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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1995.
OR
[ ] 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 ________________
Commission file number 33-8333-D
AMERISHOP CORP. (f/k/a AmeriMark Corp.)
(Exact name of Registrant as specified in its charter)
Delaware 38-2684858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3033 Orchard Vista Dr., S.E., Ste.308
Grand Rapids, Michigan 49546-7080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (616) 949-0775
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate 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 the form 10-K or any amendment to the
Form 10-K. [X]
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The aggregate market value of voting stock of the Registrant held by
nonaffiliates as of August 24, 1995 was $698,632 based upon the average of the
bid and ask price as of that date.
The number of shares outstanding of each of the Registrant's classes of common
stock as of August 24, 1995 was 2,516,327 shares of $.00001 par value common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Into Which Portions of
Document Documents are Incorporated
-------- --------------------------
Registrant's Form S-18
Reg. No. 33-8333-D Part IV Item 14
Registrant's Form 8-K Part IV Item 14
Date of Report 6/5/89
and Form 8 Amending Same
filed June 20, 1989
Registrant's Form 10-K Part IV Item 14
Annual Report for year
ended June 30, 1988
Registrant's Form 10-K Part IV Item 14
Annual Report for year
ended June 30, 1991
Registrant's Form 10-K Part IV Item 14
Annual Report for year
ended June 30, 1992
Registrant's Form 10-K Part IV Item 14
Annual Report for year
ended June 30, 1993
and Amendment 10-K/A
No. 1 filed April 26, 1994
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AMERISHOP CORP.
FORM 10-K
Year Ended June 30, 1995
TABLE OF CONTENTS
Page
----
PART I.
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of
Security Holders 7
PART II
Item 5. Market for Registrant's Common Stock
and Related Shareholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Item 8. Financial Statements and Supplementary
Data 15
Item 9. Disagreements on Accounting and
Financial Disclosure 15
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PART III.
Item 10. Directors, Executive Officers,
Promoters and Control Persons 16
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial
Owners and Management 19
Item 13. Certain Relationships
and Related Transactions 21
PART IV.
Item 14. Exhibits, Financial Statements,
Schedules and Reports on
Form 8-K - INDEX 22
SIGNATURES
Chief Executive Officer, Chief Financial
and Accounting Officer 42
Directors 42
INDEPENDENT AUDITORS' REPORT 28
FINANCIAL STATEMENTS 29
SCHEDULES
EXHIBITS
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PART I
ITEM 1. BUSINESS
History and Organization
The Company was organized under the laws of the State of Delaware on August
1, 1986 under the name Michigan Ventures, Inc., and changed its name to
AmeriMark Corp. in November, 1987 and changed its name to AmeriShop Corp. in
July, 1992 after merging with its subsidiary AmeriShop, Inc. The Company was
organized for the purpose of creating a corporate vehicle to seek, investigate
and, if such investigation warranted, acquire an interest in business
opportunities presented to it by persons or firms who or which desired to
employ the Company's funds in their business or to seek the perceived
advantages of a publicly-held corporation.
On October 27, 1987, the Company acquired the businesses previously operated
by Network Direct, Inc., a privately held Kansas corporation ("NDI") for
14,967,180 shares of the Company's Common Stock and America's Buyers, Inc., a
privately held Michigan Corporation ("ABI") for 11,225,385 shares of the
Company's Common Stock. The acquisitions were effected by the Company creating
two new subsidiaries into which the acquired companies were merged. Effective
April 1, 1991, the Company sold Network Direct, Inc. in exchange for 8,967,180
shares of the Company. On July 6, 1992, the Company effected a 1 for 10
reverse split of its outstanding capital stock resulting in total issued and
outstanding Common Stock on that date of 2,393,827 shares.
AmeriShop, Inc. was formed on February 8, 1988 as a subsidiary of the Company
to pursue marketing of a mass market, low price, high volume telephone buying
service membership. Effective January 1, 1990, AmeriShop, Inc. was merged into
ABI and ABI simultaneously changed its name to AmeriShop Inc. ("AmeriShop").
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Description of Business
Company Overview
AmeriShop Corp. is a marketer of computerized merchandising systems providing
an on-line data base of over 60,000 current brand name consumer products (with
total access to approximately 250,000 products) representing over 550
manufacturers. The database is a proprietary software system designed,
maintained and operated exclusively by the Company providing the user/consumer
the ability to price compare and purchase merchandise from the manufacturers or
distributors which carry their products on the database. Access to the
database is done via a toll-free telephone call to an AmeriShop personal
shopping assistant.
The uniqueness of the Company's computerized merchandising system gives the
Company the ability to market its services to the premium incentive industry,
to individual or group users, on an annual membership basis and through direct
response catalogs such as airline in-flight catalogs, and credit card
merchandise fliers. The principal client base for the Company's merchandising
capabilities are virtually any corporation or organization interested in
motivating or "incentifying" their employees, sales force, or customers to
perform better or purchase more. The Company has entered into, and continues
to add on a monthly basis, purchase agreements to provide its various
merchandising services throughout the continental United States and Latin
America.
The premium incentive industry sells merchandise and travel services to
client companies who in turn use them as awards for outstanding achievement or
participation in or use of some other service or product. A typical incentive
program has at its base a set of rules which outlines a specific goal, i.e., to
increase sales. By properly structuring these rules, a company can motivate
its work force to go above and beyond what they might normally do. In the case
of salespeople, they will tend to sell more of a specific product, if by
selling that product, they are offered an award. For incentive programs with
many participants, the awards tend to be shown in a 4-color catalog consisting
of approximately 1,000 items.
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AmeriShop is unique in that not only does it have a 4-color catalog with
1,000+ items, but it also offers companies participating in an incentive
program the option to choose items from our database of 60,000 items. With the
wide diversity of participants, especially in larger programs, Management
believes offering them such a large choice gives AmeriShop a competitive edge
in attracting new clients.
AmeriShop provides a variety of functions in a typical Incentive Program.
After the AmeriShop salesperson has "sold" the program, a "kit" of material is
produced by AmeriShop. This kit consists of a 4-color catalog that contains a
wide variety of items at various prices, an order form and program rules. The
program rules outline what goals need to be met in order for the program
participant to receive award points. As the participant receives award points
throughout the program, progress statements are sent out indicating the
cumulative total of the participants' awards points. Along with this
"statement," a company will typically take the opportunity to promote a new
product in order to help "stimulate" sales. The accumulated award points are
turned in at the end of the program for merchandise chosen out of the catalog
or, at the participant's option, AmeriShop's database. This is done by the
participant filling out the Award Order form provided in the program kit. The
form is then sent to AmeriShop for processing. AmeriShop will verify that the
participant truly has the stated amount of points needed for the merchandise
selected. Internally at AmeriShop, the ordering processing center notifies the
appropriate manufacturer of the selected merchandise, making the necessary
order. The manufacturer will tell AmeriShop the approximate time to deliver
and that information is passed along to the participant by AmeriShop in the
form of an Order Verification letter. Once the merchandise has been shipped,
AmeriShop invoices the client based on an agreed upon dollar value per award
point redeemed. The manufacturer invoices AmeriShop at a previously agreed
price which is lower than that charged to the client.
The Company has approximately 50 corporate premium incentive clients as of
August 31, 1995.
The Company also utilizes its product database to market and fulfill consumer
shopping club memberships. By subscribing to AmeriShop's services and paying
the current fee, a person can call a toll-free number to obtain pricing
information and/or purchase
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merchandise from the Company at prices not generally available to the public.
Such sales are generally at a price slightly above that paid by the Company.
The Company's shopping service business has been primarily a fulfillment of
third party private label programs. AmeriShop receives varying service fees
from the marketing companies depending upon how the shopping service is sold to
the consumer. The shopping service is often combined with other services by
the marketing company. As of August 31, 1995, the Company services about 14
private label programs in addition to its own programs with a total membership
base of approximately 135,000 members.
The products on the data base are maintained with a product description,
customer price delivered and suggested retail price with corresponding award
point equivalents for the premium incentive program. Additionally, the data
base maintains a customer file which contains customer/member I.D. number,
purchase history and credit card number, if available.
The Company is continually adding new products to its data base. The
manufacturers/vendors must agree to individually drop ship products. In some
cases, the Company has a written contract for merchandise fulfillment from the
manufacturer. However, in many circumstances, the relationship is an oral
agreement based upon the manufacturer's agreed upon price and ability to drop
ship.
Once a merchandise order has been placed with the vendor, the Company's
Customer Service Department sends the customer an order acknowledgement form
notifying them that their order has been placed. All products are shipped
directly to the member and come with full manufacturers' warranties. However,
if there is a problem with goods arriving damaged, the Company's Customer
Service Department will act on the consumer's behalf, contacting the
manufacturer or shipper to determine responsibility for the damaged goods and
rectifying the situation to the customer's satisfaction.
The Company utilizes an IBM System 36 computer that can handle approximately
five (5) times the number of transactions it is presently handling with
additional memory and storage upgrades. Processing systems are continually
upgraded internally to improve efficiency. The telephone system can handle
over 2010 operators and associated toll-free telephone lines with 55 lines
currently in operation.
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NDI
As noted above, NDI was sold effective April 1, 1991. NDI was originally
incorporated in 1971 as Modern Guide to Buying.
NDI markets telephone buying service memberships through a direct sales force
selling individual memberships primarily on a one-on-one basis. NDI does not
have the ability to service its own buying service memberships. Since July,
1987, NDI has had an exclusive contract with AmeriShop which was renewed on
April 1, 1991 for a period of five years. The service contract gives NDI
members access to the Company's database for price comparisons and product
purchases. NDI is excluded from utilizing other shopping service companies,
however, AmeriShop is not excluded from providing its services to other sales
organizations. The service agreement was amended July 1, 1995 for three years.
NDI paid the Company $175,000 to renegotiate the agreement early. The new
agreement calls for a 15% reduction in service fees paid to the Company for the
first 4,000 new members added each year and a 50% reduction in fees for new
members in excess of 4,000 per year.
The majority of permanent memberships were sold on an installment basis,
through financing sources utilized by NDI, with an additional annual renewal
fee. NDI normally collects a small down payment with the balance of this
initial fee paid monthly. NDI was able to pledge these installment receivables
and borrow up to 70% of the balances due from its financing sources.
Backlog and Seasonality
The Company typically realizes approximately 90% of its total membership
sales during its last three fiscal quarters. As of June 30, 1995, unfilled
merchandise orders in its backlog totaled $281,881. The Company also reflects
revenue on certain membership agreements over the 12-month life of the
membership. At June 30, 1995, the balance of deferred revenue which will be
recognized into income during the year ending June 1996 was approximately
$559,000 [see note 1 to financial statements included at Item 14].
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Employees
As of August 24, 1995, the Company had 18 full-time employees, of which 4
were engaged in management and administrative functions, 3 in sales, 9 in
clerical functions and 2 phone operators. In addition, the Company has 2
part-time clerical workers and 6 part-time phone operators. At any given time,
3 to 6 phone operators are on duty.
Competition
The premium incentive industry is highly competitive with a few large
companies (Maritz, Inc., Carlson Marketing Group, Inc., BI Performance
Services, ITA Group) and thousands of medium to small companies. The Company
believes that it can effectively compete in this industry because of its
ability to charge a lower price than its large competitors and provide greater
administration services than its smaller competitors.
The marketing and operation of telephone buying services as offered by
AmeriShop is highly competitive. No specific figures are available, but the
Company estimates that it has approximately four direct competitors in that
area. The Company is not aware of any other entity marketing individual
permanent telephone buying service memberships as NDI does. In addition to
directly competitive operations, however, the Company's competition could be
considered to include mail order catalog discount operations, televised
shopping services and catalog showrooms. Many of these competitors are larger
and better financed than the Company.
ITEM 2. PROPERTIES
The Company leases approximately 9,200 square feet of office space in Grand
Rapids, Michigan for a term expiring August 31, 2001. In addition, the
Company leases computer and telephone equipment, subject to purchase options,
and owns office equipment with a net combined book value of $25,873 as of June
30, 1995. The Company considers its leased and owned facilities and equipment
to be modern and adequate for the conduct of its business.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation other than ordinary,
routine litigation incidental to its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company commenced its initial public offering on November 12, 1986 and
sold 3,725,385 units which included one share of Common stock and warrants.
The initial price to the public was $.10 per share. The stock is traded on a
limited basis.
The following table sets forth, for the periods indicated, the range of bid
quotations as reported by National Quotation Bureau, Inc. while the stock was
included in the "pink sheets." These quotations may reflect inter-dealer
prices without retail mark-up, mark-down or commission allowances and may not
represent actual transactions.
High Low
---- ---
Fiscal 1994
First Quarter. . . . . . . . . . . . 1.50 .50
Second Quarter . . . . . . . . . . . 2.00 .50
Third Quarter. . . . . . . . . . . . 2.25 1.00
Fourth Quarter . . . . . . . . . . . 1.63 .63
Fiscal 1995
First Quarter. . . . . . . . . . . . 1.25 .13
Second Quarter . . . . . . . . . . . .75 .25
Third Quarter. . . . . . . . . . . . .50 .13
Fourth Quarter . . . . . . . . . . . .25 .06
As of June 30, 1995, the Company's Common Stock was held by approximately 182
holders of record.
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Subsequent to the initial public offering, additional shares were issued in
private offerings and a reverse split of 10 to 1 was effected on July 6, 1992
resulting in 2,393,827 shares issued and outstanding.
DIVIDEND POLICY
The Company has no dividend paying history and does not expect to pay any
dividends on its Common Stock for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data
For the years ended June 30, 1995, 1994, 1993, 1992, and 1991
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total Revenues 5,283,575 5,723,525 5,492,449 4,239,073 7,992,262*
Net Loss
from Operations (269,661) (700,273) (915,747) (459,206) (896,458)
Net Income (Loss) (698,285) (993,047) (1,069,087) (407,667) 1,177,336*
Income Before
Extraordinary Item 777,336
Extraordinary Item-
effect of Utilization
of Tax Loss Carry
Forward 400,000
Net Income Per Share-
Before Extraordinary
Item .25**
Net Income Per Share-
Extraordinary Item .13**
Net Income (Loss)
Per Share** (.28) (.39) (.43) (.17) .38
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Balance Sheet as of June 30
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total Assets 649,447 717,101 476,454 383,001 704,220
Notes Payable and
Capital Lease
Obligations, less
current portions 1,990,687 2,235,517 1,749,274 222,177 186,111
Shareholders' equity
(deficiency in assets) (4,835,325) (4,137,040) (3,143,993) (2,094,406) (1,686,739)
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* Includes revenues and income from sale of subsidiary of $1,840,081.
** Adjusted to reflect 1 for 10 reverse stock split on July 6, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This analysis should be read in conjunction with the Consolidated Financial
Statements and accompanying Notes thereto, contained herein.
General
The Company was originally incorporated as Michigan Ventures, Inc., a
Delaware corporation, on August 1, 1986. On October 27, 1987, the Company
acquired the businesses of America's Buyers, Inc. ("ABI") and Network Direct,
Inc. ("NDI"). On November 26, 1987 the name of the Company was officially
changed to AmeriMark Corp. by majority vote of the shareholders. In July 1992,
the Company changed its name to AmeriShop Corp.
Liquidity and Capital Resources
The Company has a working capital deficit of approximately $2.88 million at
June 30, 1995. A major portion of this deficit relates to convertible
debentures, short term notes payable and accrued interest totaling $1.97
million due to an investment fund partnership.
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Management is currently working with the investment group to extend this debt
and/or covert it into equity.
If the debt can be deferred or converted, the Company is left with a
$900,000 working capital deficit as of June 30, 1995, of which $559,000
represents deferred membership and non-compete revenue. The deferred
revenue will be liquidated through amortization into income over the next
twelve months and therefore will not require the use of cash resources. The
remaining working capital deficit of $341,000 should be covered through
$175,000 received on the NDI contract re-negotiation and an additional $200,000
loan from the investment fund partnership of which $125,000 was received in
August, 1995.
The Company has an arrangement with an investment fund partnership, as
noted above, which has provided $2.0 million in long-term debenture financing.
These funds were received by the Company in various amounts from July, 1992
through August, 1993. The Company is in default of its loan covenants
regarding current ratio and positive cash flow from operations. It is also in
default of its monthly interest installments since May 1, 1994. The covenants
and the default from nonpayment of interest have been waived through July 1,
1996.
The debentures require principal redemption of $20,000 per month commencing
on August 1, 1995 until maturity on July 1, 1999. The remaining principal
balance plus any unpaid interest or other expenses are due and payable in one
lump sum on July 1, 1999. Management anticipates that the Company must either
obtain additional financing to meet these principal payment obligations or the
debentures must be converted to equity in order to eliminate the obligations.
The Company received approximately $300,000 in short-term loans during
fiscal 1995. As of June 30, 1995, the balance of these loans totaled
$1,428,445 and was due on July 1, 1995.
The Company had a deficiency in stockholders equity of $4,835,325 as of
June 30, 1995 and its continuation is dependent upon meeting its obligations as
they become due and attaining profitable operations. Management believes that
it can obtain profitable operations in the future through its merchandise
premium incentive programs which it continues to actively market and through
budget reductions established for 1996. The
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Company has continued to increase its level of incentive merchandise sales as
well as its overall gross profit on these sales as documented below in the
discussion of Results of Operations.
The Company has shown a cash shortfall from operations of approximately
$570,000 for fiscal year 1995. Management believes that it will substantially
improve these results and possibly reach breakeven in fiscal 1996 if
anticipated sales are realized. Fiscal 1996 budgeted operating expenses have
been reduced by approximately 20% from 1995 primarily through staff and
management reductions. Fiscal 1995 premium incentive sales increased from 9%
from 1994 to over $2.25 million. Management anticipates similar improvement in
fiscal 1996 based upon programs currently in process and new programs that it
believes can be obtained during the coming months.
For the long term, the Company continues to add new premium incentive
business which will improve its results from operations. However, the Company
requires additional in-house sales representatives to generate substantial
growth in this business.
Management believes that adding up to six sales representatives disbursed
over several regions within the United States would be sufficient to increase
accelerated sales. There is a delay between hiring sales representatives and
realizing the sales from their efforts. This is due to a period of time
necessary to develop and sell programs (6 to 12 months), then once the program
is sold, it takes 6 to 12 months, generally, for the participants to earn the
awards before they are redeemed.
It is Management's intent initially to hire experienced individuals already
in the premium incentive industry in order to accelerate the sales effort.
Because of this, it is anticipated that salary, benefits, travel and other
expenses for these sales persons could be as high as $100,000 per year each.
Since the sales generated by the new sales representatives will not be
realized for 12 to 18 months, the Company will require additional equity
financing to cover these expenses. Management continues to pursue this
financing primarily through private placement funding.
The Company currently has three sales persons in-house and about 30
independent agents. Management believes that it must increase its in-house
sales force to provide it with more control over its sales efforts since
independent agents utilize other suppliers in
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addition to AmeriShop. Also, sales costs, primarily commissions, are
substantially lower with in-house agents providing the Company with higher
gross profit margins.
In its shopping service membership business, the Company has taken steps to
create further growth through two recent contractual agreements. On July 1,
1995, the Company re-negotiated a new three year membership fulfillment
agreement with Network Direct, Inc. (NDI). This extension solidifies the
Company's long-standing relationship with NDI to continue membership
fulfillment for their customers. Furthermore, the Company received a $175,000
up front, one-time cash fee from NDI. This fee was consideration for
re-negotiating the new agreement 11 months prior to the expiration of the
current term of the NDI/AmeriShop agreement (April 1, 1996) with the new
agreement extended to July 1, 1998. The new agreement calls for a 15%
reduction in service fees paid to the Company for the first 4,000 new members
added each year and a 50% reduction in fees for new members in excess of 4,000
per year.
NDI had a strong membership year providing the Company $635,000 in
membership fees in fiscal 1995. NDI's goals for fiscal 1996 are to exceed
fiscal 1995's memberships which should also aid the Company's cash flow and
profits.
In addition to the three year NDI extension agreement, the Company also
signed a new two year test marketing membership agreement with the Safecard
("Safecard") Services, Inc. division of Ideon Group, Inc. (NYSE:IQ) to market
the Company's Shopping Service membership program. In aligning itself with
Safecard, the Company affords itself the opportunity to be involved in an
arrangement with the largest provider of credit card registration protection
programs serving over 13 million credit card holders.
The Company and Safecard will commence test marketing an annual Shopping
Club membership service under a joint venture, profit sharing agreement in
fiscal 1996. The Company will provide its 60,000 item consumer merchandise
data base to create and fulfill the annual shopping service. Safecard will
market the shopping service utilizing its extensive credit card relationships.
The joint goal is to begin building a high volume, renewable shopping
service membership base over the next 12 to 24 months. If successful, this
will establish the foundation to substantially improve the Company's revenue
growth and earnings.
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The Company is at the stage where it needs to restructure its balance
sheet, primarily converting into equity its long and short term debt with
Renaissance Capital, the Company's investment fund partner. As discussed
above, the Renaissance Capital financing is currently carried on the balance
sheet as debt that is accruing interest month-to-month. The Company has taken
budgetary cuts to attain profitability and positive cash flow in fiscal 1996
that would allow Renaissance Capital to convert its debentures into equity,
thereby eliminating the Company's existing debt structure and interest
payments.
The subsequent improvement in the balance sheet will position the Company
to actively pursue a new common stock issuance in either a public or private
offering. Management believes it needs to obtain a minimum of $5,000,000 in
net proceeds to adequately enhance its shareholder equity position, hire
additional sales representatives and cover operating expense shortfalls until
sales are sufficient to generate profits.
In the short term, Management believes it can attain profitable results in
the next 12 to 18 months. Management's goal over the next three years is to
continue to shift the merchandise sales mix from the fiscal 1995 mix of 40%
member and 60% incentive to 10% member and 90% incentive. Premium incentive
sales for the fourth quarter of 1995 exceeded the same period in 1994 by
$211,000 resulting in a higher accounts receivable balance at June 30, 1995
compared to June 30, 1994. There were no material write-offs of receivables
against bad debts during fiscal 1995 or 1994.
To increase sales substantially, the Company must continue to add salaried
representatives to its sales force. To accomplish this, it is necessary for
the Company to obtain additional equity financing.
Results of Operations - Year Ended June 30, 1995
For the year ended June 30, 1995, the Company experienced a loss of
$698,285 compared to a loss of $993,047 in the prior year; an improvement of
$294,762 (30%). Loss from operations (exclusive of other income, interest
income and interest expense) was $269,661 and $700,273 for 1995 and 1994,
respectively; an improvement of $430,612 (61%). However, of the 1995 operating
loss of $269,661, approximately $40,000 is attributable to organizational
charges in personnel reductions taken in June 1995. The improved operating
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results were primarily due to increased gross profit from merchandise,
promotional programs and an increase in membership fee revenues.
Membership fee revenues increased by 17% over the prior year due to
increased volume from third party membership programs. The Company did
not actively market any new retail shopping service members in 1995 and its
existing base has been slowly declining over the last few years. The Company
continues to service Network Direct, Inc. (NDI) members and gross new member
and renewal receipts totaled approximately $635,000 in fiscal 1995 compared to
$597,000 in fiscal 1994. NDI membership receipts represented 84% and 82% of
total membership receipts for 1995 and 1994, respectively.
Overall, merchandise sales decreased in total by 13% from the prior year to
$3.9 million as a result of a $543,000 decrease in direct response merchandise
sales, and a $218,000 decline in merchandise sales to shopping service members.
However, merchandise incentives sales increased by 9% to $2.25 million in 1995
versus $2.07 million in 1994. The Company has been focusing its efforts on
increasing its merchandise incentive sales which provide higher gross profit
margins (20%-30% after commissions) than member merchandise sales
(approximately 2%). Merchandise incentives sales represented 58% and 46% of
total merchandise sales in 1995 and 1994, respectively.
Promotional expense decreased by $54,000 from the prior year as a result of
a reduction in catalog costs related to a bank card insert program which was
discontinued in fiscal 1994.
Selling, general and administrative expenses decreased by $295,000 (or 14%)
over the prior year which resulted from budget cuts.
Results of Operations - Year Ended June 30, 1994
For the year ended June 30, 1994, the Company experienced a loss of
$993,047 compared to a loss of $1,069,087 in the prior year. Loss from
operations (exclusive of other income, interest income and interest expense)
was $700,273 and $915,747 for 1994 and 1993 respectively; an improvement of
24%. The improved operating results were primarily due to increased gross
profit from merchandise and travel programs and a decrease in promotional
expenses.
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Membership fees decreased by 7% from the prior year. The Company did not
actively market any new retail shopping service members in 1994 and its
existing base has been slowly declining over the last few years. The Company
continues to service Network Direct, Inc. (NDI) members and gross new member
and renewal receipts totaled approximately $597,000 in fiscal 1994 compared to
$553,000 in fiscal 1993. NDI membership receipts represented 82% and 86% of
total membership receipts for 1994 and 1993, respectively.
Merchandise sales increased in total by 4% over the prior year to $4.5
million as a result of a $1,065,000 increase in merchandise incentive sales and
a $900,000 decline in merchandise sales to shopping service members. The
Company has been focusing its efforts on increasing its merchandise incentive
sales which provide higher gross profit margins (20%-30% after commencement)
than member merchandise sales (approximately 2%). Merchandise incentives sales
represented 47% and 25% of total merchandise sales in 1994 and 1993
respectively.
Promotional materials expense decreased by $200,000 from the prior year as
a result of a reduction in catalog costs related to an airline in-flight
catalog program which was discontinued in January, 1994.
Selling, general and administrative expenses increased by $68,000 (or 3%)
over the prior year which resulted from increased sales volume.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Registrant hereby incorporates the financial information required by this
item by reference to Item 14 hereof.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
15
21
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
Directors and Executive Officers
The Directors and Executive Officers of the Company are as follows:
Name Age Position
---- --- --------
Joseph B. Preston 48 President, Chairman, Chief
Executive Officer and
Director
Steven Salasky 33 Secretary/Treasurer
James W. Kenney 54 Director
Joseph B. Preston has served as a director of the Company and as its
President and Chief Executive Officer since October 27, 1987. He has been
Chairman of the Company since March, 1991. He served as President of ABI from
May 1, 1986 to October 27, 1987. From December, 1984 to April 30, 1986, Mr.
Preston was President of Preston Marketing Group, Inc., a consulting firm
specializing in marketing and general management consulting. Prior to owning
his own consulting firm, Mr. Preston was Vice President of Sales/Marketing for
Root-Lowell Manufacturing Corporation from October, 1983 to December, 1984.
Mr. Preston was also with Amway Corporation from February, 1978 to October,
1983 as Senior Manager of International Marketing handling development of
Amway's product lines for all its international markets. Mr. Preston served in
the U.S. Navy as a Naval Flight Officer for five (5) years following completion
of his M.B.A. in Marketing and B.S. degree in Packaging Engineering both from
Michigan State University.
Steven Salasky has served as Controller since August, 1994 and as
Secretary/Treasurer since July, 1995. He graduated from Michigan State
University with a B.A. in Accounting. He gained his public accounting
experience at Egly, Brink & Co.
16
22
which is a regional public accounting firm located in Kalamazoo, Michigan, and
was certified in 1989. Mr. Salasky joined AmeriShop in September 1989 as the
Accounting Manager.
James W. Kenney has been a Director since September, 1992. He is currently
associated with San Jacinto Securities, Inc. as Executive Vice President and
owner. From February, 1992 to June, 1993 he served as Vice President of
Investments for Renaissance Capital Group, Inc. From October, 1989 to
February, 1992 he served as Senior Vice President, Director of Trading and
Syndicates for Capital Institutional Services. From February, 1987 to October,
1989, he served as Senior Vice President for retail sales for Rauscher Pierce
Refsnes, Inc. Mr. Kenney received a B.A. degree in economics from the
University of Colorado in Boulder, Colorado. Mr. Kenney also currently serves
on the Board of Directors of the following companies: Consolidated Health Care
Associates, Inc., CCC Coded Communications Corp., Industrial Holdings, Inc.,
Prism Group, Inc., Scientific Measurement Systems, Appoint Technologies, Tecnal
Medical Products, Inc., and Tricom Corporation.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Company to each of its executive officers for services
rendered during the fiscal year ended June 30, 1995, whose cash compensation
for that period exceeded $100,000.
17
23
Summary Compensation Table
--------------------------
Long Term Compensation
---------------------------
Annual Compensation Awards Payout
-------------------------------------------------------------------------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Compen- Award(s) Options/ Payouts Compensa-
Principal Position Year Salary($) Bonus ($) sation ($) ($) SARs (#) ($) tion ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph B. Preston-CEO 1995 113,800 0 0 0 0 0 0
1994 129,375 0 0 0 200,000 0 0
1993 125,000 0 0 0 0 0 0
Option/SAR Grants in Last Fiscal Year
-------------------------------------
% of
Number of Total
Securities Options/ Potential Realizable Value
Underlying SARs at Assumed Annual Rates of
Options/ Granted to Exercise Stock Price Appreciation
SARs Employees or Base for Option Term
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------------------
Joseph B. Preston 0 0 0 0 0 0
Incentive Stock Option Plan. On October 1, 1992, the Company amended
its Incentive Stock Option Plan (the "Plan") under which options granted are
intended to qualify as "incentive stock options" under Section 422A of the
Internal Revenue Code of 1986, as amended, (the "Code"). Pursuant to the Plan,
options to purchase up to 600,000 shares of the Company's common stock may be
granted to employees of the Company. The Plan is administered by the Board of
Directors, which is empowered to determine the terms and conditions of each
option, subject to the limitation that the exercise price cannot be less than
the market value of the common stock on the date of the grant and no option can
have a term in excess of ten (10) years.
Options to purchase 492,800 shares are outstanding under this plan as
of June 30, 1995. Options totalling 81,500, 29,800, 181,500 and 200,000 shares
may be exercised at $.30, $.75, $1.00, and $1.10 per share respectively. No
options have been exercised as of the date of this report.
18
24
Compensation Committee Interlocks and Insider Participation. The
Company's Board of Directors does not have a compensation committee nor any
other committee performing such function. During the year, Mr. Preston
participated in all Board of Directors' deliberations concerning executive
compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date of this Form 10-K, the
stock ownership of each person known by the Company to be the beneficial owner
of five percent or more of the Company's Common Stock, all Directors
individually and all Directors and Officers of the Company as a group. Each
person has sole voting and investment power with respect to the shares shown.
When calculating percentage ownership for each person, options held by that
person are considered exercised but are not considered exercised when
calculating percentage ownership for others.
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
- ------------------- --------- --------
Joseph B. Preston 1,108,360(1)(2)(6) 40.8%
3033 Orchard Vista Drive, SE
Grand Rapids, MI 49546
James W. Kenney 35,000(1)(2)(3) 1.4%
9 Meadowlake Drive
Heath, TX
Steven R. Salasky 17,167 0.7%
3033 Orchard Vista Drive, S.E.
Grand Rapids, MI 49546
Renaissance Capital 3,551,830(2)(4) 58.5%
Partners, II, Ltd.
8089 N. Central Expressway
Suite 210
Dallas, TX 75206
19
25
Thomas D. Lyons 304,000 12.1%
10950 Grandview
Suite 465
Corporate Woods
Overland Park, KS
Theodore F. Stearns 305,500 12.1%
10950 Grandview
Suite 464
Corporate Woods
Overland Park, KS
W. Stephen Hamlin 384,260(5)(6) 15.3%
1011 Cedarmill Lane
Westchester, PA 19382
All Directors
and Officers as a Group 1,160,527(1)(2) 42.2%
___________________________
(1) Totals include shares which may be acquired through exercise of options
granted as follows: Mr. Preston, 200,000 shares; Mr. Salasky, 17,000
shares; and Mr. Kenney, 15,000 shares.
(2) For purposes of calculating the percentage of outstanding shares owned
by each person and the indicated group, these shares are deemed to be
outstanding.
(3) Mr. Kenney has a 14-1/2% interest in the general partner of Renaissance
Capital Partners, II, Ltd., a limited partnership. This general
partner has a 20% interest in the profits of that limited partnership
above a formula return to the limited partners. The assets of the
limited partnership include an option to purchase 3,551,830 shares of
the Company's Common Stock (see footnote 5, below). This interest is,
therefore, not determinable at this point and is not included with Mr.
Kenney's beneficial ownership.
(4) Includes 3,551,830 shares that this entity may acquire upon conversion
of amounts loaned by it to Company.
20
26
(5) Does not include 144,749 shares (2.3%) owned by Francis Hamlin, mother
of W. Stephen Hamlin, beneficial ownership of which is disclaimed by W.
Stephen Hamlin.
(6) Mr. Preston's beneficial ownership includes 384,260 shares owned by W.
Stephen Hamlin which he has full voting rights based upon a settlement
and option agreement between the Company and Mr. Hamlin. Mr. Hamlin's
beneficial ownership includes 275,000 shares which the Company has an
option to purchase.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 1, 1991, the Company renewed its ongoing Shopping Service
fulfillment agreement with Network Direct, Inc. (NDI). The agreement was
renewed for a five year term. Under the agreement the Company received
$635,350 from NDI during fiscal year 1995. Messrs. Stearns and Lyons are each
a 50% owner, an officer and an employee of NDI.
On July 1, 1995, the Company amended its service agreement with NDI
through July 1, 1998. In exchange for $175,000 in cash, the Company
renegotiated its existing agreement which was scheduled to run until April 1,
1996. Under the terms of the new agreement, the service fee paid by NDI for
new memberships serviced by the Company were reduced by 15% for the first 4,000
members per year and by 50% for any new memberships added in excess of 4,000
per year. NDI has not submitted over 4,000 members in any single year in the
8-year relationship with the Company.
The Company also extended its agreement not to compete against NDI for
certain types of membership programs through July 1, 1998.
On December 14, 1994, the Company entered into a settlement, release and
option agreement with W. Stephen Hamlin whereby Mr. Hamlin granted options to
purchase 275,000 shares of the Company's common stock for $2.00 per share in
exchange for the Company's release of any and all rights or claims that it may
have had against him arising from his resignation from the Company and
subsequent employment in a related field. The options are exercisable in whole
or in part for a three year period and, with respect to 137,500 shares, for an
additional year. In addition to the options, Mr. Hamlin appointed the Company's
President, Joseph B. Preston, with full power of substitution to vote all of the
21
27
stock the Company held by Mr. Hamlin, currently 384,260 shares during the four
year term of the option agreement.
On July 10, 1992, the Company entered into a convertible debenture loan
agreement with Renaissance Capital Partners Limited II (RCP) whereby RCP agreed
to provide up to $1,500,000 of convertible debenture financing to the Company.
The agreement provided for an initial loan of $750,000 which was closed on July
10, 1992 and three standby loan commitments of $250,000 each which were closed
September 30, December 31, 1992 and March 31, 1993, respectively.
On July 8, 1993, the convertible debenture loan agreement was modified
to provide for up to $2,000,000 of financing. The additional debentures of
$250,000 each were issued on July 8, 1993 and August 2, 1993.
The terms of the seven year debentures require that the Company make
interest only payments for the first three years and principal and interest for
the remaining four years with a balloon payment due at maturity.
RCP has the right at any time to convert any issued debenture into the
Common Stock of the Company at $0.56309 per share. The debenture can be
redeemed by the Company at any time after the third year at varying premium
rates above par.
The debentures are secured by all of the assets of the Company,
including its software, data files, trademarks and trade names.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K - INDEX
(a) The following documents are filed as part of this report:
Page
----
1. Financial Statements:
Independent Auditors'
Report 28
22
28
Balance Sheets 29
For each of the three years in the
period ended June 30, 1995:
Statements of Operations 30
Statements of Changes in Shareholders' Equity
(Deficiency in Assets) 31
Statements of Cash Flows 32
Notes to Financial Statements 34
2. Financial Statement Schedules:
All schedules are omitted because of absence of conditions under which they are required
or because the required information is provided in the financial statements or notes
thereto.
(b) Reports on Form 8-K during quarter ended June 30, 1995:
None
(c) Exhibits:
EXHIBIT INCORPORATED BY
NO. DESCRIPTION REFERENCE TO
- ------- ----------- ---------------
3.1 Certificate of Incorporation, including Exhibit 3.1 to Registrant's Form
amendment changing name to AmeriMark Corp. 10-K for year ended June 30, 1988
3.2 Bylaws of Registrant Exhibit 3 to Registrant's Form S-18
Reg. No. 33-8333-D
10.1 Incentive Stock Option Plan Exhibit 10.1 to Registrant's Form
10-K for year ended June 30, 1994
23
29
10.2 a) March 29, 1991 agreement among Exhibit 10.2 to Registrant's Form
Registrant and Theodore F. Stearns and 10-K for year ended June 30, 1991
Thomas D. Lyon concerning an exchange of
stock
b) Settlement Agreement re payment Exhibit 10.2 to Registrant's Form
pursuant to 10.2 a) above 10-K for year ended June 30, 1992
10.3 a) March 29, 1991 Option Agreement Exhibit 10.3 to Registrant's Form
between Theodore F. Stearns and Registrant 10-K for year ended June 30, 1991
b) July 11, 1992 Amended Option Agreement Exhibit 10.3 to Registrant's Form
with Theodore F. Stearns 10-K for year ended June 30, 1992
10.4 a) March 29, 1991 Option Agreement Exhibit 10.4 to Registrant's Form
between Thomas D. Lyons and Registrant 10-K for year ended June 30, 1991
b) July 11, 1992 Amended Option Agreement Exhibit 10.4 to Registrant's Form
with Thomas D. Lyons 10-K for year ended June 30, 1992
10.5 a) Fulfillment Service Agreement with NDI Exhibit 10.5 Section B to
dated April 1, 1991 with amendment dated Registrant's Form 10-K for year
July 1, 1991 ended June 30, 1992
b) Amendment dated October 21, 1991 Exhibit 10.5 to Registrant's Form
10-K for year ended June 30, 1992
c) Amendment dated July 1, 1995 __________
10.6 Renaissance Capital Partners II, Ltd., Exhibit 10.6 to Registrant's Form
12.5% Convertible Debenture #1 with 10-K for year ended June 30, 1991
amortization schedule, Registration Rights
Agreement, Security Agreement
24
30
10.7 Renaissance Capital Partners II, Ltd., Exhibit 10.7 to Registrant's Form
Amended Loan Agreement and 12.5% 10K for year ended June 30, 1992
Convertible Debentures 2, 3, 4, 5 and 6
10.8 Renaissance Capital Partners II, Ltd., ________
Promissory Notes dated September 30, 1994
($1,428,448.38) and August 30, 1995
($125,000)
10.9 Settlement, Release and Option Agreement ________
dated December 14, 1994 with W. Stephen
Hamlin
11 Statement re Computation of loss per share ________
16 Letter re Change in certifying accountants Registrant's Form 8-K Date of
Report June 5, 1989, Amended Form
8 June 20, 1989
25
31
AMERISHOP CORP.
FINANCIAL STATEMENTS FOR THE YEARS
ENDED JUNE 30, 1995, 1994, AND 1993 AND
INDEPENDENT AUDITORS' REPORT
26
32
AMERISHOP CORP.
TABLE OF CONTENTS
- ----------------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 28
FINANCIAL STATEMENTS:
Balance Sheets 29
Statements of Operations 30
Statements of Changes in Shareholders' Equity (Deficiency in Assets) 31
Statements of Cash Flows 32
Notes to Financial Statements 34
27
33
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
AmeriShop Corp.
Grand Rapids, Michigan
We have audited the accompanying balance sheets of AmeriShop Corp. as of June
30, 1995 and 1994, and the related statements of operations, changes in
shareholders' equity (deficiency in assets) and cash flows for each of the
three years in the period ended June 30, 1995. 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, such financial statements present fairly, in all material
respects, the financial position of AmeriShop Corp. as of June 30, 1995 and
1994, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements as of and for each of the three years in
the period ended June 30, 1995, have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 11 to the financial
statements, the Company's recurring losses from operations and shareholders'
capital deficiency raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are described in
Note 11. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
September 6, 1995
28
34
AMERISHOP CORP.
BALANCE SHEETS
JUNE 30, 1995 AND 1994
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,210 $206,958
Prepaid expenses 7,068 44,551
Receivables 427,700 318,505
Prepayments to vendors 65,204 36,558
Supplies inventory 76,392 39,879
-------- --------
Total current assets 623,574 646,451
EQUIPMENT - net of accumulated depreciation
and amortization (Note 4) 25,873 70,650
-------- --------
TOTAL ASSETS $649,447 $717,101
======== ========
1995 1994
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Accounts payable $ 493,188 $ 448,802
Note payable (Note 5) 1,428,445 935,997
Customer deposits 379,780 262,638
Deferred membership revenue (Note 2) 521,710 540,845
Deferred non-compete agreement (Note 2) 37,483 50,000
Accrued interest 328,882 87,242
Current maturities of long-term debt (Note 6) 293,131 51,246
Other current liabilities 79,728 94,367
----------- -----------
Total current liabilities 3,562,347 2,471,137
DEFERRED MEMBERSHIP REVENUE (Note 2) 110,000
DEFERRED NON-COMPETE AGREEMENT
(Note 2) 37,487
LONG-TERM DEBT (Note 6) 1,922,425 2,235,517
DEFICIENCY IN ASSETS (Notes 8, 9, 10 and 11):
Preferred stock, $.001 par value per share;
1,000,000 shares authorized, no shares
issued
Common stock, $.00001 par value per
share; 20,000,000 shares authorized; $2,516,327
issued and outstanding 25 25
Additional paid-in capital 484,729 484,729
Accumulated deficit (5,320,079) (4,621,794)
----------- -----------
Deficiency in assets (4,835,325) (4,137,040)
----------- -----------
TOTAL LIABILITIES AND DEFICIENCY
IN ASSETS $ 649,447 $ 717,101
=========== ===========
See notes to financial statements.
29
35
AMERISHOP CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
REVENUES:
Membership fees $ 947,492 $ 809,299 $ 870,205
Merchandise sales 3,914,834 4,507,812 4,341,851
Promotional revenue 158,898 216,021 261,587
Travel revenue 262,351 190,393 18,806
---------- ---------- ----------
Total revenues 5,283,575 5,723,525 5,492,449
EXPENSES:
Sales commissions 313,427 215,617 77,491
Cost of merchandise sales 3,019,543 3,614,152 3,758,910
Selling, general and administrative 1,862,322 2,156,915 2,088,756
Promotional expense 214,341 268,725 468,561
Cost of travel revenue 143,603 168,389 14,478
---------- ---------- ----------
Total expenses 5,553,236 6,423,798 6,408,196
---------- ---------- ----------
LOSS FROM OPERATIONS 269,661 700,273 915,747
OTHER INCOME (EXPENSE):
Interest income 5,834 2,431 3,994
Other income 5,973 6,865 3,929
Interest expense (440,431) (302,070) (161,263)
---------- ---------- ----------
Total other income (expense) (428,624) (292,774) (153,340)
---------- ---------- ----------
NET LOSS $ 698,285 $ 993,047 $1,069,087
========== ========== ==========
NET LOSS PER SHARE OF COMMON STOCK $ 0.28 $ 0.39 $ 0.43
========== ========== ==========
See notes to financial statements.
30
36
AMERISHOP CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DEFICIENCY IN ASSETS)
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Total
Shareholders'
Common Stock Additional Treasury Stock Equity
----------------- Paid-In Accumulated ------------------ (Deficiency
Shares Amount Capital Deficit Shares Amount In Assets)
BALANCE, JULY 1, 1992 26,438,270 $ 264 $464,990 $(2,559,660) 2,500,000 $(2,094,406)
ONE-FOR-TEN REVERSE STOCK SPLIT (23,794,443) (238) 238 (2,250,000)
TREASURY STOCK ISSUED 19,500 (122,500) 19,500
TREASURY STOCK RETIRED (127,500) (1) 1 (127,500)
NET LOSS (1,069,087) (1,069,087)
----------- ----- -------- ----------- ----------- ----- -----------
BALANCE, JUNE 30, 1993 2,516,327 25 484,729 (3,628,747) (3,143,993)
NET LOSS (993,047) (993,047)
----------- ----- -------- ----------- ----------- ----- -----------
BALANCE, JUNE 30, 1994 2,516,327 25 484,729 (4,621,794) (4,137,040)
NET LOSS (698,285) (698,285)
----------- ----- -------- ----------- ----------- ----- -----------
BALANCE, JUNE 30, 1995 2,516,327 $ 25 $484,729 $(5,320,079) $(4,835,325)
=========== ===== ======== =========== =========== ===== ===========
See notes to financial statements.
31
37
AMERISHOP CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(698,285) $ (993,047) $(1,069,087)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 53,575 73,974 89,159
Gain on sale of equipment (182)
Changes in:
Prepaid expenses 37,483 (11,057) (17,247)
Receivables (109,195) (84,428) (193,955)
Prepayments to vendors (28,646) (22,040) 15,734
Supplies inventory (36,513) 1,242 31,951
Accounts payable 44,386 (83,071) (113,772)
Customer deposits 117,142 15,090 (48,056)
Deferred membership revenue (129,135) (77,986) (146,776)
Deferred non-compete agreement (50,004) (50,000) (50,008)
Accrued interest 241,640 87,242
Other current liabilities (14,639) (50,421) 66,485
--------- ----------- -----------
Net cash used in operating activities (572,191) (1,194,502) (1,435,754)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,798) (18,429) (44,052)
Proceeds from sale of equipment 5,053
Increase in note receivable (12,500)
Principal payments received on long-term note 11,413 1,087
--------- ----------- -----------
Net cash used in investing activities (8,798) (7,016) (50,412)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt (71,207) (64,574) (117,082)
Proceeds from issuance of long-term debt 521,417 1,635,645
Net borrowings (payments) on note payable 492,448 935,997 (83,396)
Proceeds from issuance of stock 19,500
--------- ----------- -----------
Net cash provided by financing activities 421,241 1,392,840 1,454,667
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (159,748) 191,322 (31,499)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 206,958 15,636 47,135
--------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 47,210 $ 206,958 $ 15,636
========= =========== ===========
(Continued)
32
38
AMERISHOP CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $132,018 $214,828 $161,263
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligations of $18,430 and $20,497 were incurred when the Company entered into
leases for new equipment in 1994 and 1993, respectively.
See notes to financial statements. (Concluded)
33
39
AMERISHOP CORP.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Effective July 6, 1992, the Company's subsidiary,
AmeriShop, Inc. was merged into AmeriMark Corp. which then changed its
name to AmeriShop Corp. The Company operates a computerized
merchandising system and services customers through discount shopping
memberships, merchandise and travel incentive award programs, and direct
response merchandise catalogs. Sales to one major customer for the years
ended June 30, 1995, 1994 and 1993 accounted for approximately 25%, 18%
and 12%, respectively, of the Company's total revenues.
REVENUE RECOGNITION - Membership fees allow members to use services
provided by the Company. These fees are generally assessed annually
although some programs provide for multi-year fees. Fees are recorded
as deferred revenue when received and recognized as income on the
straight-line basis over the service period.
Merchandise sales are recorded when the merchandise is shipped to the
customer.
Travel revenue is recognized after the travel event has been completed.
CASH EQUIVALENTS - Cash and cash equivalents consist of cash and
highly-liquid investments purchased with an original maturity of three
months or less.
ACCOUNTS RECEIVABLE - Accounts receivable represent current amounts due
from customers for merchandise, travel programs, catalogs and other
printed materials, program administration fees and membership fees. The
majority of receivables are from corporate customers. Bad debts are
recognized as incurred. A reserve for uncollectible accounts has not
been established since the Company's history of charge-offs has been
negligible.
EQUIPMENT AND DEPRECIATION - Equipment is stated at cost less
accumulated depreciation. Improvements and betterments are capitalized;
maintenance and repairs are charged to expense as incurred. Depreciation
is provided by the use of the straight-line method over the estimated
useful life of the related equipment which ranges from 3 to 8 years.
LOSS PER SHARE - The loss per common share is based upon the weighted
average number of shares outstanding of 2,516,327, 2,516,327 and
2,487,464 for the years ended June 30, 1995, 1994 and 1993,
respectively. The weighted average number of shares outstanding
is based upon the revised number of shares after the 1 for 10 reverse
stock split which was effective July 6, 1992.
34
40
TAXES ON INCOME - Taxes on income are provided based upon Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future. Such deferred income tax
asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Income tax expense is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets and
liabilities. Prior to the year ended June 30, 1994, deferred taxes on
income were recognized for the tax effects of items which enter in the
determination of income for financial reporting purposes in different
periods than for tax purposes.
2. SALE OF SUBSIDIARY
On April 1, 1991, the Company sold a wholly-owned subsidiary, Network
Direct, Inc. (NDI) to its two former owners in exchange for 8,967,180
shares of AmeriShop Corp. common stock.
At the time of the sale of the subsidiary, the Company owed NDI
$550,000. Subsequent to the sale, the Company and NDI entered into an
agreement whereby the $550,000 was transferred to a non-refundable
membership advance. The membership advance is being amortized into
income on a straight-line basis over the five year service agreement
period. At June 30, 1995 and 1994, $110,000 and $220,000, respectively,
is included in deferred membership revenue on the balance sheets.
In a related transaction, the Company entered into a five-year
non-compete agreement with NDI which calls for the Company to receive
$250,000 and the right to be the sole service fulfillment company for
NDI in exchange for not competing in professional shopping network
programs which sell memberships for a price in excess of $150. The
$250,000 is being amortized into income on a straight-line basis over
the five-year period of the agreement. At June 30, 1995 and 1994,
$37,483 and $87,487, respectively, is included in deferred non-compete
agreement on the balance sheets.
The Company also entered into option agreements with the two former
owners to repurchase an additional 1,000,000 pre-reverse split shares of
AmeriShop Corp. common stock from each individual. The agreements were
amended in July 1992 to provide for a price of $.15 per share
(pre-reverse split price). Effective July 11, 1995, the options expired
unexercised.
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The Company is related to NDI by common ownership. The Company receives
enrollment and membership fees which are amortized into income over the
period of service. The following is a summary of these transactions
with NDI:
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1995 1994 1993
Cash receipts for membership and enrollment fees $ 635,000 $ 597,000 $ 553,000
Revenue recognized on membership and enrollment fees 721,400 448,000 540,000
On July 1, 1995, the Company amended its service agreement with NDI
through July 1, 1998. In exchange for $175,000 in cash, the Company
modified its existing agreement which was scheduled to run until April
1, 1996. Under the terms of the revised agreement, the service fees paid
by NDI for new memberships serviced by the Company were reduced by 15%
for the first 4,000 memberships per year and by 50% for any new
memberships in excess of 4,000 per year.
In accordance with this amendment, the Company also extended the term of
the non-compete agreement with NDI for a three-year period expiring on
July 1, 1998.
3. INCOME TAXES
For tax purposes, the Company has net operating loss carryforwards of
approximately $4,218,000 at June 30, 1995. The net operating loss
carryforwards will expire as follows:
Year Ending June 30,
2003 $ 98,000
2004 338,000
2005 167,000
2007 232,000
2008 1,365,000
2009 1,246,000
2010 772,000
The provisions of SFAS 109, effective July 1, 1993, were adopted
prospectively and accordingly, earnings for 1993 have not been restated.
The cumulative effect of adopting SFAS No. 109 was not material.
Deferred tax assets resulting from carryforwards are as follows at June
30, 1995:
DEFERRED
TAX
ASSETS
Net operating loss carryforwards $ 1,434,000
Valuation allowance (1,434,000)
-------------
Net deferred taxes $ 0
=============
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4. EQUIPMENT
Equipment consists of the following:
JUNE 30
1995 1994
Furniture, fixtures and equipment $ 267,570 $ 258,771
Equipment held under capital leases 249,227 273,920
----------- -----------
Total 516,797 532,691
Less accumulated depreciation and amortization 490,924 462,041
----------- -----------
Total $ 25,873 $ 70,650
=========== ===========
5. NOTE PAYABLE
Note payable represents borrowings from an investment fund partnership.
Effective September 30, 1994, the Company consolidated the four separate
notes payable to the partnership with an aggregate principal balance of
$1,235,000 plus accrued interest on the notes and the convertible
debenture (see Note 6) into a single demand note requiring monthly
interest payments of 12.5% per annum. The Company has defaulted on its
monthly interest installments on the note.
6. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30
1995 1994
Convertible debenture payable to an investment fund partnership in
quarterly installments of interest only at 12.5% per annum.
Commencing on August 1, 1995, monthly principal installments of
$10 per $1,000 of outstanding debenture amount are required. Full
payment of any unpaid principal and interest is due and payable no
later than July 1, 1999. The loan is secured by all the Company's
assets. $ 2,000,000 $ 2,000,000
Installment note payable to vendor. Due in monthly installments of
$1,112, including interest at 12% until December 31, 1996, at
which time the unpaid balance is due. The loan is secured by
all receivables. 18,239 28,704
Installment note payable to vendor. Due in monthly installments of
$2,441, including interest at 7% until July 15, 1994, at which time
the unpaid balance is due. The loan is unsecured. 11,995
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JUNE 30
1995 1994
Accrued rent $ 186,767 $ 206,728
Capital lease obligations (Note 7) 10,550 39,336
------------ ------------
Total 2,215,556 2,286,763
Current maturities of long-term debt 293,131 51,246
------------ ------------
Total $ 1,922,425 $ 2,235,517
============ ============
The convertible debenture loan requires the Company, among other things,
to maintain a ratio of current assets to current liabilities of not less
than 1.0 to 1.0 and to maintain a positive average monthly cash flow.
The Company was in violation of these covenants at June 30, 1995. In
addition, since May 1, 1994, the Company has failed to make certain
scheduled interest and principal payments as they became due. The
covenant violations and the default from nonpayment have been waived
through July 1, 1996.
The investment fund partnership has the right at any time to convert any
issued debenture into the common stock of the Company at $0.56309 per
share. The debenture can be redeemed by the Company at any time after
July 1995 at varying premium rates above par.
The Company is leasing its office space under a lease that requires
reduced rentals in the early years of the agreement. The total amount
due under the lease is being expensed ratably over the lease term. The
resulting accrued rent will be repaid beginning September 1994 (see Note
7).
The following is a schedule of estimated maturities of long-term debt:
Year Ending June 30,
1996 $ 293,131
1997 253,531
1998 178,507
1999 1,450,457
2000 14,302
Thereafter 25,628
-------------
Total $ 2,215,556
=============
7. LEASES
The Company leases a vehicle, office equipment, furniture and fixtures
and data processing equipment under capital leases. The assets and
liabilities under the capital leases are recorded at the lower of the present
value of the minimum lease payments at the inception of the lease or the fair
value of the assets. The assets are amortized over the shorter of their
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lease terms or their estimated useful lives. Amortization of assets
under capital leases of $19,851, $32,499, and $50,435 is included in
depreciation expense for 1995, 1994 and 1993, respectively.
The following is a summary of equipment held under capital leases:
JUNE 30
1995 1994
Vehicle $ 21,497 $ 21,497
Office furniture, fixtures and equipment 144,965 148,515
Data processing equipment 82,765 103,908
--------- ---------
Total 249,227 273,920
Accumulated amortization 243,739 248,580
--------- ---------
Net equipment held under capital leases $ 5,488 $ 25,340
========= =========
Minimum future lease payments under capital leases as of June 30, 1995
are as follows:
Year Ending June 30, 1996 $ 10,987
Amount representing interest 437
---------
Present value of net minimum lease payments $ 10,550
=========
Effective interest rates on capital leases range from 4.9% to 27.3%. The
Company also leases office space and equipment under operating leases.
Rent expense under these leases for the years ended June 30, 1995, 1994
and 1993 was $175,886, $185,223 and $195,938, respectively. The leases
have expiration dates through 2001. Future minimum rental obligations
at June 30, 1995 for all noncancellable operating leases are as follows:
Year Ending June 30,
1996 $ 246,436
1997 240,889
1998 185,670
1999 180,358
2000 185,926
Thereafter 223,744
-------------
Total $ 1,263,023
=============
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8. PREFERRED STOCK
The preferred stock may be issued by the Board of Directors in one or
more series. The Board shall determine the distinguishing features of
each, including preferences, rights and restrictions, upon the
establishment of such series.
9. STOCK OPTION PLAN
On October 1, 1992, the Company amended its Incentive Stock Option Plan
(the "Plan") under which options granted are intended to qualify as
"incentive stock options" under Section 422A of the Internal Revenue
Code of 1986 as amended. Pursuant to the Plan, options to purchase up
to 600,000 shares of the Company's common stock may be granted to
employees of the Company. The Plan is administered by the Company's
Board of Directors, which is empowered to determine the terms and
conditions of each option, subject to the limitation that the exercise
price cannot be less than the market value of the common stock on the
date of the grant and no option can have a term in excess of 10 years.
Options to purchase 492,800 shares have been issued under the Plan as of
June 30, 1995. Options totaling 81,500, 29,800, 181,500 and 200,000
shares may be exercised at $.30, $.75, $1.00 and $1.10 per share,
respectively. No options have been exercised as of the date of this
report.
10. RELATED PARTY TRANSACTIONS
On June 18, 1992, the Board of Directors approved the sale of 1,500,000
pre-split shares of treasury stock to certain officers of the Company at
a price of $.02 per share. On August 1, 1992, 97,500 post-split shares
were purchased. An additional 25,000 post-split shares were paid as a
finders fee related to the debenture financing. The remaining 127,500
post-split shares were cancelled and retired.
11. MANAGEMENT'S PLANS REGARDING FUTURE OPERATIONS AND GOING CONCERN
For the year ended June 30, 1995, the Company experienced a loss of
$698,285 compared to a loss of $993,047 in the prior year. Loss from
operations (exclusive of other income, interest income and interest
expense) was $269,661 and $700,273 for 1995 and 1994, respectively; an
improvement of 61%. The improved operating results were primarily due
to increased gross profit from merchandise and promotional programs and
an increase in membership fee revenues.
The Company has a working capital deficit of approximately $2,871,000 at
June 30, 1995. Included in this deficit is $559,193 of deferred
membership and non-compete revenue. The deferred revenue will be
liquidated through amortization into income over the next 12 months and
therefore will not require the use of cash resources.
The Company has shown a cash shortfall from operations of approximately
$572,000 for fiscal year 1995. In response to the continued losses from
operations and negative cash flows, management has reduced fiscal year
1996 budgeted operating expenses by approximately 20% from 1995,
primarily through staff reductions made in May 1995.
To address short-term liquidity needs, the Company modified its existing
service agreement with NDI in exchange for $175,000 in cash (see Note 2).
In addition, the Company received $125,000 from an investment fund
partnership in August 1995 and anticipates the receipt of an additional
$75,000 in September 1995 in return for the issuance of term notes
payable due March 31, 1996.
Management anticipates continuing increases in its premium incentive
merchandise sales along with improved gross profits. Management believes
that these increases, combined with the expense reductions should provide
for substantially improved operating results in the coming fiscal
year.
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At the present time, the Company's office space, telephone system and
computer system capabilities are underutilized. Management anticipates
that a substantial number of new members and merchandise incentive
programs can be added without significant capital expenditures. By
adding new memberships and merchandise incentive programs, management
believes there will be an improvement in operating results by more fully
utilizing the Company's facilities.
12. RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform to the classifications used in 1995.
*****
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERISHOP CORP.
By: /s/ Joseph B. Preston
--------------------------------------
Joseph B. Preston, Chairman, President
and Chief Executive Officer
By: /s/ Steven Salasky
--------------------------------------
Steven Salasky, Secretary, Treasurer
and Principal Accounting Officer
Dated: September 28, 1995
---------------------
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
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
By: Joseph B. Preston September 28, 1995
-------------------------------------------- ------------------
Joseph B. Preston, Director
By: James W. Kenney September 28, 1995
-------------------------------------------- ------------------
James W. Kenney, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO 15(d)
OF THE ACT BY REGISTRANT WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT:
No annual report or proxy material has been sent to security holders.
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EXHIBIT INDEX
EXHIBIT INCORPORATED BY
NO. DESCRIPTION REFERENCE TO
- ------- ----------- ---------------
10.5(c) Amendment dated July 1, 1995 to
Fulfillment Service Agreement with NDI
dated April 1, 1991 with amendment dated
July 1, 1991
10.8 Renaissance Capital Partners II, Ltd.,
Promissory Notes dated September 30, 1994
($1,428,448.38) and August 30, 1995
($125,000)
10.9 Settlement, Release and Option Agreement
dated December 14, 1994 with W. Stephen
Hamlin
11 Statement re Computation of loss per share
27 Financial Data Schedule