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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarter ended December 31, 1995 Commission File Number 33-8333-D
AMERISHOP 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.)
Centennial Office Park
Suite 308
3033 Orchard Vista Drive SE
Grand Rapids, MI 49546-7080
(Address of principal executive offices) (Zip Code)
(616) 949-0775
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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As of December 31, 1995, 2,894,765 shares of common stock were outstanding.
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AMERISHOP CORP.
FORM 10-Q
INDEX
Descriptions Page Number
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Cover Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information
1. Financial Statements (Unaudited)
Balance Sheets
December 31, 1995 and June 30, 1995 . . . . . . . . . . . . . 3
Statements of Operations
Three Months Ended December 31, 1995 and 1994 . . . . . . . . 4
Statements of Operations
Six Months Ended December 31, 1995 and 1994. . . . . . . . . . 5
Statement of Cash Flows
Six Months Ended December 31, 1995 and 1994. . . . . . . . . . 6
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . 7
2. Management's Discussion and Analysis of Results
of Operations and Financial Conditions . . . . . . . . . . . . 8 - 9
Part II.
1. Other Information. . . . . . . . . . . . . . . . . . . . . . . 10
2. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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1. FINANCIAL INFORMATION
AMERISHOP CORP.
BALANCE SHEETS (UNAUDITED)
December 31, June 30,
1995 1995
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ASSETS
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CURRENT ASSETS:
Cash $ 164,164 $ 47,210
Prepaid expenses 212,418 7,068
Accounts receivable (Note 3) 515,394 427,700
Prepayments to vendors 137,473 65,204
Inventory 90,423 76,392
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Total current assets 1,119,872 623,574
EQUIPMENT, net 16,770 25,873
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Total assets $ 1,136,642 $ 649,447
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 431,389 $ 493,188
Customer deposits 779,226 379,780
Deferred membership revenue 522,537 521,710
Deferred non-compete revenue 12,481 37,483
Notes payable (Note 3) 1,628,445 1,428,445
Accrued interest 578,156 328,882
Current maturities of long-term debt 322,810 293,131
Other current liabilities 27,820 79,728
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Total current liabilities 4,302,864 3,562,347
LONG-TERM DEBT 1,689,740 1,922,425
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value per share,
1,000,000 shares authorized and no shares issued.
Common stock, $.00001 par value per share, 20,000,000
shares authorized, 2,894,765 and 2,516,327 shares
respectively outstanding at December 31, 1995 and
June 30, 1995 29 25
Additional paid-in capital 697,820 484,729
Accumulated deficit (5,553,811) (5,320,079)
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Total shareholders' equity/(deficit) (4,855,962) (4,835,325)
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Total liabilities and shareholders' equity $ 1,136,642 $ 649,447
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The accompanying notes are an integral part of these financial statements.
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AMERISHOP CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
December 31,
1995 1994
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REVENUES:
Membership fees $ 288,587 $ 249,529
Merchandise sales 1,147,071 1,028,061
Travel revenue 0 158,898
Promotional revenue 66,473 98,375
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Total revenues 1,502,131 1,534,863
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EXPENSES:
Sales commissions 121,712 65,022
Cost of merchandise sales 865,366 804,804
Cost of travel revenue 0 143,603
Selling, general and administrative 389,361 449,095
Promotional expenses 62,789 44,548
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Total expenses 1,439,228 1,507,072
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Income from operations 62,903 27,791
OTHER INCOME (EXPENSE):
Interest income 891 1,863
Other income 470 2,149
Loss on lease renegotiation (17,624) 0
Interest expense (130,191) (110,696)
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Total other income (expense) (146,454) (106,684)
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Net loss $ (83,551) $ (78,893)
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Net Loss Per Share (Note 4) $ (.03) $ (.03)
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Weighted Average Shares Outstanding 2,894,765 2,516,327
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The accompanying notes are an integral part of these financial statements.
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AMERISHOP CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended
December 31,
1995 1994
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REVENUES:
Membership fees $ 577,323 $ 467,024
Merchandise sales 1,874,500 1,709,342
Promotional revenue 79,587 133,361
Travel revenue 0 158,898
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Total revenues 2,531,410 2,468,625
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EXPENSES:
Sales commissions 206,781 108,728
Cost of merchandise sales 1,422,000 1,362,688
Cost of travel revenue 0 143,603
Selling, general and administrative 805,439 890,456
Promotional expenses 65,345 61,623
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Total expenses 2,499,565 2,567,098
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Income/(Loss) from operations 31,845 (98,473)
OTHER INCOME (EXPENSE):
Interest income 1,831 3,478
Other income 1,245 2,913
Loss on lease renegotiation (17,624) 0
Interest expense (251,029) (213,264)
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Total other income (expense) (265,577) (206,873)
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Net loss $ (233,732) $ (305,346)
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Net Loss Per Share (Note 4) $ (.08) $ (.12)
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Weighted Average Shares Outstanding 2,894,765 2,516,327
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The accompanying notes are an integral part of these financial statements.
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AMERISHOP CORP.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended December 31, 1995 and 1994
1995 1994
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (233,732) $ (305,346)
Adjustments to reconcile net loss
to net cash from operating activities:
Loss on lease renegotiation 17,624
Depreciation and amortization 9,103 32,500
Changes in assets and liabilities:
Prepaid expenses (205,350) (6,259)
Accounts receivable (87,694) (38,751)
Prepayments to vendors (72,269) (12,616)
Inventory (14,031) (7,078)
Accounts payable (61,799) (156,681)
Customer deposits 399,446 266,590
Deferred membership revenue 827 (149,655)
Deferred non-compete revenue (25,002) (25,002)
Accrued interest 249,274 209,064
Other current liabilities (51,908) (67,172)
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Net cash used in operating activities (75,511) (260,406)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on long-term note 0 0
Capital expenditures 0 (5,836)
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Net cash used in investing activities 0 (5,836)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term
debt and capital lease obligations (7,535) (46,704)
Proceeds from issuance of notes payable 200,000 300,000
Proceeds from issuance of long-term debt 0 0
Proceeds from issuance of stock 0 0
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Net cash provided by financing activities 192,465 253,296
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NET CHANGE IN CASH 116,954 (12,946)
CASH AT BEGINNING OF PERIOD 47,210 206,958
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CASH AT END OF PERIOD $ 164,164 $ 194,012
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SUPPLEMENTAL SCHEDULE OF NON CASH
INVESTING AND FINANCING ACTIVITIES
The Company was released of $195,471 in accrued rent obligations when it
entered into a new lease, for which it issued $213,095 in stock.
The accompanying notes are an integral part of these financial statements.
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AMERISHOP CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
normally included in the annual financial statements prepared in accordance
with generally accepted accounting principles. In the opinion of management,
all material adjustments (of a normal recurring nature) considered necessary
for a fair presentation have been included. Operating results for the six
months ended December 31, 1995 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1996. For further
information, refer to the financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended June 30, 1995.
The balance sheet at June 30, 1995 has been derived from the audited financial
statements at that date.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - AmeriShop Corp., formerly AmeriMark Corporation, was
incorporated under the laws of the State of Delaware on August 1, 1986.
Revenue Recognition: Membership fees and annual renewal fees allow members to
use services provided by the Company. Annual renewal fees are recorded as
deferred revenue when received and recognized as income on the straight-line
basis over the renewal period.
Merchandise sales are recorded when the customer is shipped the merchandise.
Travel revenue is recognized when the client has completed its trip.
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 straight-line and accelerated methods for both financial reporting and
income tax purposes over the estimated useful lives of 3 to 7 years.
Industry Segment - The Company operates as a provider of consumer merchandise
and other services. It services customers through consumer benefit programs as
well as premium incentive programs.
NOTE 3 - NOTES PAYABLE
Demand notes payable totaling $1,428,445 at December 31, 1995 and June 30,
1995, were due no later than July 1, 1995. The notes are collateralized by the
Company's accounts receivable. Demand notes payable totaling $200,000 at
December 31, 1995 are due March 31, 1996. Interest is payable at 12.5% per
annum.
The Company has $2,000,000 of convertible debentures payable to an investment
fund partnership payable in quarterly installments of interest only at 12.5%
per annum. Commencing on August 1, 1995, monthly principal installments of $10
per $1,000 borrowed are required. As of December 31, 1995, $314,114 is
considered short-term.
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The Company is in default of its financial loan covenants on the debentures.
It is also in default of its monthly interest and principle installments on the
debentures and the notes payable. The default concerning covenant violations
and scheduled debt payments related to debentures has been waived through July
1, 1996.
NOTE 4 - LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during the periods presented. Common stock equivalents in the form
of convertible debentures were not included in the calculation of weighted
average shares outstanding since inclusion would be anti-dilutive.
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AMERISHOP CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has a working capital deficit of approximately $3,183,000 at
December 31, 1995. Included in this deficit is approximately $535,000 of
deferred membership revenue and non-compete revenue. The deferred revenue and
non-compete revenue will be liquidated through amortization into income over
the next two years. Management is in the process of seeking additional equity
financing to offset the remaining $2,648,000 deficit and to provide sufficient
working capital to increase the Company's sales effort.
The Company has a deficiency in shareholders' equity and its continuation is
dependent upon meeting its liabilities as they become due and attaining
profitable operations.
At the present time, the Company's office space, telephone system and computer
system capabilities are underutilized. Management believes that a substantial
number of new members and merchandise incentive programs can be added without
significant capital expenditures. By adding new membership and merchandise
incentive programs, Management anticipates there will be an improvement in
operating results by more fully utilizing the Company's facilities.
The Company entered into an arrangement with an investment fund partnership
that has provided $2.0 million in long-term convertible debenture financing.
The investment fund partnership has the right at any time to convert any issued
debenture into the common stock of the Company at $.56309 per share. The
debenture is currently redeemable, at varying premium rates above par, of which
none have been redeemed as of December 31, 1995.
The Company also has a total of $1,628,445 of short-term demand note financing
outstanding at December 31, 1995 from the investment fund partnership. The
$1,428,445 of the notes are tied to the Company's accounts receivable and
repayment is current as of July 1, 1995. The remaining $200,000 must be repaid
by no later than March 31, 1996.
The Company is in default of its loan covenants on the convertible debentures
regarding current ratio and positive cash flow from operations. It is also in
default of its monthly interest installments since May 1, 1994 on the
debentures and the demand notes. The covenants and rights to remedies for
nonpayment have been waived through July 1, 1996. If at that date, a default
is declared, the Company would not be able to continue to operate unless
adequate equity capital was received.
Management implemented budgetary reduction measures in June, 1995 with the
intent of reducing selling, general and administrative (SG&A) expenses. For
the six months ended December 31, 1995, these reductions resulted in a decrease
of SG&A expenses by 10% from the same period of the prior year. Management
anticipates similar savings throughout the remainder of the fiscal year.
The Company has made significant strides toward improving its results of
operations through the elimination of unprofitable programs and through the
SG&A expense reductions. The Company did improve income (loss) from operations
by nearly $130,318 for the six months ending December 31, 1995 compared to the
same period of the prior year. However, interest expense on the convertible
debentures and short-term demand notes continues to increase and more than
offsets the operational gains. In response to this, Management has been
seeking ways to obtain new equity financing to allow for the repayment of the
short-term demand notes and for the redemption or conversion of the convertible
debentures.
The Company incurred approximately $251,029 in interest expense during the six
months ended December 31, 1995. This interest results primarily from the $2
million in convertible debentures and $1,628,445 in notes payable which are
held by an investment fund partnership. It is Management's intent to eliminate
a significant portion of this debt and related interest in 1996. This would be
possible through conversion of the debentures into common stock or by repayment
of the debt at the debenture holder's
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option. In order to repay the debt, the Company would first have to raise the
funds through an equity offering, either publicly or privately.
MANAGEMENT'S DISCUSSIOON AND ANALYSIS (CONTINUED)
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 VS. 1994
The Company experienced a loss of $233,732 during the six months ended December
31, 1995 compared to a loss of $305,346 for the same period in the prior year
constituting a 24% improvement. The loss from operations improved by 132% over
the prior year from $98,473 to income of $31,845. The Company is making
significant progress in improving its results from operations, however, its
costs of financing continue to increase substantially.
Membership fees increased by nearly 24% from the prior year. Membership fee
revenue is generated primarily through servicing of private label shopping
programs for third party organizations therefore, has been dependent upon the
efforts of other organizations. The Company continues to contract for private
label shopping programs and search for strategic alliances with greater
marketing capabilities, which would help reduce the necessary outlay of
capital.
Merchandise sales increased by 10% from 1,709,000 the prior year to 1,875,000
the current year. Gross profit remains approximately the same at 13%. This
percentage is a combination of membership programs merchandise gross profit
sold at approximately breakeven and premium incentive merchandise gross profit,
which was approximately 15% for the six months ended December 31, 1995.
Commissions expense increased from $108,728 in the prior year to $206,781. The
increase resulted from greater sales derived from independent sales agents.
Commission rates to independent agents range from 5% to 25% of sales.
Merchandise sales to premium incentive customers increased 40% over the prior
year to $1,178,000. The Company's sales efforts have been focused toward the
premium incentive sales, and Management anticipates continued improvement in
this area.
Selling, general and administrative expenses decreased by 10% as a result of
budget reductions implemented in the fourth quarter of the prior year.
Interest expense increased by 18% over the prior period to $251,029. The
increase resulted from the addition of approximately $1,436,000 in short-term
loans, which were received in various amounts beginning in October, 1993.
RESULTS OF OPERATION FOR THE QUARTER ENDED DECEMBER 31, 1995 VS. 1994
On an operational basis the Company experienced an improvement of approximately
$35,000 over the same period of the prior year. The improved results were due
to $39,000 increase in membership fee revenue, and $60,000 decrease in selling
general and administrative expenses. These gains were offset by a $54,000
decrease in net promotional income and a $15,000 decrease in travel net income.
The travel program will occur in January of the next quarter.
Overall, the Company experienced an increased loss of $4,500 to $83,500 from
$79,000 for the same period of the prior year. Interest expense increased 18%
over the prior period to $130,191 and the lease was restructured resulting in a
net expense of $17,600.
The prior lease had six years remaining and a graduated rent expense, which
when straight lined, resulted in an accrued rent expense of $195,471 at October
1, 1995. Over the next 3 years the rent expense varied from $27.54/sq. ft. to
$19.13/sq. ft. on 9200 sq. ft. of rental space. The new lease retains the six
year lease term, but over the next 3 years the rent expense is stabilized at
$16.25/sq. ft. on a reduced rental space of 7588 sq. ft. The remaining 3 years
of the lease are at the original lease terms. On a cash basis this saves the
Company $384,000 over the next six years. For this restructuring, the Company
issued 378,438 shares of common stock at a conversion price of .56309 which
amounts to $213,095.
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PART II.
AMERISHOP CORP.
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
The Company is in default of certain covenants and interest payments on its $2
million of convertible debentures. The covenants dictate that the Company
maintain a current ratio of 1 to 1 and maintain positive cash flow from
operations over a three month moving average. The Company has not met these
requirements.
Since May 1, 1994, the Company is also in default regarding the payment of
interest and fees relating to the debentures and to the $1,428,445 of
short-term demand notes due to the same debenture holder.
The covenants and rights to remedies for non-payment of interest and fees have
been waived through July 1, 1996.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERISHOP CORP.
/s/ JOSEPH B. PRESTON
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Joseph B. Preston, Chairman/CEO
/s/ STEVEN R. SALASKY
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Steven R. Salasky, Controller
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EXHIBIT INDEX
Exhibit
No. Description Page
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27 Financial Data Schedule