<PAGE>
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
December 31, 1999 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 30,446,313
(Title of class) (Shares outstanding at
January 14, 2000)
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three and Six Months Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------
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 10-16
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk 16
Part II OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities 17
Item 3 - Defaults upon Senior Securities 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 17
Exhibit 27 Financial Data Schedule (For SEC use only)
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, June 30,
1999 1999
--------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $13,911 $7,066
Investment in marketable securities available-for-sale (cost
approximated at $4,997 at December 31, 1999) 4,997 -
Accounts receivable - net 15,401 8,969
Inventories - net 12,931 7,234
Prepaid expenses 1,003 919
Deferred tax assets 1,624 1,097
--------------------- -------------------
Total current assets 49,867 25,285
Related party - note receivable, net of discounts of $80 and
$96, December 31, 1999 and June 30, 1999, respectively 708 690
Property & equipment - net 47,911 35,403
Restricted cash 4,935 5,433
FCC and NFL Licenses - net 96,181 97,020
Goodwill, net 2,347 2,367
Other assets 3,993 4,499
--------------------- -------------------
Total assets $205,942 $170,697
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $29,567 $27,955
Current portion - capital leases and long term debt 800 20,298
Deferred revenue 243 111
--------------------- -------------------
Total current liabilities 30,610 48,364
Long-term debt 86,765 75,893
Deferred income taxes - 309
Redeemable preferred stock:
Redeemable at $10 per share,
$10 par value, 1,000,000 shares authorized;
113,338 and 82,038 shares issued and outstanding at
December 31, 1999 and June 30, 1999, respectively 1,147 834
Stockholders' equity:
Common stock - $.0025 par value,
100,000,000 shares authorized; 30,398,437 and
24,557,822 shares issued at December 31, 1999
and June 30, 1999, respectively 76 61
Additional paid in capital 96,541 53,317
Accumulated deficit (9,197) (8,081)
--------------------- -------------------
Total liabilities and stockholders' equity $205,942 $170,697
===================== ===================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------ --------------------------------------
1999 1998 1999 1998
---------------- ---------------- ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $54,081 $39,600 $99,363 $73,483
Operating expenses:
Cost of goods sold (excluding items
listed below) 33,866 23,082 62,315 43,003
Salaries and wages 3,095 2,814 5,790 5,445
Transponder and cable charges 8,604 6,729 16,497 12,610
Other general operating and
Administrative expenses 5,166 3,969 9,338 6,785
Depreciation and amortization 1,775 1,249 3,187 2,282
Non-recurring move-related expenses - 422 - 676
---------------- ---------------- ------------------ -----------------
Total operating expenses 52,506 38,265 97,127 70,801
---------------- ---------------- ------------------ -----------------
Income from operations 1,575 1,335 2,236 2,682
Interest income 196 140 500 413
Interest expense (2,267) (2,196) (4,547) (4,200)
Other income - - 30 -
---------------- ---------------- ------------------ -----------------
Loss before income taxes (496) (721) (1,781) (1,105)
Income tax benefit (182) (279) (677) (425)
---------------- ---------------- ------------------ -----------------
Net loss $(314) $(442) $(1,104) $(680)
================ ================ ================== =================
Basic loss per share $(0.01) $(0.02) $(0.04) $(0.03)
================ ================ ================== =================
Diluted loss per share $(0.01) $(0.02) $(0.04) $(0.03)
================ ================ ================== =================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 1999 and 1998
(Thousands of Dollars)
<CAPTION>
1999 1998
(Unaudited) (Unaudited)
------------------- -------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,104) $(680)
Non-cash expenses/(income) included in net loss:
Depreciation and amortization 3,187 2,282
Deferred tax benefit (677) 590
Deferred interest (14) (16)
Provision for bad debt 315 -
Provision for inventory obsolescence 290 52
Changes in current and non-current items:
Accounts receivable (6,748) (4,475)
Inventories (5,987) (1,256)
Prepaid expenses and other assets (91) (1,373)
Accounts payable and accrued expenses 1,756 2,970
Deferred revenue 133 (179)
------------------- -------------------
Net cash used by operations (8,772) (2,085)
=================== ===================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (12,422) (7,513)
Investment in marketable securities (4,997) -
Deposits (135) -
Licenses (567) -
Net change in restricted cash 498 -
Other assets (22) -
------------------- -------------------
Net cash used in investing activities (17,645) (7,513)
=================== ===================
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 10,000 -
Proceeds from stock offering 44,293 -
Exercise of stock options and warrants 162 227
Payment of stock issuance costs (757) -
Debt acquisition costs (222) -
Purchase and retirement of common stock - (203)
Repayments of debt and capitalized leases (20,214) (415)
------------------- -------------------
Net cash provided (used) by financing activities 33,262 (391)
=================== ===================
NET INCREASE/(DECREASE) IN CASH 6,845 (10,127)
Cash beginning of period 7,066 21,224
------------------- -------------------
Cash end of period $13,911 $11,097
=================== ===================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
<TABLE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
Six Months Ended December 31, 1999 and 1998
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
-------------------------- --------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Stock issued for loan guarantee $ - $ 40
========================== ==========================
Reversal of conversion of preferred stock into shares of
common stock $ 318 $ -
========================== ==========================
Income tax benefit from exercise of stock options $ 159 $ -
========================== ==========================
Property and equipment acquired through capital leases $ 1,588 $ -
========================== ==========================
</TABLE>
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
All dollar values have been expressed in thousands (000s) unless otherwise noted
except for per share data. The financial information included herein is
unaudited for the quarter and six months ended December 31, 1999; however, such
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of the Company, 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, 1999 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 its Annual Report on Form 10-K for the fiscal year ended
June 30, 1999.
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 December 31, 1999 and June 30, 1999 are
as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
---- ----
<S> <C> <C>
Work in progress (Collector's Edge) $ 536 $ 795
Products purchased for resale 10,363 5,570
Finished goods (Collector's Edge) 2,626 1,173
-------------------- ------------------
13,525 7,538
Valuation allowance (594) (304)
==================== ==================
Total $ 12,931 $ 7,234
==================== ==================
</TABLE>
NOTE 3 - REVOLVING CREDIT AGREEMENT
On December 15, 1999, the Company obtained a $20.0 million revolving line of
credit from a commercial bank, of which $10.0 million was outstanding as of
December 31, 1999. The line is secured by a first lien on certain station and
corporate assets in accordance with an intercreditor agreement with the
indenture trustee on behalf of the holders of the Company's $75.0 million 11
Senior Secured Notes Due 2005. The line matures on December 15, 2002 and
requires that interest be paid at least quarterly at a variable rate (9.865%
at December 31, 1999) based on LIBOR or prime. The line contains covenants
restricting, among other things, the sale of assets, mergers and acquisitions,
investments and capital expenditures. In addition, the Company's financial
operating results and cash on hand must exceed certain minimum levels.
NOTE 4 - NET EARNINGS/(LOSS) PER SHARE
Basic loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding. Diluted loss per share is computed
by dividing the net loss 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 and convertible preferred stock outstanding and are
included in the computation only for periods in which net income is generated.
The following table sets forth for the periods indicated the calculation of net
loss per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (314) $ (442) $ (1,104) $ (680)
Preferred stock dividends (3) (3) (6) (13)
---------------- ---------------- --------------- ----------------
Numerator for basic loss per share
Available to common stockholders (317) (445) (1,110) (693)
Effect of dilutive securities:
Preferred stock dividends 3 3 6 13
---------------- ---------------- --------------- ----------------
Numerator for diluted loss per share
Available to common stockholders after
assumed conversions $ (314) $ (442) $ (1,104) $ (680)
================ ================ =============== ================
Denominator:
Denominator for basic earnings per share- 30,397,814 23,435,115 30,178,271 23,366,315
Weighted-average shares
---------------- ---------------- --------------- ----------------
Effect of dilutive securities:
a) Stock options and warrants - - - -
b) Convertible preferred stock - - - -
---------------- ---------------- --------------- ----------------
Dilutive potential common shares - - - -
---------------- ---------------- --------------- ----------------
Denominator for diluted earnings per share-
Adjusted weighted-average shares and 30,397,814 23,435,115 30,178,271 23,366,315
assumed conversions 30,397,814 23,435,115 30,178,271 23,366,315
================ ================ =============== ================
Basic loss per share $ (0.01) $ (0.02) $ (0.04) $ (0.03)
================ ================ =============== ================
Diluted loss per share $ (0.01) $ (0.02) $ (0.04) $ (0.03)
================ ================ =============== ================
</TABLE>
Although these amounts are excluded from the computation in loss years because
their inclusion would be anti-dilutive, they are shown here for information and
comparative purposes only.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
a) Employee stock options and warrants 3,572,208 3,175,266 3,695,367 2,968,658
b) Convertible preferred stock 113,338 137,943 113,338 137,943
</TABLE>
<PAGE>
NOTE 5 - SEGMENT DISCLOSURE
The Company operates principally in three segments: broadcast network,
Collector's Edge and collectibles.comsm. The broadcast network segment consists
of home shopping, which primarily includes the sale of merchandise on
television. The Collector's Edge segment includes the operations of Collector's
Edge of Tennessee, Inc., which sells sports trading cards primarily to
unaffiliated customers. The collectibles.comsm segment, which became operational
November 12, 1999, consists of the Company's new website, which specializes in
the sale of collectible merchandise over the Internet. The Company operates
almost exclusively in the United States.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
<TABLE>
<CAPTION>
INDUSTRY SEGMENT DATA
Three Months Ended December 31, Six Months Ended December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Broadcast Network $ 51,204 $ 37,682 $ 94,243 $ 69,621
Collector's Edge 2,449 1,918 4,692 3,862
collectibles.comsm 428 - 428 -
-------------------- --------------------- ----------------------- --------------------
$ 54,081 $ 39,600 $ 99,363 $ 73,483
==================== ===================== ======================= ====================
Income (loss) from operations:
Broadcast Network $ 2,376 $ 1,000 $ 3,353 $ 2,111
Collector's Edge (333) 335 (323) 571
collectibles.comsm (468) - (795) -
-------------------- --------------------- ----------------------- --------------------
$ 1,575 $ 1,335 $ 2,235 $ 2,682
==================== ===================== ======================= ====================
Depreciation and amortization:
Broadcast Network $ 1,573 $ 1,066 $ 2,784 $ 1,916
Collector's Edge 183 183 367 366
collectibles.comsm 19 - 36 -
-------------------- --------------------- ----------------------- --------------------
$ 1,775 $ 1,249 $ 3,187 $ 2,282
==================== ===================== ======================= ====================
Income (loss) before taxes:
Broadcast Network $ 312 $ (1,056) $ (643) $ (1,663)
Collector's Edge (341) 335 (343) 558
collectibles.comsm (467) - (795) -
-------------------- --------------------- ----------------------- --------------------
$ (496) $ (721) $ (1,781) $ (1,105)
==================== ===================== ======================= ====================
December 31, 1999 June 30, 1999
----------------------- --------------------
Assets:
Broadcast Network $ 191,718 $ 162,842
Collector's Edge 7,747 7,855
collectibles.comsm 6,477 -
----------------------- --------------------
$ 205,942 $ 170,697
======================= ====================
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's condensed consolidated financial statements and related notes
included elsewhere herein. All dollar values have been expressed in thousands
(000s) unless otherwise noted.
General
Shop At Home, Inc., (the "Company"), founded in 1986, sells specialty
consumer products, primarily collectibles, through interactive electronic media,
including broadcast, cable and satellite television and, increasingly, the
Internet. It offers a variety of products such as sports cards and memorabilia,
coins, currency and jewelry, much of which it sells on an exclusive basis.
The Company receives revenues primarily from the sale of merchandise
marketed through its television programming carried by:
o television stations from which the Company has purchased broadcast time;
o Company-owned television stations, with programming being carried on cable
television systems under the "must carry" or the retransmission consent
provisions of federal law;
o direct carriage on cable television systems under agreements with cable
system operators;
o direct-to-home satellite programming services; and
o direct reception of the Company's satellite transmission by individuals who
own satellite downlink equipment.
The Company launched a new website and business segment,
collectibles.comsm, on November 12, 1999. The Company's previous website,
shopathomeonline.com, was discontinued at that time. Since its launch,
collectibles.comsm, which specializes in the sale of collectible merchandise,
has generated revenues at a substantially higher rate than shopathomeonline.com.
The Company generates approximately 95% of its revenues from the sale
of products on the television network. The Company's products include sports
collectibles and sports related products, plush toys, movie memorabilia and
other signed and autographed merchandise, electronic equipment, coins and
currency, cutlery and knives and jewelry and gemstones.
Since 1997, the Company has also received revenues from sales by its
subsidiary, Collector's Edge of Tennessee, Inc., which sells sports trading
cards under licenses from National Football League Properties and National
Football League Players. Additionally, the Company receives revenues from the
sale of time on the Company's owned television stations for the broadcast of
infomercials.
As of December 31, 1999, the Company's programming was viewable during
all or part of each day by approximately 56.6 million individual cable
households, of which approximately 11.2 million cable households received the
programming on essentially a full-time basis (20 or more hours per day) and the
remaining 45.4 million cable households received it on a part-time basis. To
measure 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 its programming
which accounts for both the quantity and quality of time available to it. 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 hour
of the day to its overall sales, which is based on sales in markets where
programming is carried on a full-time basis. Each hour of the day has a value
based on historical sales. FTE Cable Households have grown to 22.5 million at
February 2, 2000 from 16.9 million at December 31, 1998. The Company believes
that the change in the number of FTE Cable Households provides a consistent
measure of its growth and applies this methodology to all affiliates.
Accordingly, the Company uses the revenue per average FTE Cable Household as a
basis for pricing new affiliate contracts and estimating their anticipated
revenue performance.
When the Company enters a new market, it generally takes about three
months to establish program awareness by viewers. During this three month
period, the Company normally receives less revenue from sales in the market than
it expects to receive when the market matures. Many households receive the
Company's programming on more than one channel. The Company has found that
sales in a market increase when its programming is available on more than one
channel, thereby justifying the additional carriage costs.
The Company owns and operates six UHF television stations located in
the San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport markets.
Five of these stations are in the top 15 television markets in the United
States, including the Bridgeport, Connecticut station which serves a portion of
the New York City market.
Principal elements in the Company's cost structure are (a) cost of
goods sold, (b) transponder, cable and affiliate fees and (c) salaries and
wages. The Company's cost of goods sold is a direct result of both the product
mix and its ability to negotiate favorable prices from its vendors. Transponder,
cable and affiliate fees include expenses related to carriage under affiliation
and transponder agreements. Because it takes time for a market's revenue
potential to mature, the Company expects to pay initial carriage cost in excess
of its goal of approximately 15% of market revenue . If carriage cost does not
decrease toward this goal as the market matures, management of the Company will
attempt to renegotiate the carriage contract, seek an opportunity to terminate
the carriage contract or not renew it. Salaries and wages have increased with
the Company's increased revenues and the addition of staff to support its
growth.
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (excluding items listed
below) 62.6 58.3 62.7 58.5
Salaries & wages 5.7 7.1 5.8 7.4
Transponder, cable & affiliate fees 15.9 17.0 16.6 17.2
Other general operating and
administrative expense 9.6 10.0 9.4 9.3
Depreciation & amortization 3.3 3.2 3.2 3.1
Non-recurring move-related expenses - 1.1 - 0.9
Total operating expenses 97.1 96.7 97.7 96.4
Interest income 0.4 0.4 0.5 0.6
Interest expense (4.2) (5.5) (4.6) (5.7)
Other income - - - -
Net loss before income taxes (0.9) (1.8) (1.8) (1.5)
Income tax benefit (0.3) (0.7) (0.7) (0.6)
Net loss (0.6) (1.1) (1.1) (0.9)
</TABLE>
Three months ended December 31, 1999 vs. three months ended December 31, 1998
Net Revenues. The Company's revenues for the quarter ended December 31,
1999, were $54.1 million, an increase of 36.6% from revenues of $39.6 million
for the same quarter in 1998. The core business of the broadcast network
accounted for 94.7% of revenues on an average of 21.8 million FTE Cable
Households in the quarter ended December 31, 1999 compared to an average of 16.7
million FTE Cable Households in the 1998 quarter, representing a 30.5% increase
in FTE Cable Households. The remaining 5.3% of 1999 revenues resulted from
approximately $2.4 million in revenue from Collectors Edge, an increase of $531
or 27.7% over the 1998 period. In addition, the Company launched
collectibles.comsm on November 12, 1999 and recorded $428 in net revenues.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the quarter ended December 31, 1999, the
cost of goods sold rose to $33.9 million and, as a percentage of net revenues,
increased to 62.6% from 58.3% in the comparable 1998 period. This increase is
mainly due to a higher percentage of sales attributable to lower-margin product
categories, primarily electronics and coins which collectively represented
approximately 36.9% of revenues for the three months ended December 31, 1999
compared to 24.1% of revenues for the 1998 period. Also contributing to the
increase was greater competition for Collector's Edge in the marketing of
football trading cards, resulting in reduced sales prices. Excluding Collector's
Edge, cost of goods improved from 62.6% during the quarter ended September 30,
1999 to 61.7% for the quarter ended December 31, 1999.
Salaries and Wages. Salaries and wages for the quarter ended December
31, 1999 were $3.1 million, an increase of 10.0% over the comparable 1998
quarter. Salaries and wages, as a percent of revenues, decreased to 5.7% in the
1999 period compared to 7.1% in the 1998 period.
Transponder and Cable. Transponder, cable and affiliate fees for the
quarter ended December 31, 1999 were $8.6 million, an increase of $1.9 million
or 27.9% over the comparable 1998 quarter. During the same period FTE Cable
Households grew 30.5%. The cable carriage cost component of this expense
category decreased as a percentage of revenues to 15.0% from 15.8%. The
additional expense in cable cost is the result of the Company's FTE Cable
Households average increasing to 21.8 million from 16.7 million for the quarters
ending December 31, 1999 and 1998, respectively.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the quarter ended December 31, 1999
were $5.2 million, an increase of $1.2 million or 30.2% over the comparable 1998
quarter. This increase is comprised of approximately $761 of expenses relating
to collectibles.comsm which became operational on November 12, 1999, and
increases in various broadcast expenses, primarily $352 in credit card expenses
due to increased sales and $119 in property and franchise taxes at the Nashville
headquarters.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended December 31, 1999 were $1.8 million, an increase of $526 or 42.2%
over the comparable 1998 quarter, due primarily to the acquisition of WSAH(TV)
in Bridgeport, Connecticut.
Non-recurring Move-Related Expenses. There were no non-recurring
move-related expenses in the quarter ended December 31, 1999 compared to $422 in
the 1998 period, which was related to employee relocation to the new Nashville
headquarters.
Interest. Interest expense of $2.3 million increased by $71 or 3.2%
over the comparable period in 1998. The increase is primarily due to interest
associated with current capital leases.
Six months ended December 31, 1999 vs. six months ended December 31, 1998
Net Revenues. The Company's revenues for the period ended December 31,
1999 were $99.4 million, an increase of 35.2% from revenues of $73.5 million
for the same period in 1998. The core business of the broadcast network
accounted for 95.1% of revenues on an average of 20.9 million FTE Cable
Households in the period ended December 31, 1999 compared to an average of 16.2
million FTE Cable Households in the 1998 period, representing a 29.0% increase
in FTE Cable Households. The remaining 4.9% of 1999 revenues were mostly
represented by $4.5 million in revenues from Collector's Edge, an increase of
20.5% from revenues of $3.9 million for the same period in 1998.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the period ended December 31, 1999, the
cost of goods sold rose to $62.3 million, and as a percentage of net revenues
increased to 62.7% from 58.5% in the comparable 1998 period. This increase is
mainly due to a higher percentage of sales attributable to lower-margin product
categories, primarily electronics and coins which collectively represented
approximately 34.6% of revenues for the period ended December 31, 1999 compared
to 22.9% of revenues for the 1998 period.
Salaries and Wages. Salaries and wages for the period ended December
31, 1999 were $5.8 million, an increase of 6.3% over the comparable 1998 period.
Salaries and wages as a percent of revenues decreased to 5.8% in the 1999 period
compared to 7.4% in the 1998 period.
Transponder and Cable. Transponder and cable costs for the period ended
December 31, 1999 were $16.5 million, an increase of $3.9 million or 30.8% over
the comparable 1998 period. During the same period FTE Cable Households grew
29.0%. The cable carriage cost component of this expense category decreased as a
percentage of revenues to 15.6% from 15.9%. The additional expense in cable cost
is the result of the Company's FTE Cable Households average increasing to 20.9
million from 16.2 million for the period ending December 31, 1999 and 1998,
respectively.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the period ended December 31, 1999
were $9.3 million, an increase of $2.6 million or 37.6% over the comparable 1998
period. This increase is comprised of approximately $1.1 million of expenses
relating to collectibles.comsm which became operational on November 12, 1999,
and increases in various operating expenses, primarily consisting of $667 in
credit card expenses due to increased sales and $271 in property taxes at the
Nashville headquarters.
Depreciation and Amortization. Depreciation and amortization for the
period ended December 31, 1999 were $3.2 million, an increase of $904 or 39.6%
over the comparable 1998 period. The major components of this increase were the
additional depreciation and amortization related to WSAH(TV) and the Company's
new headquarters facilities.
Non-recurring Move-Related Expenses. There were no non-recurring
move-related expenses in the period ended December 31, 1999 compared to $676 in
the 1998 period related to employee relocation.
Interest. Interest expense for the period ended December 31, 1999 was
$4.5 million, an increase of $347 or 8.3% over the comparable 1998 period. This
increase is primarily due to interest associated with current capital leases.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had total current assets of $49.9
million and total current liabilities of $30.6 million, resulting in a positive
working capital position of $19.3 million. This represents a $42.3 million
increase from the working capital position at the end of the prior year. The
major components of the increase resulted from $44.3 million of proceeds
(net of underwriting commissions) from the public offering of 5,828,000 shares
of common stock in July 1999, and an additional $10.0 million in long-term debt,
offset by approximately $12.1 million spent to acquire equipment and software
and an increase of approximately $12.4 million in the combined level of
inventory and accounts receivable. The Company used $20.0 million, including
$600 of restricted cash, to pay off the short-term loan relating to the
acquisition of the assets of the Bridgeport, Connecticut television station.
During the six months ended December 31, 1999, the Company used
approximately $8.8 million for operations. A component of this net use was
the loss of $1.1 million, which included a $677 decrease in net deferred tax
liabilities offset by $3.2 million in depreciation and amortization. In
addition, the Company used approximately $6.7 million to support a higher
level of receivables from customers paying in installments, and $6.0 million to
carry higher inventory levels, primarily jewelry products. Approximately
$1.7 million was provided from operations in the form of increased accounts
payable and accrued expenses.
The Company used approximately $17.6 million for investing activities
primarily in connection with the installation of its computer system, the launch
of collectibles.comsm and the purchase of $5.0 million of investment securities.
Financing activities provided approximately $33.3 million to the
Company during the six months ended December 31, 1999. The principal source was
the public offering of 5,828,000 shares of common stock, which provided $44.3
million in proceeds (net of underwriting commissions), offset by the repayment
of the $20.0 million bridge loan incurred for the purchase of the assets of the
Bridgeport, Connecticut television station. The Company also obtained a $20.0
million line of credit of which $10.0 million was drawn for working capital.
Approximately 90% of the Company's receipts are customer credit card
charges, most of which are collected within three days of shipment on
non-stretch pay sales and an average of 30 days (two or three payments) on
stretch pay sales. This facilitates cash flow since the Company usually pays
its vendors within 30 days of collection, and, as a result, the Company does
not need a large amount of working capital to support rapid revenue growth.
The Company successfully launched its new website, collectibles.comsm,
on November 12, 1999. Upon the launch of collectibles.comsm, the Company
discontinued selling products through shopathomeonline.com. To develop
collectibles.comsm and install a new enterprise-wide software system for its
existing core business, the Company entered into agreements with Oracle, iXL,
BroadVision and other vendors. Oracle provides the internal systems to manage
order entry, accounting, human resources, purchasing and receivables. iXL helped
implement BroadVision's interface between the website and the consumer. It is
anticipated that the total cost of all of these agreements, with hardware, will
approximate $18.0 million, approximately $16.0 million of which has already been
incurred. With collectibles.comsm operational, working capital will be required
to promote and develop the website in order to generate sales.
Additional financing may be necessary to continue the Company's growth.
The Indenture of Trust (the "Indenture") executed in connection with the
Company's $75.0 million 11% Senior Secured Notes Due 2005 (the "Notes") permits
the Company to incur debt which may be used for such future capital needs. In
order to incur this debt, the Company must satisfy certain conditions imposed by
the Indenture. The Company has obtained a line of credit of up to $20.0 million
to be available for general corporate purposes.
Year 2000
The Company has become Y2K compliant through systems replacement and
believes existing capital budgets are adequate for any Y2K issues that may occur
in existing hardware and software.
The Company is supported by redundant systems from Sun, IBM and EMC.
All host systems are Y2K compliant. The relocation of the Company's headquarters
to Nashville facilitated compliance efforts by requiring the replacement of key
network equipment. Since the move, the Company's local area network application
servers and computers have been upgraded to Windows NT. All Windows NT systems
have been upgraded to insure Y2K compliance. Additionally, the Company's
telephone system, Aspect software and computer server used in the Company's
call center have been upgraded and are compliant. The Company's financial
system, human resources system and other management systems have been
replaced by Oracle applications that are Y2K compliant.
The Company has provided many of its vendors with Y2K compliant
software, and management is not presently aware of any material problems in the
Y2K compliance plans of its major vendors and service providers. None have
been experienced to date.
The Company's primary computer systems have been replaced either as
part of its Y2K compliance program or to build a system to support future
growth.
At this time, the Company has experienced no material Y2K issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 and
marketable securities of approximately $18.9 million as of December 31, 1999.
These funds are generally invested in highly liquid debt instruments with
short-term maturities. As such instruments mature and the funds are reinvested,
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 investment rates available for short-term high quality investments.
The Company is not exposed to market risk through changes in interest
rates the Notes because the debt is at a fixed rate. The Company is exposed to
market ris through changes in interest rates on its $20.0 million line of
credit.
Most of the Company's products are shipped directly to its customers by
its vendors. The Company therefore maintains a retail inventory that is
relatively small in relationship to its sales, reducing its exposure to changes
in market conditions for its products. The Company's products are purchased
domestically, and, as a consequence, there is no foreign currency exchange risk.
The Company has no activities related to derivative financial
instruments or derivative commodity instruments.
<PAGE>
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>
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: 2/2/00
/S/ Arthur Tek
Arthur Tek, Executive VP & Chief Financial Officer
Date: 2/2/00
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