<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
March 31, 2000 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 30,876,838
(Title of class) (Shares outstanding at
April 12, 2000)
<PAGE>
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three and Nine Months Ended March 31, 2000 and 1999
- --------------------------------------------------------------------------
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
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 17-18
Item 6 - Exhibits and Reports on Form 8-K 18
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>
March 31, June 30,
2000 1999
--------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $8,110 $7,066
Accounts receivable - net 14,720 8,969
Inventories - net 15,232 7,234
Prepaid expenses 1,307 919
Deferred tax assets 3,784 1,097
--------------------- -------------------
Total current assets 43,153 25,285
Related party - note receivable, net of discounts of $72 and
$96, March 31, 2000 and June 30, 1999, respectively 695 690
Property & equipment - net 48,628 35,403
Restricted cash 4,993 5,433
FCC and NFL Licenses - net 95,464 97,020
Goodwill, net 2,338 2,367
Other assets 3,877 4,499
===================== ===================
Total assets $199,148 $170,697
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $25,660 $27,955
Current portion - capital leases and long term debt 735 20,298
Deferred revenue 401 111
--------------------- -------------------
Total current liabilities 26,796 48,364
Long-term debt 86,553 75,893
Deferred income taxes - 309
Redeemable preferred stock:
Redeemable at $10 per share,
$10 par value, 1,000,000 shares authorized;
93,960 and 82,038 shares issued and outstanding at
March 31, 2000 and June 30, 1999, respectively 954 834
Stockholders' equity:
Common stock - $.0025 par value,
100,000,000 shares authorized; 30,876,838 and
24,557,822 shares issued at March 31, 2000
and June 30, 1999, respectively 77 61
Additional paid in capital 97,480 53,317
Accumulated deficit (12,712) (8,081)
--------------------- -------------------
Total liabilities and stockholders' equity $199,148 $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 Nine Months Ended
March 31 March 31,
------------------------------------ --------------------------------------
2000 1999 2000 1999
---------------- ---------------- ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $53,567 $37,130 $152,930 $110,613
Operating expenses:
Cost of goods sold (excluding items
listed below) 34,606 22,866 96,921 65,869
Salaries and wages 4,450 2,674 10,239 8,120
Transponder and cable charges 8,403 6,760 24,900 19,370
Other general operating and
administrative expenses 6,587 3,673 15,929 10,456
Depreciation and amortization 2,840 1,327 6,027 3,609
Non-recurring move-related expenses 197 873
----------------
---------------- ------------------ -----------------
Total operating expenses 56,886 37,497 154,016 108,297
---------------- ---------------- ------------------ -----------------
Income/(Loss) from operations (3,319) (367) (1,086) 2,316
Interest income 177 110 697 524
Interest expense (2,542) (2,388) (7,109) (6,590)
Other income/(expense) - (52) 30 (52)
---------------- ---------------- ------------------ -----------------
Loss before income taxes (5,684) (2,697) (7,468) (3,802)
Income tax benefit (2,160) (987) (2,837) (1,445)
---------------- ---------------- ------------------ -----------------
Net loss $(3,524) $(1,710) $(4,631) $(2,357)
================ ================ ================== =================
Basic loss per share $(0.12) $(0.07) $(0.15) $(0.10)
================ ================ ================== =================
Diluted loss per share $(0.12) $(0.07) $(0.15) $(0.10)
================ ================ ================== =================
</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
Nine Months Ended March 31, 2000 and 1999
(Thousands of Dollars)
<CAPTION>
2000 1999
(Unaudited) (Unaudited)
------------------- -------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(4,631) $(2,357)
Non-cash expenses/(income) included in net loss:
Depreciation and amortization 6,027 3,609
Deferred tax benefit (2,837) (1,787)
Deferred interest 159 (22)
Provision for bad debt 601 -
Provision for inventory obsolescence 125 70
Changes in current and non-current items:
Accounts receivable (6,352) (5,593)
Inventories (8,123) (1,503)
Prepaid expenses and other assets (388) (1,536)
Accounts payable and accrued expenses (798) 4,930
Deferred revenue 130 (84)
=================== ===================
Net cash used by operations (16,087) (4,273)
=================== ===================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (16,348) (8,063)
Deposits (124) -
Licenses (567) -
Net change in restricted cash 440 -
Other assets (22) (1,925)
=================== ===================
Net cash used in investing activities (16,621) (9,988)
=================== ===================
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 10,000 -
Proceeds from stock offering 44,293 -
Exercise of stock options and warrants 907 2,476
Payment of stock issuance costs (757) -
Debt acquisition costs (222) -
Purchase and retirement of common stock (203)
Repayments of debt and capitalized leases (20,469) (415)
=================== ===================
Net cash provided (used) by financing activities 33,752 1,858
=================== ===================
NET INCREASE/(DECREASE) IN CASH 1,044 (12,403)
Cash beginning of period 7,066 21,224
=================== ===================
Cash end of period $8,110 $8,821
=================== ===================
</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)
Nine Months Ended March 31, 2000 and 1999
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
2000 1999
-------------------------- --------------------------
(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 $ -
========================== ==========================
Conversion of preferred stock into shares of
common stock $ - $ 318
========================== ==========================
Income tax benefit from exercise of stock options $ 159 $ 886
========================== ==========================
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
March 31, 2000 (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 nine months ended March 31, 2000 and 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/A 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 March 31, 2000 and June 30, 1999 are as
follows:
<TABLE>
<CAPTION>
March 31 June 30,
2000 1999
---- ----
<S> <C> <C>
Work in progress (Collector's Edge) $ 1,502 $ 795
Products purchased for resale 12,243 5,570
Finished goods (Collector's Edge) 1,915 1,173
-------------------- ------------------
15,660 7,538
Valuation allowance (428) (304)
==================== ==================
Total $15,232 $ 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
March 31, 2000. The line is collateralized 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 (9.2875% at
March 31, 2000) based on the Eurodollar Base Rate or the prime rate. 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 LOSS PER SHARE
Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Dilutive
securities are represented by options, warrants and convertible preferred stock
outstanding and are not included in the computation for loss periods because
they would be antidilutive.
The following table sets forth for the periods indicated the calculation of net
loss per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (3,524) $ (1,710) $ (4,631) $ (2,357)
Preferred stock dividends - (4) (11) (15)
---------------- ---------------- --------------- ----------------
Numerator for basic loss per share
Available to common stockholders $ (3,524) $ (1,714) $ (4,642) $ (2,372)
================ ================ =============== ================
Denominator:
Denominator for basic earnings per share-
Weighted-average shares 30,519 23,997 30,291 23,567
================ ================ =============== ================
Basic and diluted loss per share $ (0.12) $ (0.07) $ (0.15) $ (0.10)
================ ================ =============== ================
</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 3,760 3,961 4,349 4,175
b) Convertible preferred stock 94 127 94 137
</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 March 31, Nine Months Ended March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues:
Broadcast Network $ 51,676 $ 34,835 $ 146,120 $ 104,455
Collector's Edge 1,180 2,295 5,689 6,158
collectibles.comsm 1,501 - 1,929 -
Inter-segment Sales (790) - (808) -
-------------------- --------------------- ----------------------- --------------------
$ 53,567 $ 37,130 $ 152,930 $ 110,613
==================== ===================== ======================= ====================
Income (loss) from operations:
Broadcast Network $ (254) $ (68) $ 3,096 $ 2,044
Collector's Edge (335) (299) (658) 272
collectibles.comsm (2,730) - (3,524) -
-------------------- --------------------- ----------------------- --------------------
$ (3,319) $ (367) $ (1,086) $ 2,316
==================== ===================== ======================= ====================
Depreciation and amortization:
Broadcast Network $ 2,450 $ 1,144 $ 5,233 $ 3,060
Collector's Edge 145 183 513 549
collectibles.comsm 245 - 281 -
-------------------- --------------------- ----------------------- --------------------
$ 2,840 $ 1,327 $ 6,027 $ 3,609
==================== ===================== ======================= ====================
Income (loss) before taxes:
Broadcast Network $ (2,439) $ (2,398) $ (3,086) $ (4,061)
Collector's Edge (342) (299) (684) 259
collectibles.comsm (2,903) - (3,698) -
-------------------- --------------------- ----------------------- --------------------
$ (5,684) $ (2,697) $ (7,468) $ (3,802)
==================== ===================== ======================= ====================
March 31, 2000 June 30, 1999
----------------------- --------------------
Assets:
Broadcast Network $ 185,742 $ 162,842
Collector's Edge 7,045 7,855
collectibles.comsm 6,361 -
----------------------- --------------------
$ 199,148 $ 170,697
======================= ====================
</TABLE>
Note: Inter-segment sales are at a transfer price reflecting market value.
<PAGE>
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, is an electronic
commerce leader in both the broadcast and Internet channels. It offers a variety
of products, primarily collectibles 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 95.2% 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, Inc. and National
Football League Players, Inc. Additionally, the Company receives revenues from
the sale of time on the Company's owned television stations for the broadcast of
infomercials.
As of March 31, 2000, the Company's programming was viewable during all
or part of each day by approximately 58.4 million individual cable households,
of which approximately 12.4 million cable households received the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 46.0
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 23.9 million at
March 31, 2000 from 16.6 million at March 31, 1999. 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 March 31, Nine Months Ended March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (excluding items
listed below) 64.6 61.6 63.4 59.5
Salaries & wages 8.3 7.2 6.7 7.4
Transponder, cable & affiliate fees 15.7 18.2 16.3 17.5
Other general operating and administrative expense 12.3 9.9 10.4 9.4
Depreciation & amortization 5.3 3.6 3.9 3.3
Non-recurring move-related expenses - 0.5 - 0.8
Total operating expenses 106.2 101.0 100.7 97.9
Interest income 0.3 0.3 0.5 0.5
Interest expense (4.7) (6.4) (4.6) (6.0)
Other expense 0.0 (0.2) 0.0 0.0
Net loss before income taxes (10.6) (7.3) (4.8) (3.4)
Income tax benefit (4.0) (2.7) (1.8) (1.3)
Net loss (6.5) (4.6) (3.0) (2.1)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Three months ended March 31, 2000 vs. three months ended March 31, 1999
Net Revenues. The Company's revenues for the quarter ended March 31,
2000, were $53.6 million, an increase of 44.3% from revenues of $37.1 million
for the same quarter in 1999. The core business of the broadcast network
accounted for 95.4% of revenues on an average of 23.1 million FTE Cable
Households in the quarter ended March 31, 2000 compared to an average of 16.1
million FTE Cable Households in the 1999 quarter, representing a 43.5% increase
in FTE Cable Households. The remaining 4.8% of 2000 revenues resulted from
approximately $1.2 million in revenue from Collector's Edge, a decrease of $1.1
million or 51.4% from the 1999 period. The decrease in Collector's Edge's
revenue was due to a higher level of competition in the football card market. In
addition, the Company launched collectibles.comsm on November 12, 1999 and
recorded $1.5 million in net revenues for the quarter ended March 31, 2000.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the quarter ended March 31, 2000, the cost
of goods sold rose to $34.6 million and, as a percentage of net revenues,
increased to 64.6% from 61.6% in the comparable 1999 period. This increase was
mainly due to a higher percentage of sales on the broadcast network attributable
to lower-margin product categories, primarily electronics and coins, which
collectively represented approximately 37.9% of revenues for the three months
ended March 31, 2000, compared to 28.0% of revenues for the 1999 period. This
shift in merchandising mix was in response to greater customer demands for
popular electronic products such as computers and camcorders as well as
collectible coins e.g. Silver Hoard. In comparison to the broadcast network,
cost of goods sold via collectibles.comsm were lower (62.5%) as a percentage of
related net revenues.
Salaries and Wages. Salaries and wages for the quarter ended March 31,
2000 were $4.4 million, an increase of 66.4% over the comparable 1999 quarter.
The increase was 47.9% if $494 of salaries from collectibles.comsm are removed
for comparative purposes. Salaries and wages, as a percent of revenues,
increased to 8.3% (7.4% without collectibles.comsm) in the 2000 period compared
to 7.2% in the 1999 period.
Transponder and Cable. Transponder, cable and affiliate fees for the
quarter ended March 31, 2000 were $8.4 million, an increase of $1.6 million or
24.3% over the comparable 1999 quarter. During the same period FTE Cable
Households grew 43.5%. The cable carriage cost component of this expense
category decreased as a percentage of revenues to 14.8% from 17.0%.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the quarter ended March 31, 2000 were
$7.2 million, an increase of $2.9 million or 79.3% over the comparable 1999
quarter. This increase was comprised of approximately $2.6 million of expenses
relating to collectibles.comsm (including $1.2 million of advertising expenses)
which became operational on November 12, 1999, and increases in various
broadcast expenses, primarily $629 in credit card expenses which rise in
proportion to increased sales.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended March 31, 2000 were $2.8 million, an increase of $1.5 million or
114.0% over the comparable 1999 quarter, due primarily to the acquisition of
WSAH(TV) in Bridgeport, Connecticut and the installation of an enterprise wide
information system.
Non-recurring Move-Related Expenses. There were no non-recurring
move-related expenses in the quarter ended March 31, 2000 compared to $197 in
the 1999 period, which was related to employee relocation to the new Nashville
headquarters.
Interest. Interest expense of $2.5 million increased by $153 or 6.4%
over the comparable period in 1999. The increase is primarily due to interest
associated with current capital leases and the $10 million working capital loan.
Nine months ended March 31, 2000 vs. Nine months ended March 31, 1999
Net Revenues. The Company's revenues for the nine month period ended
March 31, 2000 were $153.0 million, an increase of 38.3% from revenues of $110.5
million for the same period in 1999. The core business of the broadcast network
accounted for 95.2% of revenues on an average of 21.6 million FTE Cable
Households in the period ended March 31, 2000 compared to an average of 16.1
million FTE Cable Households in the 1999 period, representing a 34.2% increase
in FTE Cable Households. The remaining 4.8% of 2000 revenues were mostly
represented by $5.7 million in revenues from Collector's Edge, a decrease of
8.2% from revenues of $6.2 million for the same period in 1999. Additionally,
collectibles.comsm recorded $1.9 million in revenues since its launch on
November 12, 1999.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and inbound freight. For the nine month period ended March 31, 2000,
the cost of goods sold rose to $96.9 million, and as a percentage of net
revenues increased to 63.4% from 59.5% in the comparable 1999 period. This
increase was mainly due to a higher percentage of sales attributable to
lower-margin product categories, primarily electronics and coins, which
collectively represented approximately 33.0% of revenues for the period ended
March 31, 2000, compared to 22.6% of revenues for the 1999 period.
Salaries and Wages. Salaries and wages for the nine month period ended
March 31, 2000 were $10.2 million, an increase of 26.1% over the comparable 1999
period. Salaries and wages as a percent of revenues decreased to 6.7% in the
2000 period compared to 7.3% in the 1999 period. This decrease was due to the
growth of revenues at a faster rate than personnel needs, which more than offset
incremental hiring for the launch of collectibles.comsm on November 12, 1999.
Transponder and Cable. Transponder and cable costs for the nine month
period ended March 31, 2000 were $24.9 million, an increase of $5.5 million or
28.5% over the comparable 1999 period. During the same period FTE Cable
Households grew 34.2%. The cable carriage cost component of this expense
category decreased as a percentage of revenues to 15.3% from 16.3%.
Other General Operating and Administrative Expenses. Other general,
operating and administrative expenses for the nine month period ended March 31,
2000 were $16.5 million, an increase of $5.5 million or 52.4% over the
comparable 1999 period. This increase is comprised of approximately $3.6 million
of expenses (including $1.3 million of advertising expense) relating to
collectibles.comsm which became operational on November 12, 1999, and increases
in various operating expenses, primarily consisting of $1.3 million in credit
card expenses which rise in proportion to increased sales and $370 in property
taxes at the Nashville headquarters.
Depreciation and Amortization. Depreciation and amortization for the
nine month period ended March 31, 2000 were $6.0 million, an increase of $2.4
million or 67.0% over the comparable 1999 period. The major components of this
increase were the additional depreciation and amortization related to the
Bridgeport television station, the Company's new headquarters facilities and the
installation of an enterprise wide information system.
Non-recurring Move-Related Expenses. There were no non-recurring
move-related expenses in the nine month period ended March 31, 2000 compared to
$873 in the comparable 1999 period related to employee relocation to Nashville,
TN.
Interest. Interest expense for the nine month period ended March 31,
2000 was $7.1 million, an increase of $518 or 7.9% over the comparable 1999
period. This increase was primarily due to interest associated with current
capital leases and the $10 million working capital loan.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had total current assets of $43.2
million and total current liabilities of $26.8 million, resulting in a positive
working capital position of $16.4 million. This represents a $39.4 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 $16.3 million spent to acquire equipment and software and an
increase of approximately $14.7 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 bridge loan relating to the acquisition of the
assets of the Bridgeport television station.
During the nine months ended March 31, 2000, the Company used
approximately $16.1 million for operations. A component of this net use was the
loss of $4.6 million, which included a $2.8 million increase in net deferred tax
asset, offset by $6.0 million in depreciation and amortization. In addition, the
Company used approximately $6.4 million to support a higher level of receivables
from customers paying in installments, and $8.1 million to carry higher
inventory levels, primarily jewelry products and Collector's Edge football
cards. Approximately $797 was provided by decreased accounts payable and accrued
expenses.
The Company used approximately $16.6 million for investing activities
primarily in connection with the installation of its computer system and the
launch of collectibles.comsm.
Financing activities provided approximately $33.8 million to the
Company during the nine months ended March 31, 2000. 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 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 to 60 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 $20 million, approximately $18.4 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, of which $10 million was
outstanding at March 31, 2000.
<PAGE>
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. 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 on the Notes because the debt is at a fixed rate. The Company is exposed
to market risk through changes in interest rates on its $20.0 million line of
credit which could be effected with changes in the prime rate or Eurodollar Base
Rate.
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.
A lawsuit was filed against the Company in January 2000 by a
former vendor, Classic Collectibles, LLC, in state Chancery
Court in Chattanooga, Tennessee. The vendor alleges that the
Company improperly canceled some orders and that certain
amounts it paid to the Company under a written agreement should
be refunded because the Company did not provide that amount of
broadcast network time in 1999 that the vendor alleges was
orally promised in connection with the written agreement. The
vendor sued for both compensatory damages and lost profits.
The Company and Collector's Edge were named as defendants in a
lawsuit filed in Federal District Court, Central District of
California, in March 2000 by Telepresence Technologies, LLC.
The plaintiff alleges that certain sports cards produced and
sold by Collector's Edge that incorporate a piece of sports
memorabilia infringe its patent for such cards. The plaintiff
asks for injunctive relief, compensatory monetary damages,
triple damages because of the alleged willful infringement and
attorney fees.
Both of these suits were filed during the quarter and are in
the early stages of litigation. The Company and Collector's
Edge dispute the allegations in both suits and plan to
vigorously defend these actions.
Item 2. Changes In Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
On March 30, 2000, the annual meeting of shareholders was held.
Shareholders present in person or by proxy, representing 27,926,946 shares of
Common Stock of the 30,491,515 shares outstanding on the record date, voted on
the following matters:
1. The shareholders elected the following six directors of the Company, which
are all of the directors of the Company, to hold office until the next
annual meeting of shareholders or until their successors have been duly
elected:
Votes Cast
Name Votes Cast For Against Abstentions
J.D. Clinton 27,106,508 299,368 521,070
Kent E. Lillie 27,106,508 299,368 521,070
A.E. Jolley 27,106,508 299,368 521,070
Joseph I. Overholt 27,106,508 299,368 521,070
J. Daniel Sullivan 27,106,508 299,368 521,070
Frank A. Woods 27,106,508 299,368 521,070
2. The shareholders approved the Company's 1999 Stock Option Plan by the
following vote:
Votes In Favor Votes Against Abstentions Broker Non-Votes
21,894,954 1,848,949 171,841 4,011,202
3. The shareholders approved the Company's Stock Option Plan for Kent E.
Lillie, its President and Chief Executive Officer, by the following vote:
Votes In Favor Votes Against Abstentions Broker Non-Votes
10,106,405 1,910,443 234,528 15,675,570
4. The shareholders approved an amendment to the Company's charter, thereby
causing certain provisions of the anti-takeover laws of the State of
Tennessee to be applicable to the Company, by the following vote:
Votes In Favor Votes Against Abstentions Broker Non-Votes
8,945,787 3,221,799 83,790 15,675,570
Item 6. Reports On Form 8-K.
A current report on Form 8-K was filed on March 15, 2000
reporting under Item 5 the text of an Internet chat room
question and answer session with Kent E. Lillie, the President
and C.E.O. of the Company.
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: 4/14/00
/s/ Arthur Tek
Arthur Tek, Executive VP & Chief Financial Officer
Date: 4/14/00
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