
business of providing mobile uplink services. All intercompany accounts and
transactions have been eliminated in consolidation.
OPERATIONS
The Company markets various consumer products through a televised "shop at
home" service. The programming is currently broadcast by satellite on a
twenty-four hour day, seven days a week schedule.
Broadcast Cable and Satellite Technologies, Inc.'s (BCST), principal asset
consists of ownership of 49% of the issued and outstanding shares of capital
stock of Urban Broadcasting Systems, Inc., (UBS). UBS held a construction
permit from the FCC, under which the Company constructed television station
KZJL, Channel 61, a full power television station licensed to Houston, TX.
Because of financial dependence of UBS on the Company, UBS has been
consolidated into the accompanying financial statements. See subsequent event
(Note 14).
MFP, Inc., operates a commercial television station, WMFP, Channel 62,
serving the Boston television market area. MFP, Inc. was acquired in February
1995 (Note 13).
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents.
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SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories, which consist of products held for sale such as jewelry and
sports collectibles, are stated at the lower of cost or market with cost being
determined on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Expenditures for repairs and
maintenance are expensed as incurred, and additions and improvements that
significantly extend the life of assets are capitalized.
Depreciation is computed under straight line and accelerated methods over
the estimated useful lives of the assets as reflected in the following table:
Furniture and fixtures 5 - 7 years
Operating equipment 5 - 30 years
Leasehold improvements 4 years
SALES RETURNS
The Company allows customers to return merchandise for full credit or
refund if they return the merchandise within 30 days from the date of
receipt. At June 30,1996 and 1995, the Company had recorded provisions of
$1,100,120 and $617,904, respectively, for estimated returns.
REVENUE RECOGNITION
The Company's principal source of revenue is retail sales to viewing
customers. Other sources of revenue include the sale of air time and prior to
the disposition of R. F. Scientific, the sale of uplink truck services. Sales
are recognized upon shipment of the merchandise to the customer. Service
revenue and air time revenue are recognized when the service has been provided
or the air time has been utilized by the user. Deferred revenue consists of
sales proceeds relative to unshipped merchandise.
INCOME TAXES
Shop at Home, Inc. files a consolidated federal income tax return with its
subsidiaries. The companies file separate state returns.
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SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective July 1, 1993, the Company adopted Financial Accounting Standard
Board (FASB) Statement No. 109, "Accounting for Income Taxes" on a prospective
basis. Prior to that date, the Company followed the provisions of Accounting
Principles Board Opinion No. 11 in accounting for income taxes. The adoption
of FASB 109 did not materially affect the 1994 consolidated financial
statements.
LOSS PER SHARE
Loss per share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the respective
periods. Common stock equivalents, including options, warrants, and the
convertible preferred stock have been excluded from the computation because
they are antidilutive.
FCC LICENSES
During fiscal 1995 the Company acquired two subsidiaries who own licenses
from the Federal Communications Commission (FCC) under which they operate
television stations. The value ascribed to these FCC licenses in connection
with the acquisitions will be amortized over 40 years. Amortization of these
licenses was $268,562 in 1996 and $53,761 in 1995.
GOODWILL
Management periodically evaluates the net realizability of the carrying
amount of goodwill. Goodwill recorded in connection with the acquisition of
WMFP represents the excess purchase price over the fair value of the net
identifiable assets acquired. The goodwill is being amortized over 40 years
using the straight-line method and amounted to $15,517 for 1996. Goodwill for
R.F. Scientific Transportable, Inc. of $7,787 was written off during 1996.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
32
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SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of accounts
receivable, accounts payable, accrued expenses and debt. The fair value of
these financial instruments approximate their carrying value.
IMPAIRMENT OF LONG-LIVED ASSETS
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 adopted the provisions of Statement 121
in fiscal year 1996 and the changes did not have a material effect on the
Company's financial position or results of operations.
STOCK-BASED COMPENSATION
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 equals 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 disclosures will
be required beginning in 1996, as if Company had accounted for its stock
options under the Statement 123 fair value method. No such options were issued
in fiscal year 1996.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified for comparative purposes to conform with the current year
presentation.
33
34
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications at
June 30, 1996 and 1995.
1996 1995
---------- -----------
Leasehold improvements $ 285,074 $ 281,116
Operating equipment 4,736,119 4,983,903
Furniture and fixtures 194,651 190,783
---------- -----------
5,215,844 5,455,802
Accumulated depreciation (1,745,618) (1,517,863)
---------- -----------
Property and equipment, net $3,470,226 $3,937,939
========== ===========
Depreciation expense totaled $585,995, $463,496, and $394,602 for the
fiscal years ended June 30, 1996, 1995, and 1994 respectively.
NOTE 3 - CAPITAL LEASES
The Company has acquired various equipment under the provisions of long
term leases.
Equipment held under capital leases, which is included in property and
equipment is summarized as follows:
1996 1995
------- --------
Operating equipment $660,032 $566,482
Less accumulated depreciation (396,267) (238,269)
-------- --------
$263,765 $328,213
======== ========
Future minimum lease payments under capitalized leases are as follows at
June 30, 1996:
1997 $ 126,967
1998 56,184
1999 3,348
----------
Total minimum lease payments 186,499
Less amount representing interest (23,406)
Present value of minimum lease payments 163,093
Less current portion (109,444)
----------
Long term portion $ 53,649
==========
34
35
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM DEBT
Long term debt consist of the following at June 30: 1996 1995
---- ----
Note payable to bank collateralized by uplink truck
and equipment.
This loan was paid in full on August 17, 1995. - $ 312,819
Note payable bearing interest at 8%, due in equal
monthly installments of principal of $20,833,
plus interest through June 6, 2000, collateralized
by common stock of BCST. $1,000,000 1,250,000
Notes payable due in April 2000, with interest
payable at 12% quarterly, collateralized by
certain equipment. 800,000 800,000
Note payable bearing interest at 9.5% due in
monthly installments of $26,106 with a
balloon payment due in March 2000. 2,399,858 2,480,908
Note payable to related party bearing interest
at 15% due in monthly installments of $9,700,
collateralized by certain equipment. 435,101 463,933
Note payable in monthly installments of $3,000,
including interest at 6.57% repaid in 1996. - 32,136
Note payable to related party bearing interest at
prime plus 2% (10.75% at June 30, 1996) due in monthly
installments of principal and interest totaling
$43,494 through September 1, 2000.* 1,775,366 -
Total long term debt 6,410,325 5,339,796
Less current maturities (741,262) (924,720)
---------- ----------
Long term debt less current portion $5,669,063 $4,415,076
========== ==========
* This note originated in August 1995, at $2,000,000 payable to Global Network
Television, Inc. (Global), J.D. Clinton, a director of the Company is the sole
shareholder and Chairman of Global and that Corporation is an indirect
principal shareholder of the Company. The loan is collateralized by a
security interest in inventory, accounts receivable, certain equipment,
furniture and fixtures, as well as stock of MFP, Inc. and an assignment of
the proceeds of any sale of the FCC license of station WMFP. The note is
convertible into common stock of the Company at a conversion rate of $3 per
common share of principal.
35
36
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate future required principal payments at June 30, 1996 for the
above liabilities are as follows:
1997 $ 741,262
1998 798,332
1999 862,168
2000 933,501
2001 3,072,141
----------
$6,407,404
==========
NOTE 5 - REDEEMABLE PREFERRED STOCK
The following is a brief summary of the terms and conditions of Series A
of the preferred stock of the Company issued in connection with the acquisition
of MFP, Inc. This summary is qualified in its entirety by reference to the
Company's charter provisions with respect to the preferred stock.
During fiscal year 1995, the Company issued 140,000 shares of preferred
stock, $10.00 par value, in connection with a merger with MFP, Inc., a Delaware
corporation. The Series A preferred stock will rank ahead of the common stock
with respect to dividends, preferences, qualifications, limitations,
restrictions and the distribution of assets upon liquidation. Shares of Series
A preferred stock have no preemptive rights and no voting rights, except those
rights provided by statute. Each holder of Series A preferred stock will have
the option to require the Company to redeem their shares, after 5 years from
date of issuance, for $10.00 per share plus any accumulated and unpaid
dividends. Prior to redemption, Series A preferred stock is convertible into
shares of common stock at a ratio of one share of common stock for one share of
Series A preferred stock.
Holders of shares of Series A preferred stock are entitled to receive, but
only when and if declared by the Board of Directors of the Company out of funds
legally available, cash dividends at the rate of 1% per annum (i.e., $.10 per
share per annum) of par value per share.
Dividends on each share of Series A preferred stock accrue and are
cumulative from (but not including) the date of its original issuance on the
basis of an annual dividend period. For any dividend period, no dividends may
be paid or declared and set apart for payment on any common stock, or any other
series of preferred stock at the time outstanding, unless dividends properly
accumulated in respect to the Series A stock and all other series of preferred
stock senior to or on a parity therewith for all prior dividend periods shall
have been paid or declared and set apart for payment.
36
37
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the event of a liquidation, dissolution and winding up of the Company,
whether voluntary or involuntary, the registered holders of shares of Series A
preferred stock then outstanding shall be entitled to receive out of the assets
of the Company, before any distributions to the holders of common stock or any
other junior stock, an amount equal to the "Liquidation Preference" with
respect to such shares of Series A preferred stock. The Liquidation Preference
for the Series A preferred stock is $10.00 per share, plus an amount equal to
all dividends thereon (whether or not declared) accrued and unpaid through the
date of final distribution. For those purposes a sale of substantially all of
the assets of the Company to a third party, or the consummation of the Company
or its shareholders of any transaction with any single purchaser whereby a
change in control of more than fifty percent (50%) of the issued and
outstanding shares of common stock of the Company occurs, will be considered a
liquidation, dissolution and winding up of the Company entitling the holders of
Series A preferred stock to payment of the Liquidation Preference.
No class of the Company's capital stock is presently outstanding that
possesses rights with respect to distributions upon liquidation, dissolution
and winding up senior to the Series A preferred stock. So long as the Series A
preferred stock remains outstanding, the Company may not issue any capital
stock, including preferred stock of any series, that ranks senior to the Series
A preferred stock with respect to liquidation, dissolution and winding up.
As of June 30, 1996 and 1995, the Company was $19,000 and $5,000
respectively, in arrears of its dividend payments due. These dividend payments
are payable only when declared by the Board of Directors.
37
38
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK
In August 1995, Shop at Home, Inc. issued, to a related party, 100,000
shares of common stock in connection with the securing of $2,000,000 of long
term debt (Note 4) from the related party; in September the Company issued
2,000 shares in conversion of its Redeemable Preferred Stock (Note 5); in
October 1995 and May 1996, the Company issued a total of 126,000 shares in
connection with the exercise of employee stock options (Note 10); and during
the period of March through June 1996, Shop at Home, Inc. issued a total of
203,175 shares of common stock, of which 44,000 shares were issued as payment
of payable obligations and 159,175 shares were issued in exchange for certain
sport cards and collectibles acquired for resale (Note 8). By agreement, the
stock was valued at $3.00 per share or approximately $609,000. The Company has
19,519 additional shares remaining to be issued under this agreement.
On June 30, 1994, Shop at Home, Inc. sold 400,000 shares of its common
stock for $2.00 per share and also sold for $240,000 an option to purchase up
to 600,000 additional shares of common stock at a purchase price of $2.50 per
share. This option may be exercised at any time after December 31, 1995, but
on or before June 30, 1999. During fiscal 1994 the Company also issued 125,454
shares of Common Stock valued at $316,028 in exchange for inventory acquired
for resale and to satisfy outstanding payable obligations.
Effective June 9, 1993, an agreement was entered into between Shop at
Home, Inc., SAH Holdings, L.P. and Global Network Television, Inc., whereby
Shop at Home, Inc. agreed to sell 1,000,000 shares of its common stock to SAH
Holdings at $1.00 per share. The Company also agreed to sell to SAH Holdings a
warrant to acquire 1,300,000 shares of common stock in Shop at Home, Inc. for a
purchase price of $1.00 per share. The common stock and warrant were sold to
SAH Holdings on August 6, 1993 for $1,130,000. The warrant is exercisable
through August 6, 1997. The Company agreed to sell to SAH Holdings an
additional warrant to acquire up to 2,000,000 shares of common stock for a
purchase price of $1.00 per share. This warrant was sold for $400,000 and is
exercisable on various dates through 1997. The Company paid a transaction fee
to Media One, Inc., a related party, of $75,000 and legal fees of $44,882 for
costs associated with these transactions.
In fiscal 1995 the Company also issued shares of common and preferred
stock in connection with the acquisitions of BCST and MFP, Inc. For details
of those issuances see Notes 12 and 13.
38
39
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
The components of temporary differences and the approximate tax effects
that give rise to the Company's net deferred tax liability at June 30, 1996 and
1995, are as follows:
1996 1995
----------- ------------
Deferred tax assets:
Net operating loss
carryforwards $ 2,324,269 $ 2,110,797
Other 384,495 198,572
Valuation allowance (1,263,991) (901,850)
----------- ------------
Total deferred tax assets 1,444,773 $ 1,407,519
----------- ------------
Deferred tax liabilities:
License 3,331,736 3,369,167
Depreciation 115,373 144,081
----------- ------------
Total deferred tax liabilities 3,447,109 3,513,248
----------- ------------
Net deferred tax liabilities $ 2,002,336 $ 2,105,729
=========== ============
Current deferred tax asset $ 80,000 $ 198,572
Long-term deferred tax liabilities (2,082,336) (2,304,301)
----------- ------------
Net deferred tax liabilities $(2,002,336) $ (2,105,729)
=========== ============
39
40
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1996 the Company had net operating loss carry forwards which
expire as follows:
June 30, 2002 $ 125,164
June 30, 2003 806,757
June 30, 2004 664,610
June 30, 2008 2,331,197
June 30, 2009 819,270
June 30, 2010 754,918
June 30, 2011 614,062
----------
$6,115,978
==========
Income tax benefit varies from the amount computed by applying the federal
corporate income tax rate of 34% to loss before tax benefit as follows:
1996 1995
--------- ---------
Computed "expected" income tax benefit $(499,732) $(435,876)
Increase (decrease) in income tax benefit
resulting from:
State income tax benefit, net
of federal effect (58,792) (51,280)
Change in valuation allowance 362,411 476,582
Nondeductible portion of meals
and entertainment 8,480 10,574
Other 84,239 -
--------- ---------
Actual income tax benefit $(103,394) $ 0
========= =========
In connection with the acquisitions of BCST and MFP, Inc., the Company
reduced the valuation allowance for deferred tax assets by an aggregate of
$1,263,438, representing the effect of the deferred tax liabilities expected to
reverse in the net operating loss carry forward period. The reduction of the
valuation allowance was effected by reducing intangible asset balances recorded
as a result of the acquisitions.
Recognition of a deferred tax asset is based on management's belief that
it is more likely than not that the tax benefit associated with certain
temporary differences will be realized through the amortization of the license
intangible.
40
41
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS
TRANSPONDER USE AGREEMENT
In December 1995, the Company's transponder lease with AT&T's 402R became
effective. This lease calls for initial monthly payments of $96,000 in the
first year and increasing to $105,000 and $115,000 in year two and three
respectively. Transponder expense was $1,379,000 in 1996, $1,281,000 in 1995,
and $812,000 in 1994.
In December 1994, the Company entered into a transponder use agreement
for one year with Broadcast International, Inc. for the use of one 36 MHZ
transponder on Satellite Spacenet 3. The agreement called for rental payments
of $80,000 per month and terminated in December 1995.
On April 1, 1993, the Company entered into a transponder use agreement
with B&P The Space connection for the use of one 36 MHZ, C-band transponder on
satellite Galaxy III. The agreement required rental payments of $40,000 per
month and terminated on December 31, 1994.
PURCHASE COMMITMENT
During 1994, the Company entered into an agreement to purchase, over a
period of 18 months, $1,750,000 of inventory, of which 50% may be paid for with
the Company's common stock. The Company also has an option to purchase an
additional $1,750,000 of this inventory. Terms on this commitment require the
Company to pay the greater of $97,222 per month or the value of the actual
inventory shipped during the month. Any amount up to one-half of the
contractual commitment may be satisfied through the issuance of Company common
stock on terms as set forth in the contract. To satisfy part of this
requirement, the Company issued 100,454 shares of its common stock to this
vendor for inventory purchased in 1994.
The Company issued stock under terms specified in the agreement valued at
$241,028 during the year ended June 30, 1994 in connection with this
transaction. Additionally, the Company sold $175,000 of the inventory back to
the stockholder for $350,000 during the year ended June 30, 1994. The
stockholder has assigned to the Company all of his rights to the license to
sell the inventory, and thus had to purchase inventory from the Company for
resale to third parties.
At June 30, 1995, the Company had purchased $624,200 of inventory under
the terms of this agreement.
41
42
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1996, the Company entered into a "Restated Agreement" whereby
it was obligated to purchase the remaining balance of merchandise it had not
acquired of approximately $720,000. The payment of which was part in cash and
part in stock. (Note 6). As of June 30, 1996 the remaining obligation under
this revised agreement was approximately $57,500.
LEASE COMMITMENTS
The Company leases its Knoxville office and studio space from William and
Warren, Inc., an entity owned by a principal owner and director of the Company.
Payments under this lease totaled $143,325, $132,592, and $136,933 in fiscal
years ended June 30, 1996, 1995, and 1994, respectively.
The Company has agreements with various carriers to lease air time. The
terms of the agreements vary from week to week to one year periods.
The expenses for leased air time, primarily for cable access fees, was
$4,646,000 in 1996, $1,945,000 in 1995 and $1,118,000 in 1994.
Rental expense for the office and studio and miscellaneous equipment was
$483,059, $184,434 and $148,619, for the fiscal years ended June 30, 1996, 1995,
and 1994 respectively.
NOTE 9-RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 1996, 1995, and 1994, the Company
engaged in significant transactions with the Company's directors, significant
stockholders, officers or interests of these parties. The following is a
summary of major transactions with these related parties not disclosed
elsewhere in the consolidated financial statements or notes thereto:
1996 1995 1994
---- ---- ----
PURCHASES - MERCHANDISE
V.J.M. (Victor Mueller) $ 795,689 $989,272 $ 578,775
Howards Sports Collectibles 2,116,088 553,462 1,389,227
Combine International, Inc. 452,348 98,843 158,005
OTHER OPERATING EXPENSES
Lakeway Container 63,978 81,827 25,370
Airbank 22,213 37,604 27,673
MediaOne - 157,567 224,359
42
43
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the year ended June 30, 1995, the Company contracted with MediaOne,
Inc., to provide certain consulting services to the Company. A director and
officer of MediaOne, Inc., also serves as a director of the Company. In
addition, MediaOne, Inc., acted as the commissioned broker for MFP, Inc., a
Delaware corporation, from whom the Company acquired Television Station WMFP,
Lawrence, Massachusetts. In consideration of its services, MediaOne was owed
approximately $115,000 by the Company at June 30, 1995.
NOTE 10 - STOCK OPTIONS
In 1991, the Company adopted a stock incentive plan for eligible
employees. A special administrative committee of the Board of Directors was
appointed to administer the plan. All employees of the Company are eligible
to receive stock options and/or stock appreciation rights ("SARs") under the
plan. Options granted under the plan can be either incentive stock options or
nonqualified stock options. Incentive stock options to purchase common stock
may be granted at not less than 100% of the fair market value of the common
stock on the date of the grant.
SARs generally entitle the participant to receive the excess of the fair
market value of a share of common stock on the date of exercise over the
initial value of the SAR. The initial value of the SAR is the fair market
value of a share of common stock on the date of the grant.
Options and SARs granted under the plan become exercisable immediately in
the event 80% or more of the Company's outstanding stock or substantially all
of its assets are acquired by a third party.
A maximum of 1,500,000 shares of common stock may be issued upon the
exercise of options and SARs. From its adoption through June 30, 1996, stock
options for 635,000 shares of common stock have been granted under the plan.
No option or SAR may be granted after October 15, 2001. No option that is
an incentive stock option and any corresponding SAR that related to such option
shall be exercisable after the expiration of ten years from the date such
option or SAR was granted or five years after the expiration in the case of any
such option or SAR that was granted to a 10% stockholder.
Additionally, 1,150,000 common shares (830,000 vested) were reserved for
options granted to certain executive officers, directors, employees and others
as of June 30, 1996. These options vest annually over a period of five years
and expire the earlier of five years from the date of vesting or 30 days after
termination of employment.
43
44
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity and price information regarding stock options including the
option to acquire 600,000 shares of common stock discussed in Note 6 are as
follows:
Shares Price Range
-------- -------------
Balance June 30, 1993 60,000 $1.00 - $2.37
Granted 1,400,000 $1.00 - $2.88
--------- -------------
Balance June 30, 1994 1,460,000 $1.00 - $2.88
Granted 170,000 $2.13 - $2.88
--------- -------------
Balance June 30, 1995 1,630,000 $1.00 - $2.88
Granted 325,000 $2.81 - $3.25
Exercised (126,000) $1.00 - $2.44
Canceled (44,000) $2.44 - $2.81
--------- -------------
Balance June 30, 1996 1,785,000 $1.00 - $3.25
========= =============
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk include cash on deposit in a financial
institution. Management believes the financial institution holding the cash is
financially sound.
The television home shopping business in general is seasonal, with the
major selling season occurring the last quarter of the calendar year. The home
shopping industry is also sensitive to general economic conditions and business
conditions affecting consumer spending. The Company's product lines include
jewelry, sports cards, sports memorabilia, collectibles, and other unique items
that may make it more sensitive to economic conditions.
NOTE 12 - ACQUISITION OF BROADCAST CABLE & SATELLITE TECHNOLOGIES, INC.
On December 6, 1994, the Company purchased all of the issued and
outstanding capital stock of Broadcast, Cable and Satellite Technologies, Inc.,
a Texas corporation from Television Media Resources, L.C., a Texas limited
liability company. The purchase price consisted of (a) $250,000 paid in cash to
TMR, (b) the issuance to TMR of 389,215 shares of common stock, valued at $2.57
per share and (c) the delivery to TMR of the Company's promissory note in the
principal amount of $1,250,000.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of BCST have been included in the
consolidated operating results since the date of acquisition. The purchase
price, including the acquisition costs, was allocated to the net assets
acquired based on fair values at the date of acquisition as follows:
44
45
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FCC License $ 2,668,846
Goodwill 993,000
Other assets 68,031
Deferred tax liability (993,000)
Accounts payable (179,740)
Debt assumed (32,137)
-----------
$ 2,525,000
===========
The principal asset of BCST consists of the ownership of 49% of the issued
and outstanding shares of capital stock of Urban Broadcasting Systems, Inc.,
("UBS"). UBS held a construction permit from the FCC which was utilized to
construct Television Station KZJL, Channel 61, a full-power television station
licensed in Houston, Texas. Construction was completed and the station became
operational in June 1995. The remaining 51% of the stock of UBS is owned by
Charles E. Walker, a resident of the State of California.
During the ninety (90) day period immediately following the first
anniversary of the Houston station's commencement of regular program test
operations, BCST has the option to purchase the 51% capital stock ownership in
UBS held by Walker for the lesser of $1,400,000 or 51% of the appraised value
of UBS as of the date the option is exercised. On September 5, 1996 the Company
executed this option (Note 14).
The purchase price for Walker's 51% ownership interest in UBS is payable
by delivering to Walker a promissory note in the principal amount of the
purchase price, which note which bears interest at the rate of 6%, payable
interest only monthly for the first twelve (12) months, and thereafter
principal and interest in equal monthly payments over a period of 120 months.
The note is secured by a pledge of the stock of UBS.
BCST was organized in April 1993 and had not commenced operations at the
time of acquisition. BCST had not generated any revenues from operations and
had minimal organizational related expenses.
NOTE 13 - ACQUISITION OF MFP, INC.
On February 24, 1995, the Company purchased all of the issued and
outstanding capital stock of MFP, Inc. through a merger with SAH Merger Corp.,
a newly formed Tennessee corporation and a wholly owned subsidiary of Shop at
Home, Inc., MFP, Inc. operates a commercial television station, WMFP, Channel
62, serving the Boston television market area. Under the agreement, the
Company paid the shareholders of MFP, Inc., a total consideration of
$7,000,000.
45
46
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total consideration of $7,000,000 was comprised of $1,000,000 cash and
assumption of liabilities, $2,500,000 in notes payable, the issuance of 896,747
shares of common stock valued at $2,100,000 and $1,400,000 in preferred stock.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results of MFP have been included in the
consolidated operating results since the date of acquisition. The purchase
price, including the acquisition costs, was allocated to the net assets
acquired based on appraised fair values at the date of acquisition as follows:
FCC License $ 8,960,813
Property & equipment 615,000
Deferred tax liability (2,376,000)
-----------
$ 7,199,813
===========
The unaudited consolidated pro forma operating data for the Company,
assuming the acquisition of BCST and MFP, Inc. occurred on July 1, 1993, are
set forth below. It should be noted that BCST had no revenues for the periods
prior to the acquisition as the broadcast facility had not been constructed.
Accordingly, the unaudited pro forma information does not include amortization
of the intangible assets of BCST during the 1995 period.
UNAUDITED
---------
June 30, 1995 June 30, 1994
------------- -------------
Revenues $27,376,119 $22,567,430
Net loss 2,166,932 1,920,967
Net loss per share $ .21 $ .20
The unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisitions been consummated as of the above date,
nor are they indicative of future operating results.
NOTE 14 - SUBSEQUENT EVENT
On September 5, 1996, the Company, through BCST, exercised its option to
acquire the remaining 51% of KZJL-Houston. The exercise price was $1,400,000
payable with 6% interest over 11 years with interest only payable in year
one (Note 12).
46
47
SHOP AT HOME, INC. AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information with respect to directors and executive officers of the
Company in the Company's definitive Proxy Statement for the annual Meeting of
Shareholders planned to be held December 6, 1996 (the "Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Remuneration of Directors and
Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to security ownership by management as set
forth in the Proxy Statement under the caption "Security Ownership of Certain
Beneficial Owners" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in the
Proxy Statement is incorporated herein by reference.
47
48
SHOP AT HOME, INC. AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following financial statements are included in
Item 8 of Form 10-K:
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Operations for the years
ended June 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994.
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule Page
Independent Auditors' Report on
Financial Statement Schedule 49
Schedule II Valuation and Qualifying Accounts 50
The other schedules are omitted because the required
information is either inapplicable or has been disclosed in
the consolidated financial statements and notes thereto.
3. Exhibits
The Index to Exhibits is at page 51.
(b) Reports on Form 8-K
None
48
49
INDEPENDENT AUDITORS' REPORT ON FINANCIAL
STATEMENT SCHEDULE
Our report on the consolidated financial statements of Shop at Home, Inc.
and Subsidiaries as of June 30, 1996 and 1995 and for each of the three years
in the period ended June 30, 1996 is included on page 23 of this Form 10-K.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on page 48
of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Knoxville, Tennessee COOPERS & LYBRAND L.L.P.
September 6, 1996
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50
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
BALANCE AT CHARGED TO BALANCE
BEGINNING RETURNS AND AT END
OF YEAR ALLOWANCES DEDUCTIONS (1) OF YEAR
---------- ----------- -------------- -------
Year ended June 30, 1994
Estimated credits
due to customers $509,956 $ 4,204,522 $4,242,600 $ 471,878
======== =========== ========== ==========
Year ended June 30, 1995
Estimated credits
due to customers $471,878 $ 4,863,486 $4,717,460 $ 617,904
======== =========== ========== ==========
Year ended June 30, 1996
Estimated credits
due to customers $617,904 $10,147,556 $9,665,340 $1,100,120
======== =========== ========== ==========
(1) Merchandise returned
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51
INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page
2.1 Agreement and Plan of Merger, dated May 17, 1994, among
Shop at Home, Inc., SAH Merger Corp., and MFP, Inc., filed
as Exhibit 2.1 to the Company's Registration Statement on
Form S-4 filed with the Commission on October 26, 1994,
and incorporated herein by this reference.
2.2 First Amendment to Agreement and Plan of Merger, dated
November 11, 1994, among Shop at Home, Inc., SAH Merger
Corp., and MFP, Inc., filed as Exhibit 2.2 to the
Company's Registration Statement on Form S-4 filed with
the Commission on December 28, 1994, and incorporated
herein by this reference.
2.3 Articles of Merger of SAH Merger Corp. and MFP, Inc.,
recorded in Tennessee on February 24, 1995, filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K
filed with the Commission on March 2, 1995, and
incorporated herein by this reference.
3(i).1, 4.1 Charter of the Company, filed as Exhibit 3.1 to the
Company's Annual Report Form 10-K for the fiscal year
ended June 30, 1993, and incorporated herein by this
reference.
3(i).2, 4.2 Charter amendment recorded February 17, 1995, filed as
Exhibit 4.3 to the Company's Current report on Form 8-K
filed with the Commission on March 2, 1995, and
incorporated hereby by this reference.
3(ii), 4.3 Bylaws of the Company, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K filed with the
Commission for the fiscal year ended June 30, 1993, and
incorporated herein by this reference.
4.1 Form of Trust Indenture dated February 23, 1995, filed as
Exhibit 4.5 to the Company's Current Report on Form 8-K
filed with the Commission on March 2, 1995, and
incorporated herein by this reference.
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52
4.2 Form of Promissory Note of the Company issued to the
indenture trustee under the Trust Indenture dated February
23, 1995, filed as Exhibit 4.6 to the Company's Current
Report on Form 8-K filed with the Commission on March 2,
1995, and incorporated herein by this reference.
4.3 Specimen of Common Stock certificate, filed as Exhibit 4.8
to the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
4.4 Specimen of Preferred Stock certificate, filed as Exhibit
4.9 to the Company's Amendment No. 1 to the Registration
Statement on Form S-4 filed with the Commission on January
20, 1995, and incorporated herein by this reference.
4.5 Specimen of Note Certificate, filed as Exhibit 4.10 to the
Company's Registration Statement on Form S-4 filed with
the Commission on December 28, 1995, and incorporated
herein by this reference.
10.1 Company's Omnibus Stock Option Plan, filed as Exhibit 10.3
to the Company's Annual Report on Form 10-K filed with
the Commission for the fiscal year ended June 30, 1992,
and incorporated herein by this reference.
10.2 Lease dated April 1, 1993, between Shop at Home, Inc. and
Book Ends Discount Bookstores, Inc., filed as Exhibit 10.5
to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993, and incorporated herein by this
reference.
10.3 Lease dated July 1, 1994 between Shop at Home, Inc. and
William & Warren, Inc., filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-4 filed with
the Commission on December 28, 1994, and incorporated
herein by this reference.
10.4 Form of Transponder Use Agreement dated April 1, 1993
between Shop at Home, Inc. and B & P The Spaceconnection,
filed as Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993, and
incorporated herein by this reference.
10.5 Transponder Use Agreement dated June 6, 1994, between Shop
at Home, Inc. and Broadcast International, Inc., filed
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53
as Exhibit 10.5 to the Company's Registration Statement on Form S-4
filed with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.6 Form of Transponder Lease Agreement dated December 21, 1994,
between Shop at Home, Inc. and Broadcast International, Inc., filed
as Exhibit 10.7 to the Company's Registration Statement on Form S-4
filed with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.7 Stock and Warrant Purchase Agreement dated June 9, 1993, between
Shop at Home, Inc., SAH Holdings, L.P., and Global Network
Television, Inc., filed as Exhibit B to the Statement on Schedule
13D of SAH Holdings, L.P., filed with the Commission on June 18,
1993, and incorporated herein by this reference.
10.8 First Amendment to Stock and Warrant Purchase Agreement dated July
12, 1993, between Shop at Home, Inc., SAH Holdings, L.P., and
Global Network Television, Inc., filed as Exhibit E to the
Statement on Schedule 13D of SAH Holdings, L.P., filed with the
Commission on July 27, 1993, and incorporated herein by this
reference.
10.9 Agreement dated December 8, 1993, between Richard Howard, Inc. and
Shop at Home, Inc., filed as Exhibit 10.10 to the Company's
Registrant Statement on Form S-4 filed with the Commission on
December 28, 1994, and incorporated herein by this reference.
10.10 Form of Employment Agreement between Kent E. Lillie and Shop at
Home, Inc., filed as Exhibit B to the Company's Current Report on
Form 8-K filed with the Commission on September 17, 1993, and
incorporated herein by this reference.
10.11 Form of Warrant to Purchase Shares dated September 7, 1993, between
Shop at Home, Inc. and SAH Holdings, L.P., filed as Exhibit A to
the Company's Current Report on Form 8-K filed with the Commission
on September 17, 1993, and incorporated herein by this reference.
10.12 Form of Option Agreement for options issued to employees,
executive officers and others, filed as Exhibit 10.13 to
the Company's Registrant Statement on Form S-4 filed with
the Commission on December 28, 1994, and incorporated
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54
herein by this reference.
10.13 Agreement dated June 30, 1994, between Combine
International, Inc. and Shop at Home, Inc, filed as
Exhibit 10.14 to the Company's Registrant Statement on
Form S-4 filed with the Commission on December 28, 1994,
and incorporated herein by this reference.
10.14 1994 $2.50 Common Stock Purchase Option dated June 30,
1994, issued to Combine International, Inc., filed as
Exhibit 10.15 to the Company's Registrant Statement on
Form S-4 filed with the Commission on December 28, 1994,
and incorporated herein by this reference.
10.15 Description of agreement with MediaOne, Inc. for consulting
services, filed as Exhibit 10.16 to the Company's
Registrant Statement on Form S-4 filed with the Commission
on December 28, 1994, and incorporated herein by this
reference.
10.16 Stock Purchase Agreement dated December 6, 1994, by and
between the Company and Television Media Resources, L.C.,
filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K filed with the Commission on December 20, 1994,
and incorporated herein by this reference.
10.17 Promissory Note dated December 6, 1994, in the original
principal amount of $1,250,000, the maker of which is
Registrant and the original payee of which is Television
Media Resources, L.C., filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.18 Security Agreement and Pledge Agreement dated December 6,
1994, by and between Registrant and Television Media
Resources, L.C., filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this
reference.
10.19 Letter Agreement dated December 6, 1994, by and between
Registrant and Charles E. Walker, filed as Exhibit 10.3 to
the Company's Current Report on Form 8-K filed with the
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55
Commission on December 20, 1994, and incorporated herein
by this reference.
10.20 Majority Partnership Interest and Majority Stock Purchase
Option by and among Charles E. Walker, Urban Broadcasting
Systems and Broadcast, Cable and Satellite Technologies,
Inc., filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
10.21 Form of Majority Partnership Interest and Majority Stock
Purchase Agreement by and among Charles E. Walker, Urban
Broadcasting Systems and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.5 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this
reference.
10.22 Minority Partnership Interest and Minority Stock Purchase
Agreement dated May 15, 1993, by and among Charles E.
Walker, Urban Broadcasting Systems and Broadcast, Cable
and Satellite Technologies, Inc., filed as Exhibit 10.6 to
the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.23 Modification, Ratification and Consent by and among
Charles E. Walker, Urban Broadcasting Systems, Urban
Broadcasting Systems, Inc., Television Media Resources,
L.C., and Broadcast, Cable and Satellite Technologies,
Inc., filed as Exhibit 10.7 to the Company's Current Report
on Form 8-K filed with the Commission on December 20, 1994,
and incorporated herein by this reference.
10.24 Restated Majority Partnership Interest and Majority Stock
Purchase Option by and among Charles E. Walker, Urban
Broadcasting Systems and Broadcast, Cable and Satellite
Technologies, Inc. dated as of May 15, 1993, filed as
Exhibit 10.8 to the Company's Current Report on Form 8-K
filed with the Commission on December 20, 1994, and
incorporated herein by this reference.
10.25 Restated Construction Agreement dated as of May 15, 1993,
by and among Charles E. Walker, Urban
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56
Broadcasting Systems, Broadcast, Cable and Satellite
Technologies, Inc., and Spectrum Communications and
Engineering, Inc., filed as Exhibit 10.9 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this reference.
10.26 Engineering Services Agreement dated as of December 14,
1993 by and between Broadcast, Cable and Satellite
Technologies, Inc., and Spectrum Communications and
Engineering, Inc., filed as Exhibit 10.10 to the Company's
Current Report on Form 8-K filed with the Commission on
December 20, 1994, and incorporated herein by this
reference.
10.27 Form of Employment Agreement by and between Urban
Broadcasting Systems, Inc. and Charles E. Walker, filed as
Exhibit 10.11 to the Company's Current Report on Form 8-K
filed with the Commission on December 20, 1994, and
incorporated herein by this reference.
10.28 Form of Time Brokerage Agreement dated December 14, 1993,
by and between Urban Broadcasting Systems and Broadcast,
Cable and Satellite Technologies, Inc., filed as Exhibit
10.12 to the Company's Current Report on Form 8-K filed
with the Commission on December 20, 1994, and incorporated
herein by this reference.
10.29 Form of Escrow Agreement by and between Registrant,
Charles E. Walker and U.S. Trust Company of Texas, N.A.,
filed as Exhibit 10.13 to the Company's Current Report on
Form 8-K filed with the Commission on December 20, 1994,
and incorporated herein by this reference.
10.30 Form of Promissory Note in the principal amount of
$750,000.00, the maker of which is Broadcast, Cable and
Satellite Technologies, Inc., payable to Charles E.
Walker, filed as Exhibit 10.14 to the Company's Current
Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
10.31 Form of Security Agreement by and between Charles E.
Walker and Broadcast, Cable and Satellite Technologies,
Inc., filed as Exhibit 10.15 to the Company's Current
Report on Form 8-K filed with the Commission on December
20, 1994, and incorporated herein by this reference.
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57
10.32 Lease Agreement dated December 28, 1993, by and between H
& C Communications, Inc. and Broadcast, Cable and Satellite
Technologies, Inc., filed as Exhibit 10.16 to the
Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.33 Agreement dated as of December 17, 1993, by and between
Blue Ridge Tower Corporation and Broadcast, Cable and
Satellite Technologies, Inc., filed as Exhibit 10.17 to
the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.34 Amendment to Agreement dated December 17, 1993, by and
between Blue Ridge Tower Corporation and Broadcast, Cable
and Satellite Technologies, Inc., filed as Exhibit 10.18
to the Company's Current Report on Form 8-K filed with the
Commission on December 20, 1994, and incorporated herein
by this reference.
10.35 Letter to Shop at Home, Inc., from the directors of MFP,
Inc., dated November 11, 1994, filed as Exhibit 10.36 to
the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.36 Programming Agreement between Shop at Home, Inc., and MFP,
Inc., dated November 11, 1994, filed as Exhibit 10.37 to
the Company's Registration Statement on Form S-4 filed
with the Commission on December 28, 1994, and incorporated
herein by this reference.
10.37** Variable Rate Convertible Secured Note Due 2000 of the _____
Company dated August 16, 1995
10.38** Security Agreement dated August 16, 1995, by and between _____
the Company, MFP, Inc., and Global Network Television,
Inc.
10.39** Restated Agreement dated January 26, 1996, and the First _____
Amendment thereto dated March 7, 1996, by and between
Richard Howard, Inc., and the Company
10.40** Majority Stock Purchase Agreement dated June 3, 1996, by _____
and between Charles E. Walker, Broadcast, Cable and
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58
Satellite Technologies, Inc., and Urban Broadcasting
Systems, Inc.
10.41** Promissory Note dated September 5, 1996, made by the _____
Company and Broadcast, Cable and Satellite Technologies,
Inc., payable to Charles E. Walker.
10.42** Security Agreement dated September 5, 1996, by and between _____
Broadcast, Cable and Satellite Technologies, Inc., and
Charles E. Walker.
21.1** Subsidiaries of the Company _____
_____
27** Financial Data Schedule (for SEC use only) _____
**Filed herewith
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59
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/ Date: 9/30/96
------------------------------------- -------------------
Kent E. Lillie
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Date: 9/30/96
------------------------------------- --------------------
Joseph Nawy
(Vice President-Finance)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Company and in the capacities on the dates indicated.
Date: 9/30/96 /s/
--------------------- -----------------------------------
J.D. Clinton, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
W. Paul Cowell, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
Kent E. Lillie, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
Joseph I. Overholt, Director
Date: 9/30/96 /s/
--------------------- -----------------------------------
A.E. Jolley, Director
Secretary / Treasurer
Date: 9/30/96 /s/
--------------------- -----------------------------------
Frank A. Woods, Director
59