<PAGE>1
___________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 1998 0-25596
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
--------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5388 Hickory Hollow Parkway
P. O. Box 305249
Nashville, Tennessee 37230-5249
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 263-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock $.0025 par value 23,249,417
(Title of class) (Shares outstanding at
September 24, 1998)
<PAGE>2
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three Months Ended September 30, 1998 and 1997
--------------------------------------------------------------------------
Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2 - Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 10-15
Part II OTHER INFORMATION 16
Item 1 - Legal Proceedings
Item 2 - Changes in Securities
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (For SEC use only)
<PAGE>3
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
September 30, June 30,
1998 1998
----------------- -----------------
<S> <C> <C>
(Unaudited)
ASSETS
Cash and cash equivalents $ 12,998 $ 21,224
Accounts receivable 4,257 3,830
Inventories 4,638 4,332
Prepaid expenses 716 404
Deferred tax assets 990 990
----------------- -----------------
Total current assets 23,599 30,780
Notes receivable-related party, net of discount of $126 667 660
Property & equipment, net 25,348 20,557
FCC and NFL licenses, net 84,179 84,831
Goodwill, net 2,491 2,532
Other assets 4,677 4,410
----------------- -----------------
Total assets $ 140,961 $ 143,770
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 16,658 $ 18,784
Current portion - capital leases and long-term debt - 161
Deferred revenue 515 267
----------------- -----------------
Total current liabilities 17,173 19,212
Long-term debt 75,000 75,254
Deferred income taxes 3,404 3,551
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
137,943 shares issued and outstanding at
September 30, 1998 and June 30, 1998 1,393 1,393
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized, 23,249,417 and
23,313,191 shares issued at
September 30, 1998 and June 30, 1998, respectively 58 58
Additional paid in capital 48,720 48,848
Accumulated deficit (4,787) (4,546)
----------------- -----------------
Total liabilities and stockholders' equity $ 140,961 $ 143,770
================= =================
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>4
<TABLE>
<CAPTION>
SHOP AT HOME, INC
. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Thousands of Dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30,
----------------------------------
1998 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
Net sales $ 33,818 $ 21,229
Cost of sales 19,921 12,348
---------------- ---------------
Gross profit 13,897 8,881
---------------- ---------------
Operating expenses
Salaries and wages 2,631 1,617
Transponder and cable charges 5,882 3,854
Other general and
administrative expenses 2,818 2,369
Depreciation and amortization 1,034 386
Non-recurring and
move-related expenses 254 -
---------------- ---------------
Total operating expenses 12,619 8,226
---------------- ---------------
Operating income 1,278 655
Other income 339 105
Interest expense (2,001) (284)
---------------- ---------------
Income (loss) before income taxes (384) 476
Income tax expense (benefit) (146) 109
---------------- ---------------
Net income (loss) $ (238) $ 367
================ ===============
Basic Earnings (Loss) Per Share $ (0.01) $ 0.03
================ ===============
Diluted Earnings (Loss) Per Share $ (0.01) $ 0.02
================ ===============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>5
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1998 and 1997
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
(Unaudited) (Unaudited)
------------------ ------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (238) $ 367
Gain on sale of asset
Non-cash items included in net income (loss):
Depreciation and amortization 1,034 386
Deferred income taxes (148) 108
Deferred interest expense (7) -
Provision for bad debts - 210
Changes in current and non-current items:
Accounts receivable (433) (601)
Inventories (305) 196
Prepaid expenses and other assets (579) (436)
Accounts payable and accrued expenses (2,128) (2,209)
Deferred revenue 248 15
------------------
------------------
Net cash (used in) operations (2,556) (1,964)
------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Goodwill - (51)
Note receivable-related party - (300)
Purchase of property, plant and equipment (5,086) (202)
Other assets - (1,021)
Net cash used in investing activities
------------------ ------------------
(5,086) (1,574)
------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants - 360
Retirement of common stock (169) -
Repayments of debt - (639)
Capital lease payments (415) -
------------------ ------------------
Net cash used in financing activities (584) (279)
------------------ ------------------
NET DECREASE IN CASH (8,226) (3,817)
Cash beginning of period 21,224 5,078
------------------ ------------------
Cash end of period $ 12,998 $ 1,261
================== ==================
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>6
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
Three Months Ended September 30, 1998 and 1997
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
-------------------------- --------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Stock issued for loan guarantee
of accounts payable $ 40 $ -
========================== ==========================
Assets acquired through capital lease $ - $ 149
========================== ==========================
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>7
SHOP AT HOME, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1998 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
All dollar values in tables and the financial statements have been expressed in
(000s) except for per share data. The financial information included herein is
unaudited: however, such information reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of financial condition and results of
operations of the interim periods. The condensed consolidated balance sheet data
for the fiscal year ended June 30, 1998 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
The accounting policies followed by the Company are set forth in the Company's
financial statements in the Shop At Home, Inc. and Subsidiaries Annual Report on
Form 10-K/A for the fiscal year ended June 30, 1998.
Certain amounts in the prior periods' condensed consolidated financial
statements have been reclassified for comparative purposes to conform to the
current year presentation.
NOTE 2 - INVENTORY
The components of inventory at September 30, 1998 and June 30, 1998 are as
follows:
September 30, 1998 June 30, 1998
-------------------- -------------------
(Thousands of Dollars)
Work in process $ 112 $ 152
Finished goods 4,575 4,201
-------------------- -------------------
4,687 4,353
Allowance (49) (21)
-------------------- -------------------
Total $ 4,638 $ 4,332
==================== ===================
NOTE 3 - STOCK TRANSACTION
The Company's Board of Directors authorized management to repurchase in the open
market, at its discretion, up to 2 million shares of the Company's common stock.
Shares purchased under this program will be retired in accordance with the terms
of the Indenture. By the end of September 1998, the Company had repurchased a
total of 75,000 shares at a cost of $169.
<PAGE>8
NOTE 4 - NET INCOME/(LOSS) PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted earnings per share
is computed by dividing the net income by the weighted average number of shares
of common stock and assumed conversions of dilutive securities and potential
common shares outstanding during the respective periods. Dilutive securities are
represented by options, warrants, redeemable preferred stock and convertible
debt outstanding and are included in the computation only for periods in which
net income was generated.
The following table sets forth for the periods indicated the calculation of net
earnings per share:
Three Months Ended
September 30,
1998 1997
--------------- --------------
Numerator:
Net income (loss) $ (238) $ 367
Preferred stock dividends (3) (3)
--------------- --------------
Numerator for basic earnings per share-
income (loss) available to
common stockholders (241) 364
Effect of dilutive securities:
Preferred stock dividends 3 3
Interest on convertible debt - (48)
-------------- ---------------
Numerator for diluted earnings per share-
income (loss) available to common
stockholders after assumed
conversions $ (238) $ 319
=============== ===============
Denominator:
Denominator for basic earnings per share-
weighted-average sha 23,297,515 10,925,718
--------------- ---------------
Effect of dilutive securities:
Employee stock options and warrants - 2,754,731
Convertible preferred stock - 137,943
Convertible debt - 475,026
--------------- ---------------
Dilutive potential common shares - 3,367,700
--------------- ---------------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 23,297,515 14,293,418
=============== ===============
Basic earnings per share $ (0.01) $ 0.03
=============== ===============
Diluted earnings per share $ (0.01) $ 0.02
=============== ===============
<PAGE>9
NOTE 5- MANAGEMENT STOCK OPTIONS OUTSTANDING
At September 30, 1998, options to purchase up to 1,898,000 shares of common
stock, including 75,000 shares issued to outside directors, at prices ranging
from $1.00 to $3.75 per share were outstanding to employees and members of
management. Options vest annually over a period of up to five years. The options
expire the earlier of 5 years from date of vesting or 30 days after termination
of employment.
<PAGE>10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the financial condition and results of
operations of the Company is qualified in its entirety by the more detailed
information and financial data, including the Consolidated Financial Statements
and Notes thereto included elsewhere herein.
GENERAL
The Company, founded in 1986, is a nationally televised home shopping
retailer offering high-quality merchandise, at prices below those generally
available from traditional retailers and catalogs, as well as unique merchandise
and memorabilia that may be unavailable or have limited availability elsewhere.
The Company derives revenues primarily from the sale of merchandise marketed
through its home shopping programming carried by television stations owned by
the Company, by television stations with whom the Company has entered into
agreements to purchase broadcast time, by the carriage of those television
broadcasts on cable television systems under the "must-carry" or retransmission
consent provisions of federal law, by the direct carriage on cable television
systems under agreements with cable system operators and by the direct reception
of the Company satellite transmission by individuals who own satellite downlink
equipment. Beginning in 1997, another source of revenues has been the Company's
wholly-owned subsidiary, Collector's Edge of Tennessee, Inc., ("Collector's
Edge"). Collector's Edge is engaged in the business of wholesale sales of sports
trading cards under license with National Football League Properties, Inc., and
National Football Players, Incorporated. Collector's Edge was organized in
February, 1997 and acquired the assets of an existing company that had been
engaged in the same business for approximately four years. The Company also
receives some revenues from the sale of broadcast time on its owned television
stations for the broadcast of infomercials.
As of September 30, 1998, the Company's programming was viewable during
all or a part of each day by approximately 65 million cable households, of which
approximately 6.1 million cable households receive the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 58.9
million cable households receive it on a part-time basis. In order to measure
its performance in a manner that reflects both the growth of the Company and the
nature of its access to part-time cable households, the Company uses a cable
household full-time equivalent method to measure the reach of the Company's
programming which accounts for both the quantity and quality of time available
to the Company. To derive this full-time equivalent cable household base ("FTE
Cable Household"), the Company has developed a methodology to assign a relative
value of each daypart to the Company's overall sales, which is based on sales in
markets where the programming is carried on a full-time basis. While the
weighting of each daypart has a subjective element, the Company believes that
changes in the number of FTE Cable Households provide a measure of the growth of
the Company and applies this methodology to all affiliates. Accordingly, the
Company uses the revenue per average FTE Cable Household as a measure of pricing
new affiliate contracts and estimating their anticipated revenue performance.
The Company owns and operates five UHF television stations located in
the San Francisco, Boston, Houston, Cleveland and Raleigh markets, four of which
are among the top 13 television markets in the United States.
Principal elements in the Company's cost structure are (i) cost of
goods sold, (ii) transponder and cable costs, and (iii) salaries and wages. The
Company's cost of goods sold is a direct result of both the product mix and the
Company's ability to negotiate more favorable prices from its vendors.
Transponder and cable costs include expenses related to carriage under
affiliation and transponder agreements. Carriage costs have increased on an
absolute basis in recent years. The Company's increased carriage costs are
primarily attributable to the initiation of the Company's programming in new
markets. FTE Cable Households have grown from 9.1 million at September 30, 1997,
to 15.2 million at September 30, 1998. The Company expects this trend will
continue as the Company enters new markets and expands the number of hours in
its part-time markets.
<PAGE>11
OVERVIEW OF RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain items included in the Company's Condensed
Consolidated Statements of Operations:
Three Months Ended September 30,
1998 1997
---------------------- --------------------
Net sales 100.0% 100.0%
Cost of sales 58.9 58.2
Gross profit 41.1 41.8
Salaries & wages 7.8 7.6
Transponder & cable 17.4 18.2
Other general operating and
administrative expense 8.3 11.2
Depreciation & amortization 3.0 1.8
Non-recurring and move-related
expenses 0.8 -
Total operating expenses 37.3 38.8
Other income 1.0 0.5
Interest expense (5.9) (1.3)
Net income (loss) before income
taxes (1.1) 2.2
Income tax expense (benefit) (0.4) 0.5
Net income (loss) (0.7) 1.7
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES. The Company's revenues for the quarter ended September 30,
1998, were $33.8 million, an increase of 59.3% from revenues of $21.2 million
for the same quarter in 1997. The core business of the shopping network
accounted for 94.2% of revenues on an average of 15.2 million FTE Cable
Households in the quarter ended September 30, 1998 compared to an average of 8.7
million FTE Cable Households in the 1997 quarter, representing a 73.6% increase
in FTEs. The remaining 5.8% of the 1998 increase in revenues resulted from
approximately $1.9 million in sales from Collector's Edge, as compared to $1.4
million in sales for the same quarter in 1997.
<PAGE>12
Also included in net sales was infomercial income, generated by the Company's
television stations in Boston and Houston of $304 compared to $271 in the
comparable 1997 quarter representing a 12.2% increase.
GROSS PROFITS. The gross profit margin for the quarter ended September
30, 1998 decreased to 41.1% from 41.8% in the comparable quarter of the prior
year. The decrease is primarily attributable to smaller profit margins generated
in sports and electronics product categories in 1998.
SALARIES AND WAGES. Salaries and wages for the quarter ended September
30, 1998, were $2.6 million, an increase of 62.7% compared to the comparable
1997 quarter. Salaries and wages as a percent of sales, however, increased
slightly to 7.8% from 7.6%. This increase is attributable to the Company's
investment in management and operating personnel to continue to build an
infrastructure to support growth and expansion.
TRANSPONDER AND CABLE. Transponder and cable costs for the quarter
ended September 30, 1998 were $5.9 million, an increase of $2 million or 52.6%
compared to the comparable 1997 quarter. During the same period full-time
equivalent households grew 73.6%. Carriage costs decreased as a percentage of
sales from 18.2% to 17.4%. This reflects management's efforts to reduce carriage
costs by either dropping or renegotiating contracts where carriage costs exceed
targets. Carriage costs as a percentage of sales initially tend to be higher in
periods during which the Company enters a new market. Due to the fixed nature of
this expense, however, the ratio of expense to sales usually decreases as the
viewing audience grows and related sales increase. As a market matures, if
carriage costs do not migrate down toward the target, management attempts to
renegotiate the carriage contract and may exit a market if acceptable margins
cannot be obtained..
OTHER GENERAL OPERATING AND ADMINISTRATIVE EXPENSES. Other general,
operating and administrative expenses for the quarter ended September 30, 1998
were $2.8 million, an increase of $449 or 19.0% compared to the comparable 1997
quarter. This increase is primarily attributable to an increase in credit card
fees and telephone costs related to the increase in sales, and to increases in
utilities, rent and payroll taxes. With the sales increase of over 59%, this
expense category, which is largely comprised of fixed expenses, decreased as a
percentage of sales from 11.2% in 1997 to 8.3% in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
quarter ended September 30, 1998 were $1 million, an increase of $648 or 167.9%
compared to the comparable 1997 quarter and $486 of this increase is associated
with the additional amortization of license costs of the three television
stations acquired in March 1998, and additional depreciation of the Company's
new facility in Nashville.
NON-RECURRING AND MOVE-RELATED EXPENSES. Non-recurring and move-related
expenses were $254 in the quarter ended September 30, 1998. These expenses
primarily relate to staffing, recruiting and training associated with the
Company's relocation to Nashville and one-time legal fees to establish "must
carry" in the newly-acquired markets of San Francisco, Cleveland and
Raleigh/Durham.
INTEREST. Interest expense for the quarter ended September 30, 1998 was
$2 million, an increase of $1.7 million or 604.6% compared to the comparable
1997 quarter. This increase reflects the impact of the issuance of $75 million
11% Senior Secured Notes due 2005, which the Company successfully issued on
March 27, 1998.
<PAGE>13
OTHER INCOME. Other income increased to $339 for the quarter ended
September 30, 1998, from $105 for the same period in 1997, representing a 223%
increase. This was primarily due to interest income on the investment of cash
balances.
INCOME TAX BENEFIT. The income tax benefit for the quarter ended
September 30, 1998, was $146, compared to income tax expense of $108 in the
comparable 1997 quarter. For the quarter ended September 30, 1998, income tax
benefit represents an effective tax rate of 38%.
NET INCOME (LOSS). As a result of the above revenues and expenses, the
Company generated a net loss of $238 for the quarter ended September 30, 1998,
compared to net income of $367 for the comparable 1997 quarter, a decrease of
164.9%.
EBITDA. In the quarter ended September 30, 1998, EBITDA increased
131.3% to $2.7 million from $1.1 million in the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical capital sources have included an initial
public offering of Common Stock, proceeds from the private and public placement
of Common Stock, proceeds from the exercise of warrants, bank lines of credit,
public placement of debt, funds from operations and long-term debt incurred in
connection with acquisitions.
As of September 30, 1998, the Company had total current assets of $23.6
million and total current liabilities of $17.2 million for working capital of
$6.4 million. The Company's positive working capital position is primarily
attributable to the infusion of excess cash from the public offering closed in
March 1998, which will continue to be used to fund capital expenditures and
general working capital requirements.
During the quarter ended September 1998, the Company used approximately
$2.1 million to reduce payables and added approximately $.6 million in prepaid
items relating to future sports promotions. In addition, the Company incurred
capital expenditures of approximately $5.1 million which included upgrades to
the equipment at the San Francisco and Raleigh stations to increase the power
and quality of these broadcast signals; acquisition, renovation and equipping of
its new Nashville facilities; and normal recurring capital expenditures. These
capital expenditures were funded from the proceeds of the public stock and
public notes offerings.
The Company acquired three broadcast television stations: KCNS located
in San Francisco, California, WRAY located in the Raleigh-Durham, North Carolina
market, and WOAC in the Cleveland, Ohio market, in March 1998 (the
"Acquisition"). The Company expects that the notes offering and the Acquisition
and the resulting discontinuation of existing time brokerage agreements with
KCNS, WRAY and WOAC has and will continue to impact the results of operations as
follows: (i) costs of carriage will decrease due to the termination of the time
brokerage agreements, (ii) costs related to station operations will increase,
(iii) depreciation and amortization will significantly increase as a result of
the Acquisition, (iv) interest expense will increase as a result of the notes
offering, (v) infomercial income may increase, and (vi) net revenues will
increase as a result of additional households resulting from the newly acquired
stations. Notwithstanding the increase in interest expense resulting from the
notes offering, the Company believes that funds necessary to meet the Company's
capital requirements for the foreseeable future will be available from the
proceeds of the stock and notes offering, funds from operations (after giving
effect of the items listed in (i) through (vi) above) and additional financing,
if necessary or desirable. The Indenture associated with the notes offering will
permit the Company, subject to satisfaction of certain conditions, to incur
indebtedness which may be used for future capital needs of the Company,
including the acquisition of additional broadcast properties subject to
satisfaction of certain conditions.
<PAGE>14
Upon the acquisition of WMFP by a subsidiary of the Company in February
1995, the Company concluded that it was not legally obligated to collect and
remit sales and use tax on sales to residents of Massachusetts. The Company
requested a ruling from the Massachusetts state taxing authority that such taxes
do not apply to the Company. The ruling request is currently pending and no
decision has been made by the taxing authority. As a defensive strategy, the
Company collects sales and use tax on all sales made into Massachusetts. The
Company intends to pay these collected amounts to the taxing authority if a
determination is made that taxes are due or to refund these amounts to its
customers if taxes are not due. Through September 30, 1998, the Company has
collected approximately $1.1 million with respect to Massachusetts sales tax
amounts.
YEAR 2000
The Company focused on Year 2000 with an inside-out approach and
completed an internal analysis and vendor/third party service provider
survey. The primary focus has been on Information Systems ("IS") which are, at
present, nearly 100% compliant. The Company achieved compliance through
systems replacement and believes existing capital budgets are adequate
for any remaining hardware and software replacements.
The Company is supported by redundant IBM RS6000s, each of which
interfaces directly with our Y2K compliant backup disk system. The new version
of the AIX operating system is also compliant. The Company's relocation to
Nashville, Tennessee, helped compliance efforts by requiring the replacement of
key network equipment.
Since the move, the Company upgraded approximately 90% of its computer
systems to compliant Windows NT systems. Additionally, the PBX, voice response
system and Aspect Callcenter software and server were all upgraded and are
compliant. The only outstanding Year 2000 issues surround the WWW web server
and a software program utilized by Human Resources. Thus, from an internal
standpoint, Shop At Home is now more than 90% Y2K compliant.
The Company has established a Year 2000 committee to focus on
businesses external to Shop At Home and to concentrate on systems and service
suppliers which are electronically linked to the Company's business units. The
Company has provided many major vendors with an EDI software package which is
Y2K compliant and the Company is not presently aware of any material problems in
the Year 2000 compliance plans of its major vendors or service providers;
however, the committee will focus on risk analysis in relation to our credit
card processor or other possible non-compliant vendors. A contingency plan will
be established by June 1999 in the event that these service providers do not
meet the compliance deadline.
Despite the concern surrounding discussions of Year 2000, the Company
does not anticipate major interruptions. The development and testing of a
contingency plan will help to ensure this. The Company believes its Y2K program
is adequate to detect in advance compliance issues, and that the necessary
resources to remedy them are available. However, the Year 2000 problem has many
aspects and potential consequences, some of which are not reasonably
foreseeable; therefore, there can be no assurance that unforeseen consequences
will not occur.
<PAGE>15
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company had no items that
would be classified as other comprehensive income in the quarter ended September
30, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. This Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Statement will
become effective for the Company's June 30, 1999 fiscal year financial
statements and will impact interim reporting beginning with the quarter ending
September 30, 1999. The Company is evaluating SFAS 131 to determine the impact,
if any, on its reporting and disclosure requirement.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant market
rate or price risks.
The Company is exposed to some market risk through interest rates,
related to its investment of its current cash and cash equivalents of
approximately $13 million. These funds are generally invested in highly liquid
debt instruments with short term maturities. As such instruments mature and the
funds are re-invested, the Company is exposed to changes in market interest
rates. This risk is not considered material and the Company manages such risk by
continuing to evaluate the best investments rates available for short-term high
quality investments.
The Company is not exposed to market risk through changes in interest
rate on its long term indebtedness, because such debt is at a fixed rate.
The Company obtains, on consignment, the vast majority of products
which it sells through its programming, and the prices of such products are
subject to changes in market conditions. These products are purchased
domestically, and, consequently, there is no foreign currency exchange risk.
The Company has no activities related to derivative financial
instruments or derivative commodity instruments.
<PAGE>16
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes In Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
None
Item 6. Reports On Form 8-K.
None
Exhibits
Exhibit 27 Financial Data Schedule (For SEC use only)
<PAGE>17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/S/ Kent E. Lillie
- ------------------------------------------------------------
Kent E. Lillie, President
Date:
--------------------------------------------------------
/S/ James Bauchiero
- -------------------------------------------------------------
James Bauchiero, Chief Financial Officer
Date:
--------------------------------------------------------
<TABLE> <S> <C>
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<CIK> 0000810029
<NAME> SHOP AT HOME,INC.
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<S> <C>
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1,393
0
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</TABLE>
