UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended June 30, 2001
[ ] Transition report pursuant
to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition
period from ______ to ______
Commission file number 0-25596
SHOP AT HOME, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-1282758
(State of incorporation) (IRS EIN)
5388 Hickory Hollow Parkway
P. O. Box 305249
Nashville, Tennessee 37230-05249
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 263-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $.0025 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) for 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock held by non-affiliates of the
registrant on September 10, 2001 was $89,708,088.
Number of shares of Common Stock outstanding as of September 10, 2001 was
41,816,831.
SHOP AT HOME, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
INDEX
PART I Page
----
Item 1. Business 4
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
PART II
Item 5. Market for Shop At Home's Common Stock 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 18
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 50
PART III
Item 10. Directors and Executive Officers of the Company 51
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management 51
Item 13. Certain Relationships and Related Transactions 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 52
SIGNATURES 60
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Shop At Home, Inc. (the "Company" or "Shop At Home") based
these forward-looking statements largely on its current expectations and
projections about future events and financial trends affecting the financial
condition of its business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about Shop At Home, including,
among other things:
o general economic and business conditions, both nationally and in the
Company's markets;
o the Company's expectations and estimates concerning future financial
performance and financing plans;
o anticipated trends in the Company's business;
o existing and future regulations affecting the Company's business;
o the Company's successful implementation of its business strategy;
o fluctuations in the Company's operating results;
o technological changes in the television and Internet industry;
o restrictions imposed by the terms of the Company's indebtedness;
o significant competition in the sale of consumer products through
electronic media;
o the Company's dependence on exclusive arrangements with vendors;
o the Company's ability to achieve broad recognition of its brand names;
o continued employment of key personnel and the ability to hire qualified
personnel; and
o legal uncertainties and possible security breaches associated with the
Internet.
In addition, in this report, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Shop At Home, its business or management, are
intended to identify forward-looking statements.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this report. Because of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
ITEM 1. BUSINESS
Company Overview
The Company sells a variety of consumer products through interactive
electronic media including broadcast, cable and satellite television and the
Internet. The Company's products fall into three principal categories:
collectibles; jewelry, beauty and fitness; and electronics. The Company produces
programming in a digital format at its facilities in Nashville, Tennessee. The
programming is transmitted by satellite to cable television systems, direct
broadcast satellite (DBS) systems and television broadcasting stations across
the country. The Company relaunched its website in April 2001. Formerly
collectibles.com, the site was renamed shopathometv.com to co-brand with the
television network.
The Company owns and operates five UHF television stations, which are
located in the San Francisco, Boston, Cleveland, Raleigh and Bridgeport markets.
Four of these television stations are located in the top 15 television markets
in the United States, including the Bridgeport, Connecticut, station which
covers a portion of the New York City designated market area (as defined by
Nielsen Media). As of September 10, 2001, the Company's television programming
reached, during all or part of the day, 63.4 million cable and direct broadcast
system (DBS) households, many of which received the programming on more than one
channel. The Company estimates (based on a proprietary formula) that these 63.4
million homes are the full-time equivalent of approximately 28.7 million cable
and DBS households.
The Company operates principally in two segments; Network and
shopathometv.com. For disclosure about operating segment data see Note 20 in the
Notes to Consolidated Financial Statements.
The Company is incorporated in Tennessee and its principal place of
business and executive offices are located at 5388 Hickory Hollow Parkway,
Nashville, Tennessee 37013. The Company's telephone number is (615) 263-8000 and
its Internet address is www.shopathometv.com.
Industry Background
Television Programming. Electronic commerce using full-time television
programming has grown to a $5.3 billion industry. This industry has four large
competitors, QVC, HSN, Shop NBC and Shop At Home.
Television station ownership allows a broadcaster to utilize the "must
carry" rules of the Federal Communications Commission (FCC). Generally, the must
carry rules require most cable systems (with the exception of some small
systems) to set aside up to one-third of their channels to carry the broadcast
signals of local, full-power television stations, including those broadcasting
programming that allows consumers to shop from their homes. These signals must
be carried on a continuous, uninterrupted basis and must be placed in the same
numerical channel position as when broadcast over-the-air, or on a mutually
agreeable channel. The five television stations owned by the Company enjoy these
must carry rights.
In addition, the FCC has adopted rules for implementing digital
(including high-definition) television service, or DTV service. The FCC has
allotted to eligible existing television stations a second channel on which to
provide DTV service. Television stations will be allowed to use these channels
according to their best business judgment. These uses include multiple standard
definition program channels, data transfer, subscription video, interactive
materials, and audio signals, while continuing to provide a free programming
service digitally that is at least comparable to today's analog service.
Internet Commerce. The Internet is an increasingly significant global
medium for communications, content and commerce. The increasing functionality,
accessibility and overall usage of the Internet have made it an attractive
commercial medium. The Internet is evolving into an alternative sales and
marketing channel to retail stores, mail-order catalogues and television
shopping. Online retailers can interact directly with customers, adjusting their
featured selections, editorial insights, shopping interfaces, pricing and visual
presentations to effectively market their products. The Company believes that
the minimal cost to originate programming on the Internet, the ability to reach
and serve a large and global group of customers electronically from a central
location, and the potential for personalized low-cost customer interaction all
provide additional economic benefits for online retailers.
Recent Developments
Channel 60-69 Auction
In the 1997 Balanced Budget Act, Congress directed the FCC to
reallocate the 746-806 MHz band of spectrum for both public safety and
commercial use. The FCC anticipates that this spectrum will be used for next
generation, or 3G, wireless services. This band currently is being used by
analog broadcast television stations operating on channels 60 through 69. The
spectrum is occupied by more than 100 analog broadcast television stations
("incumbent stations") throughout the country, including the Company's stations
located in the Boston and Cleveland markets and a former Company station located
in Houston.
Under the FCC's rules, these incumbent stations are permitted to
continue analog operations on Channels 60 through 69 until at least December 31,
2006. Auction of the spectrum for wireless services scheduled for September 12,
2001 has currently been postponed until spectrum allocation issues are resolved.
Because broadcasters and wireless carriers cannot use the spectrum
simultaneously, auction winners wishing to initiate commercial wireless services
before 2007, may desire to relocate the incumbent broadcast stations, including
the Company's incumbent stations.
The FCC has initiated a proceeding to investigate several 746-806 MHz
band-clearing proposals. While the Company is unable to predict the outcome of
this proceeding, the FCC also has concluded that there is a presumption in favor
of certain band-clearing agreements between broadcasters and auction winners.
Accordingly, assuming the auction is completed, there is a possibility that
either through an FCC-endorsed band-clearing plan, or through private
negotiations, opportunities may exist for broadcast station owners located in
the 746-806 MHz band (i.e. on channels 60-69), including the Company, to reach
agreements, including possible compensation with auction winners, to facilitate
relocation of certain stations. If such an opportunity exists, the Company may
be willing, for a negotiated price to cover its investment in these stations and
to recoup expected losses from potential over-the-air viewership losses
occurring from vacating the analog spectrum early, to relocate any or all the
stations listed above to its digital allocation. In addition to its stations in
Boston and Cleveland, the Company has retained an interest in the potential
spectrum auction profit related to its former Houston property.
Distribution of Programming
The Company distributes its programming to viewers by or through:
o the Company's owned and operated television stations;
o television stations with which the Company has entered into agreements
to purchase broadcast time;
o the carriage of those television broadcasts by cable television
systems under the "must carry" or 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 (DBS); and
o the Company's website, shopathometv.com.
Programming Origination. The Company originates its programming from
its studios and technical facilities in Nashville, Tennessee. The Company
transmits its programming to transponders leased or subleased by it on
satellites. The satellites retransmit the Company's signal to various program
distribution sources.
The Company also originates programming on its website with video
streaming of its live television network.
Owned and Operated Stations. The following table sets forth certain
information regarding each of the broadcast stations owned by the Company:
Actual cable
Households
DMA Households(1) Reached
---------------------------- -----------------------
License (In Thousands) (In Thousands)
DMA Expiration Rank of Broadcast
Call Sign Market Date DMA Television Cable June 30, 2001
---------- --------------- ---------- --------- ----------------- ---------- -----------------------
WSAH New York (2) 6/2007 1 6,936 5,189 765
(2)
KCNS San Francisco 12/2006 5 2,432 1,761 1,453
WMFP Boston 4/2007 6 2,242 1,812 1,724
WOAC Cleveland 10/2005 15 1,488 1,082 1,029
WRAY Raleigh 12/2004 29 873 540 382
(1) Per Nielsen Media Research, total number of broadcast television households
as of January 2001 and total number of cable households as of September 2000.
(2) While WSAH, Bridgeport, Connecticut, is inside the New York DMA, the station
only covers a portion of the market.
Affiliations. In 1993, the Company began an aggressive effort to
increase the distribution of its programming. Since that time, the Company has
been successful in significantly building a "network" for distribution of its
programming and in building relationships with television stations owned by
third parties, certain owners of multiple cable systems and with EchoStar, a
leading DBS provider. The Company's programming is now viewed via broadcast or
cable affiliation in more than 150 television markets, including all of the
country's top fifty 50 designated market areas (DMA's).
The Company's affiliation agreements typically are short term. The
Company's experience has been that most of the affiliation agreements continue
for long-term periods. The time purchased under these agreements is usually
preemptible only under certain limited circumstances, including public interests
or breaking news programming, and the Company generally pays a fixed rate for
the hours its programming is actually carried.
Products and Customers
Products and Merchandise. The Company offers a variety of consumer
products, including cards and memorabilia, coins, jewelry, computers, cameras,
fitness equipment, apparel and health and beauty merchandise.
The Company buys products from numerous vendors, and certain products
sold by the Company are available through multiple suppliers. The Company also
acquires unique products from a select group of vendors and believes that it
will be able to continue to identify sources of specialty products. By
monitoring product sales and revising product offerings the Company strives to
maintain an attractive and profitable product mix. The Company also is
continuously evaluating new products and vendors to broaden its merchandise
selection.
During the year ended June 30, 2001, the Company had three vendors from
whom it purchased more than 10% each of its total cost of goods sold. The three
vendors represented three different product categories and accounted for 12.7%,
12.2% and 10.0% of the Company's cost of goods sold. The Company believes that
it could find replacement vendors for the products sold by any one of these
vendors without a material adverse effect on the Company.
The following table sets forth certain information about the principal
categories of merchandise sold by the Company during the years ended June 30,
2001, 2000 and 1999:
Type of Product Percentage of Net Revenues
- --------------------------------------------- ----------------------------------------------------------------
2001 2000 1999
-------------------- ----------------- ------------------
Collectibles 57.3 % 56.1 % 67.5 %
Jewelry, beauty and fitness 28.1 20.8 15.9
Electronics 14.6 23.1 16.6
Total 100.0 % 100.0 % 100.0 %
Programming and Presentation of Merchandise. The Company segments most
of its programming into product or theme categories. It has the studio and
broadcasting capability to produce multiple live shows simultaneously. The
Company's technical facilities allow it to broadcast an analog and digital
signal to its main satellite transponder in the same transmission signal. The
Company replays selected programming on its website.
The Company's programs use a show-host approach, with the host
conveying information about the products and demonstrating their use. The viewer
may purchase any product the Company offers, subject to availability. The
Company seeks to differentiate itself from other televised shopping programmers
by using an informal, personal style of presentation and by offering unique
products.
Returns of Products and Merchandise. The Company generally offers its
customers a full refund on merchandise returned within 30 days of the date of
purchase. For the year ended June 30, 2001, returns were 25.6% of total revenue,
compared to 23.0% for the year ended June 30, 2000, and 18.6% for the year ended
June 30, 1999.
Charge-Backs. The Company has experienced a decrease in credit card
charge-backs from $4.3 million as of June 30, 2000 to $3.3 million as of June
30, 2001. The decrease is primarily due to the Company taking proactive measures
to reduce fraud.
Shipping. The Company ships customer orders as promptly as possible
after taking the order, via a combination of ground and priority delivery
services. The Company ships either from its warehouse facility or through
selected vendors who ship products directly to the customer. The Company
maintains its own customer service department to address customer inquiries
about ship dates, product, and billing information. The Company is seeking to
improve delivery times, packaging and other aspects of its shipping operations
through the utilization of a centralized fulfillment operation which it launched
in July 2001.
Customer Relations. Customers can place orders with the Company 24
hours a day, seven days a week, over the Internet or via the Company's toll-free
number (800) 366-4010. The Company uses customer sales representatives and an
automated touch-tone ordering system to accept customer orders. A majority of
its customers pay for their purchases by credit card, and the Company also
accepts payment by money order, check, debit card and electronic funds transfer.
Mechanical, electronic and other items may be covered by manufacturer
warranties. The Company strives to continuously improve its customer service and
to make objective comparisons with its competitors.
Seasonality. The Company's business is somewhat seasonal, with
its sales made in the last quarter of the calendar year normally being the
highest for the year.
Competition
Competition in Television Commerce. The television commerce industry is
competitive with QVC and HSN being the revenue leaders. The Company's
programming competes directly with QVC, HSN and, often, ShopNBC in almost all of
its markets. The Company's competitors are well-established and have
substantially greater financial, distribution and marketing resources than the
Company. They also reach a larger percentage of U.S. television households. The
Company competes generally with traditional store and catalogue retailers.
Competition in Internet Retailing. Internet commerce is also highly
competitive. Many major retailers and marketers now sell their products on the
Internet. Despite a high failure rate, new retail websites are being launched
daily and may compete directly with shopathometv.com in the future.
Employees
As of June 30, 2001, the Company employed approximately 526 persons of
which approximately 484 were full-time employees. The Company believes it
maintains a good relationship with its employees. Presently, no collective
bargaining agreements exist between the Company and its employees.
Information Technology
Integrated "Enterprise Solution" Computer System. The Company operates
on an enterprise- wide platform integrating customer management, the Internet,
and financial reporting. The system is scalable as the Company grows and
interfaces with the Company's telephone center operations, its website, e-mail
and vendors with electronic data interchange capabilities.
Customer Contact Center. The Company manages customer sales and service
through a state-of-the-art telephone system. The telephone system is combined
with the enterprise-wide computer system to support automated ordering through
integrated voice response. The system also supports automated number
identification, skills based routing (to the most qualified operator) and
priority queuing for top customers. The Company is currently upgrading the
system to be more tightly integrated. When complete, the system will be able to
provide the sales representatives with the purchase history of its customers.
The system is currently configured to handle increased call volume.
Internet Architecture. The Company's web site, shopathometv.com, is
designed around "best of breed" e-commerce computer solutions. The system is
totally integrated with the broadcast network. State-of-the-art e-commerce
software is used to provide rules-based product presentation (providing
personalized product offerings for repeat customers). The site is designed to
support thousands of stocking units pulled directly from the Company's product
database and offers a live video stream of the Company's television programming
and show schedules. The site is hosted at the Company's facilities in Nashville.
Broadcast Technology
Production. The Company's production facility in Nashville features
state-of-the-art digital equipment. Utilizing "serial digital" video processing
allows the Company to produce programs with minimal signal degradation in any
part of the production process, and to provide the viewer with optimum signal
quality. Computer video server technology and the MPEG-2 format are used
extensively to allow instant recall of product shots or promotional spots to be
used on the air. Panasonic's DVCPRO videotape format is used for digital content
recording and playback. Video promotions are produced in editing suites
utilizing computer equipment and the Motion-JPEG video format.
Distribution. The Company currently has four satellite distribution
channels: three analog, and one digital. The uplink signals are transmitted
through two state-of-the-art 9.3 meter dishes at the Company's Nashville
facilities. A portion of the Company's affiliates, including all five of its
owned and operated stations, have begun using the digital MPEG-2 signal to
deliver an ultra-clear picture. This signal can be redistributed from each
location at very high quality. This system is also a component necessary in the
upcoming conversion to the DTV television format. The Company can also use this
technology to "multiplex," or send different programming to different affiliates
simultaneously. The Company's primary feed is via PanAmSat's satellite G-11.
ITEM 2. PROPERTIES
The Company's technical facilities, studios and executive offices are
located in Nashville, Tennessee in a 74,000 square foot building it owns and in
9,200 square feet of leased space in an adjacent facility. The adjacent facility
is owned by an entity controlled by J.D. Clinton, who is the Chairman of the
Board and a principal shareholder of the Company. The terms of the lease are
comparable to those available in similar facilities in the area where they are
located. Additionally, the Company leases a 43,000 square foot warehouse located
near its Nashville headquarters.
Each of the Company's owned television stations has studio, office and
transmitter facilities, all of which are leased.
ITEM 3. 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 certain
orders and that certain amounts it paid to the Company under a written agreement
should be refunded. The vendor is claiming entitlement to alleged lost profits
asserting the Company did not provide an amount of broadcast network time in
1999 that the vendor alleges was orally promised in connection with the written
agreement. The Company has filed its answer and has vigorously pursued its
defense of this action since the settlement discussions between the parties
failed. This case is set for trial in February 2002.
The Company is subject to routine litigation arising from the normal
and ordinary operation of its business. The Company believes that such
litigation is not likely to have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR SHOP AT HOME'S COMMON STOCK
The Company's Common Stock was quoted in the Nasdaq SmallCap Market
from June 1995 until February 9, 1999. Since February 9, 1999, the Company's
common stock has been quoted in the Nasdaq National Market under the symbol
"SATH".
The range of market prices for the Company's Common Stock during the
two most recent fiscal years, as reported by the high and low closing prices on
the National Market.
HIGH LOW
FISCAL 2000
First Quarter $10.25 $ 6.94
Second Quarter 13.88 9.44
Third Quarter 14.00 8.17
Fourth Quarter 8.00 4.19
FISCAL 2001
First Quarter $5.19 $2.44
Second Quarter 2.94 0.97
Third Quarter 2.03 1.28
Fourth Quarter 3.21 1.44
As of June 30, 2001, there were approximately 595 owners of the Common
Stock on record.
The Company has not declared or paid any dividends on its Common Stock
in the last two fiscal years and does not anticipate declaring or paying any
dividends in the foreseeable future. Any future determination as to the
declaration and payment of dividends will be made at the discretion of the
Company's Board of Directors and will depend on then-existing conditions,
including its financial condition, results of operations, contractual
restrictions, capital requirements, business prospects and such other factors as
the Board of Directors deems relevant. The Company's ability to pay cash
dividends is substantially restricted under the terms of the Indenture entered
into in March 1998 in connection with its issuance of the 11% Senior Secured
Notes due 2005.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto included as Item 8. The statements of operations and balance
sheet data set forth below as of and for each of the five years in the period
ended June 30, 2001, are derived from the audited financial statements of the
Company.
For factors affecting the comparability of Selected Financial Data, refer to
Item 7.
Years Ended June 30,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data and ratios)
Statements of Operations Data:
Net revenues $ 177,615 $ 201,556 $ 150,399 $ 100,906 $ 72,598
Cost of goods sold (excluding other
operating expenses and non-
recurring move related expenses) 122,353 133,751 93,396 60,410 44,887
Other operating expenses 98,448 79,153 53,726 36,099 25,241
Non-recurring move related expenses(1) - - 986 - -
Other expense (income) (4) (48,992) 154 46 (900) -
Interest income 906 749 656 564 66
Interest expense 11,875 9,663 8,932 2,693 993
---------------------------------------------------------------------------
Income (loss) before income taxes (5,163) (20,416) (6,031) 3,168 1,543
Income tax expense (benefit) 262 (7,709) (2,492) 1,204 (80)
---------------------------------------------------------------------------
Net income (loss) from continuing
operations $ (5,425) $ (12,707) $ (3,539) $ 1,964 $ 1,623
---------------------------------------------------------------------------
Income (loss) from discontinued operations
of CET (3) (598) (786) 235 (451) (67)
Loss on disposal of CET (2,864) - - - -
---------------------------------------------------------------------------
Net income (loss) before cumulative
effect of accounting change (8,887) - - - -
Cumulative effect of accounting change (1,359) - - - -
---------------------------------------------------------------------------
Net income (loss) (10,246) (13,493) (3,304) 1,513 1,556
Preferred stock accretion and dividends 8,156 6 14 14 14
---------------------------------------------------------------------------
Net loss available for common shareholders $(18,402) $ (13,499) $ (3,318) $1,499 $1,542
===========================================================================
Weighted average common
shares - basic 36,311 30,490 23,771 14,511 10,651
Weighted average common
shares - dilutive 36,311 30,490 23,771 17,496 14,268
Basic earnings (loss) per share (2) $ (0.51) $ (0.44) $ (0.14) $ 0.10 $ 0.14
Diluted earnings (loss) per share (2) $ (0.51) $ (0.44) $ (0.14) $ 0.09 $ 0.11
Cash dividends per share of
common stock $ - $ - $ - $ - $ -
Balance sheet data
Working capital $ 8,579 $ 16,806 $ (17,646) $ 11,568 $(4,642)
Total assets 180,017 227,294 170,697 143,770 34,410
Current liabilities 28,785 45,468 48,364 19,212 18,078
Long-term debt and capital leases, less
current portion 75,484 84,336 75,893 75,254 11,135
Redeemable preferred stock 161 12,504 834 1,393 1,393
Stockholders' equity 75,587 84,986 45,297 44,360 3,804
(1) these expenses relate mainly to employee relocation, rental of temporary
facilities, the grand opening of Shop At Home's Nashville headquarters and
employee bonuses associated with the relocation.
(2) for details of the calculation of basic and dilutive earnings per
share, see Note 12 to the consolidated financial statements.
(3) CET is the abbreviation of Collector's Edge of Tennessee, Inc.
(4) Other income includes a gain of $48,929 related to the sale of the
Company's Houston television station, see Note 18 to the consolidated
financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the "Selected Financial Data" and the Company's consolidated financial
statements and related notes included elsewhere herein.
Overview
The Company's operating results for the fiscal year ended June 30,
2001, were poor. The results failed to reflect the Company's potential in view
of the decline in revenues and operating income from the prior fiscal year.
Also, the fiscal 2001 results do not conform with the double-digit revenue
increases reported by the Company's publicly held television shopping
competitors. Shop At Home's Board of Directors responded to the lack of
performance in fiscal 2001 by terminating the employment of the Chief Executive
Officer and creating an Office of the Chairman ("OTC")to manage the Company. The
OTC (consisting of four experienced executives) believes that the Company can
generate positive earnings before interest, taxes, depreciation and
amortization.
In last year's Annual Report on Form 10-K, the Company outlined a
turnaround plan to reduce costs and improve revenues. This plan failed to
produce the intended bottom-line results, primarily because of sales shortfalls.
The OTC has formulated a more comprehensive turnaround plan for fiscal
2002 than presented for last year. Several of the initiatives for fiscal 2002
are proprietary, sharing the common goals of increasing shipped sales, reducing
returns and improving margin (lowering cost of goods sold). The Company's
merchandise mix, on-air presentation, customer service and vendor relationships
are changing, and will continue to evolve during fiscal 2002 to create revenue
growth comparable to that of its competitors.
The following table sets forth for the periods indicated the percentage
relationship to net revenues of certain items included in the Company's
Statements of Operations:
Years Ended June 30,
--------------------
2001 2000 1999
---- ---- ----
Net revenues 100.0 % 100.0 % 100.0 %
Cost of goods sold (excluding items listed below) 68.9 66.4 62.1
Salaries and wages 12.4 7.7 6.7
Transponder and affiliate charges 20.0 16.5 17.5
Advertising 3.0 1.1 0.3
General and administrative expenses 12.1 9.8 8.4
Depreciation and amortization 7.9 4.1 2.8
Total operating expenses 124.3 105.6 97.8
Non-recurring move-related expenses - 0.7
Interest income 0.5 0.4 0.4
Interest expense (6.7) (4.8) (5.9)
Other income 27.6 (0.1) -
Net loss before income taxes (2.9) (10.1) (4.0)
Income tax expense (benefit) 0.1 (3.8) (1.6)
Net loss before discontinued operations (3.0) (6.3) (2.4)
Discontinued operations, net of tax (2.0) (0.4) 0.2
Net loss before cumulative effect of
accounting change (5.0) (6.7) (2.2)
Cumulative effect of accounting change (0.8)
Net loss (5.8) (6.7) (2.2)
Results of Operations
Fiscal Year 2001 vs. Fiscal Year 2000
Net Revenues. Shop At Home's net revenues for the year ended June 30,
2001, were $177.6 million, a decrease of 11.9% over net revenues of $201.6
million for the year ended June 30, 2000. The core business of sales through the
television network accounted for 89.5% of net revenues. The remaining 10.5% of
net revenues came from shopathometv.com. Returns of merchandise increased to a
rate of 25.6% of total revenue from 23.0% in the prior year. Net revenues
decreased primarily due to a decline in the sports memorabilia and collectible
toys categories and a lack of popular new products in other categories.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and freight. For the year ended June 30, 2001, the cost of goods
sold as a percentage of net revenues increased to 68.9% from 66.4% for the year
ended June 30, 2000. This increase was primarily due to a greater percentage of
sales of lower-margin products as well as margin reductions in most of the
Company's merchandise categories.
Salaries and Wages. Salaries and wages for the year ended June 30,
2001, were $22.1 million, an increase of 43.4% compared to the year ended June
30, 2000. Salaries and wages as a percent of revenues increased to 12.4% from
7.7%. Included in salaries and wages was severance compensation for the
Company's CEO. Salaries and wages in the prior year were reduced by the
capitalization of expenditures allocated to the website launch and the
installation of an enterprise-wide computer system. Adjusting for the CEO's
severance and the capitalization, salaries and wages increased 9.6%. This
increase was primarily due to enhanced staffing needs associated with the
enterprise-wide computer systems.
Transponder and Affiliate. Transponder and affiliate costs for the year
ended June 30, 2001, were $35.5 million, an increase of $2.2 million or 6.5%
compared to the year ended June 30, 2000. The increase was primarily due to the
addition of new affiliates and homes reached.
Advertising. Advertising costs for the year ended June 30, 2001, were
$5.3 million compared to $2.2 million on June 30, 2000 or an increase of 137.5%.
Advertising costs are almost entirely related to the Company's affiliation
agreements. Total transponder, affiliate and advertising expense rose to $40.8
million or an increase of 14.8% from the prior year. At the same time, however,
average full-time equivalent homes reached grew 18.6%.
General and Administrative. General and administrative expenses for the
year ended June 30, 2001, were $21.6 million, an increase of $1.8 million or
9.0% compared to the year ended June 30, 2000. As a percentage of revenues, this
constituted an increase to 12.1% in 2001 from 9.8% in 2000. The increase was
primarily due to $2.5 million in additional provision for bad debt, offset by a
variety of cost reduction improvements implemented this year. The increased bad
debt reserve reflects management's view that credit card collections are
becoming more difficult as consumer indebtedness increases and the economy
weakens.
Depreciation and Amortization. Depreciation and amortization for the
year ended June 30, 2001, was $13.9 million, an increase of $5.5 million or
66.4% compared to the year ended June 30, 2000. The increase was primarily due
to the installation of an enterprise-wide information system and the launch of
the Company's website. Additionally, a $1.1 million increase in depreciation
expense was related to the reduction of the useful life of certain computer
hardware and software from five years to three years to better reflect the
expected utility of these assets.
Interest Expense. Interest expense for the year ended June 30, 2001,
was $11.9 million, an increase of $2.2 million over the year ended June 30,
2000. The increase was due primarily to the interest on the Company's $20.0
million line of credit.
Interest Income. Interest income, from cash and cash equivalents, for
the year ended June 30, 2001, was $0.9 million compared to $0.7 million in 2000.
Average cash balances were similar year to year.
Income Tax (Benefit) Expense. Income tax expense from continuing
operations was $0.3 million for the year ended June 30, 2001 versus a tax
benefit of $7.7 million in 2000 even though the Company incurred losses in both
years. The change in the effective tax rate is primarily due to a full valuation
allowance provided against the Company's state net operating loss carry
forwards.
Other Income. On March 20, 2001 the Company sold its Houston Television
Station KZJL for $57.0 million. The gain recognized on the sale is the result of
the proceeds less $6.8 million for the net book value of fixed assets and
license cost and $1.3 million in closing costs.
Discontinued Operations. In December 2000, the Company decided
to discontinue the operations of its subsidiary, Collector's Edge of
Tennessee, Inc. (CET). This resulted in a loss of $3.5 million, net of
applicable tax benefits.
Cumulative Effect of Accounting Change. In accordance with SAB101, the
Company has reduced revenue for the products which were shipped at the end of
the period but not received by the customer by recording a cumulative effect of
an accounting change of $1.4 million (net of a tax benefit of $0.8 million) for
the effects through June 30, 2000.
Fiscal Year 2000 vs. Fiscal Year 1999
Net Revenues. Shop At Home's net revenues for the year ended June 30,
2000, were $201.6 million, an increase of 34.0% over net revenues of $150.4
million for the year ended June 30, 1999. The core business of sales through the
television network accounted for 97.7% of net revenues. The remaining 2.3% of
net revenues came from shopathometv.com.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and freight. For the year ended June 30, 2000, the cost of goods
sold as a percentage of net revenues increased to 66.4% from 62.1% for the year
ended June 30, 1999. This increase is mainly due to a greater percentage of
sales of lower-margin product categories and the decline of the collectible toy
market (a high margin item). Margins were also negatively affected by an
increase in credit card fraud.
Salaries and Wages. Salaries and wages for the year ended June 30,
2000, were $15.4 million, an increase of 53% compared to the year ended June 30,
1999. Salaries and wages as a percent of revenues increased to 7.7% from 6.7%.
This increase was associated with the start-up of shopathometv.com and increased
customer staffing needs due to greater sales volume.
Transponder and Affiliate. Transponder and affiliate costs for the year
ended June 30, 2000, were $33.3 million, an increase of $7.0 million or 26.6%
compared to the year ended June 30, 1999. The increase was primarily due to the
addition of new affiliates and homes reached.
Advertising. Advertising costs for the year ended June 30, 2000, were
$2.2 million, an increase of $1.7 million or 389.6% compared to the year ended
June 30, 1999. The advertising is primarily paid to affiliates as part of their
carriage agreement. Total transponder, affiliate and advertising expense rose to
$35.5 million or an increase of 32.8%. At the same time, however, average
full-time equivalent homes reached grew 33.1%
General and Administrative. General and administrative expenses for the
year ended June 30, 2000, were $19.8 million, an increase of $7.1 million or
56.2% compared with the year ended June 30, 1999. As a percentage of revenues,
this constituted an increase to 9.8% in 2000 from 8.4% in 1999. This increase
was primarily due to the start-up costs associated with shopathometv.com and the
enterprise-wide information system.
Depreciation and Amortization. Depreciation and amortization for the
year ended June 30, 2000, was $8.4 million, an increase of $4.2 million or 99.3%
compared to the year ended June 30, 1999. The primary components of this
increase were the full year of amortization expense of the Bridgeport,
Connecticut, station's FCC license acquired in June 1999, depreciation of
Company's headquarters facilities acquired in September 1998 and depreciation of
the enterprise-wide information system which became functional in October 1999.
Interest Expense. Interest expense for the year ended June 30, 2000,
was $9.7 million, an increase of $0.7 million over the year ended June 30, 1999.
The increase was due primarily to the interest on the Company's senior bank
facility.
Interest Income. Interest income, from cash and cash equivalents, for
the year ended June 30, 2000, was $0.7 million compared to $0.6 million in 1999.
Average cash balances were similar year to year.
Income Tax (Benefit) Expense. Income tax (benefit) for the year
ended June 30, 2000 was provided at an effective tax rate of 38%.
Liquidity and Capital Resources
The Company had $19.6 million of cash on hand at June 30, 2001. In
addition, during August 2001, the Company executed and drew down a $17.5 million
senior bank credit facility. This credit facility restricts the Company from
issuing dividends on its common stock and has annual EBITDA requirements.
Management believes that the facility, when combined with its cash position at
June 30, 2001, is sufficient to fund the Company's operations during its
turnaround period.
Nevertheless, during fiscal 2001, the Company experienced a large loss
from operations of $43.2 million. If the Company is unable to reduce its
operating losses significantly during fiscal 2002 and beyond, additional
financing or asset sales will be required. However, there can be no assurance
that the Company could obtain additional financing or that asset sales could be
consummated. Also, some or all of the proceeds generated by asset sales could be
required to repay the Company's indebtedness.
The OTC has formulated a comprehensive turnaround plan for fiscal 2002.
Significant reductions in affiliate charges have already been achieved since
June 30, 2001. Payroll continues to be reduced. The turnaround plan, however,
emphasizes multiple sales initiatives with the common goals of increasing
shipped volume, reducing returns and improving margin (lowering cost of goods
sold). The Company's merchandise mix, on-air presentation, customer service and
vendor relationships are changing, and will continue to evolve during 2002, as
management seeks revenue growth comparable to that of the competition. The
Company has hired a new Executive Vice President of Sales and Merchandising who
has substantial experience in similar positions with its largest competitor.
The OTC believes its turnaround plan is sound and attainable. However,
there can be no assurance that the Company will successfully implement its
turnaround plan or that its plan is adequate.
If the Company fails to make sufficient progress in improving net
revenues and gross profit before operating expenses, the latter may be reduced
further. Also, the Company may be required to seek to amend certain operating
performance covenants in its senior bank facility if its financial performance
does not meet targets established in the turnaround plan. If the Company were
unable to obtain waivers or amend its senior bank facility, then the lender
could require repayment of the $17.5 million as well as put the Company in
default, pursuant to cross default provisions, under its $75.0 million of Senior
Secured Notes. The Company believes that it would be able to either obtain
waivers or amendments to its senior bank facility or obtain additional sources
of funding. However, there can be no assurance that the Company will be able to
obtain waivers or amendments or obtain additional funding.
Capital Expenditures
The Company anticipates that its capital expenditure needs during
fiscal 2002 will be moderate, consisting primarily of approximately $4.0 million
for the build-out of the five owned television stations' digital transmission
facilities.
Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board (FASB or the
"Board") issued two Statements: Statement No. 141 (FAS 141), Business
Combinations, and Statement No. 142 (FAS 142), Goodwill and Other Intangible
Assets.
FAS 141 primarily addresses the accounting for the cost of an acquired
business (i.e., the purchase price allocation), including any subsequent
adjustments to its cost. FAS 141 supercedes APB 16, Business Combinations.
The most significant changes made by FAS 141 are:
o It requires use of the purchase method of accounting for all business
combinations, thereby eliminating use of the pooling-of-interests
method.
o It provides new criteria for determining whether intangible assets
acquired in a business combination should be recognized separately from
goodwill.
FAS 141 is effective for all business combinations (as defined in the
Statements) initiated after June 30, 2001, and for all business combinations
accounted for by the purchase method that are completed after June 30, 2001
(that is, the date of acquisition is July 1, 2001, or later).
FAS 142 primarily addresses the accounting for goodwill and intangible
assets after their acquisition (i.e., the post-acquisition accounting), and FAS
142 supercedes APB 17, Intangible Assets.
The most significant changes made by FAS 142 are:
o Goodwill and indefinite-life intangible assets will no longer be
amortized and will be tested for impairment at least annually.
o Goodwill will be tested at least annually at the reporting unit level.
o The amortization period of intangible assets with finite lives is no longer
limited to forty years.
FAS 142 is effective for fiscal years beginning after December 15,
2001, to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. Early application is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
period financial statements have not been issued previously. In all cases, the
provisions of FAS 142 should be applied at the beginning of a fiscal year.
Retroactive application is not permitted.
The Company intends to adopt these statements July 1, 2001. The effect
of such adoption will be to discontinue amortization of the license costs and
goodwill which totaled $2.9 million for the year ended June 30, 2001.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may affect 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 $19.6 million as of June 30, 2001. 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 investment rates
available for short-term high quality investments.
The Company is not exposed to market risk through potential interest
rate fluctuation on its $75.0 million Senior Secured Notes, because interest
accrues on this debt at a fixed rate. The Company does incur some market risk on
its $17.5 million senior bank facility, which accrues interest at a floating
rate based on LIBOR (London Interbank Offered Rate)or the lender's prime rate at
the Company's option. The Company has chosen not to incur hedging expense
related to this facility at this time.
Certain risks are associated with the products sold by the Company,
namely that product prices are subject to changes in market conditions. The
Company manages this risk by maintaining minimal inventory levels as a
percentage of its revenues. The Company also reserves the right, with many
vendors, to return products. The Company's 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.
MD&A
Selected Quarterly Data (unaudited)
FYE 2000 (2) FYE 2001 (2)
------------------------------------------------ -------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Sep-99 Dec-99 Mar-00 Jun-00 TOTAL Sep-00 Dec-00 Mar-01 Jun-01 TOTAL
------------------------------------------------ -------------------------------------------------
Net Revenues (1) $ 45,282 $ 54,208 $ 55,884 $ 46,182 $ 201,556 $ 40,779 $ 46,515 $ 50,402 $ 39,919 $ 177,615
Income (Loss) From Operations 661 1,907 (2,984) (10,932) 11,348) (8,848) (5,508) (13,497) (15,333) (43,186)
Net Income (Loss) From Continuing
Operations (790) (103) (3,312) (8,502) (12,707) (7,057) (5,203) 19,825 (12,990) (5,425)
Discontinued Operations - (211) (212) (363) (786) (398) (2,949) (115) - (3,462)
Net Loss Before Cumulative Effect of
Accounting Change (790) (314) (3,524) (8,865) (13,493) (7,455) (8,152) 19,710 (12,990) (8,887)
Cumulative Effect of Accounting Change - - - - - (1,359) - - - (1,359)
Net Loss (790) (314) (3,524) 8,865) (13,493) (8,814) (8,152) 19,710 (12,990) (10,246)
Preferred Stock Accretion - (3) - (3) (6) (1,207) (4,227) (2,722) - (8,156)
Net Loss Available for Common
Shareholders (790) (317) (3,524) (8,868) (13,499) (10,021) (12,379) 16,988 (12,990) (18,402)
Per Share (0.03) (0.01) (0.12) (0.28) (0.44) (0.32) (0.35) 0.43 (0.27) (0.51)
(1) Restated for EITF Issue 00-10, Accounting for Shipping and Handling Fees
and Costs. The Company changed its classification of shipping and
handling costs in the second quarter of fiscal 2001.
(2) Amounts have been restated to reflect the discontinuance of CET.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Accountants 22
Consolidated Balance Sheets at June 30, 2001, and June 30, 2000 23-43
Consolidated Statements of Operations for the years ended June 30, 2001,
June 30, 2000, and June 30, 1999 25
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 2001, June 30, 2000, and June 30, 1999 26
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, June 30, 2000, and June 30, 1999 27-28
Notes to Consolidated Financial Statements 29-49
Report of Independent Accountants
Board of Directors and Stockholders
Shop At Home, Inc.
In our opinion, the consolidated financial statements listed in the Index to
Consolidated Financial Statements present fairly, in all material respects, the
financial position of Shop At Home, Inc. and its subsidiaries at June 30, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 2001 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the Index appearing
under Item 14 (a)(3) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits of these
financial statements and the financial statement schedule in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Nashville, Tennessee
September 12, 2001
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
June 30,
--------------------------------------
2001 2000
------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 19,557 $ 27,515
Accounts receivable - trade, net 3,103 15,892
Inventories, net 9,953 15,828
Prepaid expenses 884 1,214
Deferred tax assets 3,177 1,825
Notes receivable 380 -
Income tax receivable 310 -
------------------ -----------------
Total current assets 37,364 62,274
Related party - note receivable, net of discount
of $96 for 2000 - 703
Property and equipment, net 39,171 48,812
Deferred tax asset 9,418 8,128
Restricted cash - 5,058
Intangibles 89,784 98,817
Other assets 4,280 3,502
------------------ -----------------
Total assets $ 180,017 $ 227,294
================== =================
The accompanying notes are an integral part of these consolidated
financial statements
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
----------------------------------------------------------
2001 2000
------------------------ -----------------------
CURRENT LIABILITIES
Current portion - long term debt and capital leases $ 877 $ 12,775
Accounts payable - trade 9,998 16,707
Credits due to customers 3,443 2,711
Other payables and accrued expenses 12,343 12,797
Deferred revenue 2,124 478
------------------------ -----------------------
Total current liabilities 28,785 45,468
LONG-TERM LIABILITIES
Capital leases 484 1,336
Long-term debt 75,000 83,000
REDEEMABLE PREFERRED STOCK
Series A - $10 par value, 1,000,000 shares authorized, 16,088 and 92,732
issued and outstanding in 2001 and 2000, respectively-redeemable at $10 per
share plus unpaid dividends accrued 161 941
Series B - $10,000 stated value, 2,000 shares authorized, 0 and 2,000
issued and outstanding in 2001 and 2000, respectively - redeemable as
discussed in Note 6. - 11,563
COMMITMENTS & CONTINGENCIES
(NOTES 4, 5, 6, 9, 10,13, 16 and 17)
STOCKHOLDERS' EQUITY Common stock - $.0025 par value, 100,000,000 shares
authorized, 41,815,831 and 31,264,772 shares
issued and outstanding in 2001 and 2000, respectively 105 78
Additional paid in capital 110,904 106,482
Note receivable from related party (Note 10) (3,602) -
Accumulated deficit (31,820) (21,574)
------------------------ -----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 180,017 $ 227,294
======================== =======================
The accompanying notes are an integral part of these
consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended June 30,
--------------------------------------------------------------
2001 2000 1999
--------------------- ------------------- ------------------
Net revenues $ 177,615 $ 201,556 $ 150,399
Operating expenses:
Cost of goods sold (excluding items listed below) 122,353 133,751 93,396
Salaries and wages 22,120 15,427 10,080
Transponder and affiliate charges 35,463 33,291 26,303
Advertising 5,340 2,248 459
General and administrative 21,590 19,814 12,682
Depreciation and amortization 13,935 8,373 4,202
Non-recurring move-related expenses - - 986
--------------------- ------------------- ------------------
Total operating expenses 220,801 212,904 148,108
--------------------- ------------------- ------------------
Income (loss) from operations (43,186) (11,348) 2,291
Interest income 906 749 656
Interest expense (11,875) (9,663)
(8,932)
Gain on sale of station (see note 18) 48,929 - -
Other income (expense) 63 (154) (46)
--------------------- ------------------- ------------------
Net loss before taxes (5,163) (20,416) (6,031)
Income tax expense (benefit) 262 (7,709) (2,492)
--------------------- ------------------- ------------------
Net loss from continuing operations (5,425) (12,707) (3,539)
--------------------- ------------------- ------------------
Income (loss) from discontinued operations of CET to December 29, 2000, plus
applicable income tax benefit of $368, $481 and $(144), respectively
(see note 17) (598) (786) 235
Loss on disposal of CET, plus applicable income tax
benefit of $1,754 (see note 17) (2,864) - -
--------------------- ------------------- ------------------
Net loss before cumulative effect of accounting
change (8,887) (13,493) (3,304)
Cumulative effect of accounting change plus applicable
income tax benefit of $832 (see note 1) (1,359) - -
--------------------- ------------------- ------------------
Net loss (10,246) (13,493) (3,304)
Preferred stock accretion and dividends (see note 6) (8,156) (6) (14)
--------------------- ------------------- ------------------
Net loss available for common shareholders $ (18,402) $ (13,499) $ (3,318)
===================== =================== ==================
Basic earnings (loss) per common share:
Loss from continuing operations $ (0.37) $ (0.42) $ (0.15)
Earnings (loss) from discontinued operations (0.10) (0.02) 0.01
Cumulative effect of accounting change (0.04) - -
--------------------- ------------------- ------------------
Basic loss per share $ (0.51) $ (0.44) $ (0.14)
===================== =================== ==================
Diluted earnings (loss) per common share:
Loss from continuing operations $ (0.37) $ (0.42) $ (0.15)
Loss from discontinued operations (0.10) (0.02) 0.01
Cumulative effect of accounting change (0.04) - -
--------------------- ------------------- ------------------
Diluted loss per share $ (0.51) $ (0.44) $ (0.14)
===================== =================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 30, 2001, 2000 and 1999
(In thousands, except share data)
Shareholder Additional
Common Note Paid-In Accumulated
Stock Receivable Capital Deficit
----------------- ---------------- -------------- ----------------
Balance, June 30, 1998 (23,313,191 shares) $ 58 $ 49,079 $ (4,777)
Issuance of 11,226 shares in consideration of personal
Guaranty - 40 -
Purchase and retirement of (90,300) shares - (203) -
Preferred stock dividend accrued - (14) -
Exercise of 350,000 warrants 1 419 -
Exercise of 600,000 options 1 1,499 -
Exercise of 317,800 employee stock options exercised 1 921 -
Conversion of 55,905 shares of preferred stock - 559 -
Tax benefit of non-qualified stock options - 1,017 -
Net loss - - (3,304)
----------------- ---------------- -------------- ----------------
Balance, June 30, 1999 (24,557,822 shares) 61 53,317 (8,081)
Issuance of 5,828,000 shares in connection with
public offering - net of issuance costs 15 43,219 -
Issuance of warrants to purchase common stock - 4,002 -
Allocation of preferred stock proceeds to beneficial
conversion feature - 3,596 -
Preferred stock dividend - (6) -
Exercise of 479,934 warrants 1 700 -
Exercise of 400,600 employee stock options 1 800 -
Tax benefit of nonqualified stock options exercised - 973 -
Conversion of preferred stock (19,913 shares) - 199 -
Reversal of prior conversion of preferred stock (31,820 shares) - (318) -
Net loss - - (13,493)
----------------- ---------------- -------------- ----------------
Balance, June 30, 2000 (31,264,772 shares) 78 106,482 (21,574)
Shareholder option note (see note 10) $ (3,602)
Preferred stock conversion (7,874,506 shares) 22 4,100 -
Preferred stock dividend paid in common shares (489)
(362,348 shares) - -
Accretion of beneficial conversion feature related to
Series B preferred stock - (3,810) -
Loss on repurchase of Series B preferred stock
treated as a dividend - (3,643) -
Cumulative effect of adoption of EITF 00-27 - 3,701 -
Preferred stock dividend paid in cash - (220) -
Exercise of 2,170,066 warrants 5 3,597 -
Exercise of 33,400 employee stock options - 56 -
Tax benefit of nonqualified stock options exercised - 9 -
Issuance of 401K stock (110,739 shares) - 123 -
Net loss - - (10,246)
----------------- ---------------- -------------- ----------------
Balance, June 30, 2001 (41,815,831 shares) $ 105 $ (3,602) $ 110,904 $(31,820)
================= ================ ============== ================
The accompanying notes are an integral part of these
consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
Years Ended June 30,
-------------------------------------------------------------
2001 2000 1999
-------------------- ------------------- ------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (10,246) $ (13,493) $ (3,304)
Non-cash expenses/(income) included in net income (loss):
Depreciation and amortization 13,935 9,405 5,479
Discontinued operations 3,462 - -
Loss on disposal of equipment 15 - 65
Note receivable forgiven 703 - -
401K stock issuance 123 - -
Deferred interest 399 222 (30)
Provision for bad debt 2,517 1,816 561
Provision for inventory obsolescence 3,587 855 602
Asset disposal 193 -
Deferred tax benefit (2,643) (8,190) (2,332)
Gain on sale of station assets (48,929) - -
Changes in current and non-current items:
Accounts receivable 10,059 (8,738) (5,700)
Inventories (412) (9,449) (3,504)
Prepaid expenses and other assets 20 (295) 95
Accounts payable and accrued expenses (6,265) 4,307 7,297
Deferred revenue 1,646 142 (156)
-------------------- ------------------- ------------------
Net cash used by operations (32,029) (23,225) (927)
-------------------- ------------------- ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of equipment (2,727) (17,671) (14,101)
Licenses (525) (2,349) (14,807)
Sale of station assets, net of closing costs 55,681 - -
Net change in restricted cash 5,058 375 (5,433)
Cash payments for acquisitions - - (543)
Proceeds from sale of equipment - - 69
Other assets 21 - (262)
-------------------- ------------------- ------------------
Net cash provided (used) by investing activities 57,508 (19,645) (35,077)
-------------------- ------------------- ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Reduction in note receivable 1,120
Payment of debt consent fees (1,872)
Proceeds from debt - 20,000 20,000
Purchase and retirement of common stock - - (203)
Payment of preferred stock dividends (220) (21) (14)
Proceeds from exercise of stock options/warrants 3,648 1,500 2,842
Preferred stock redemption (11,457) - -
Proceeds from issuance of Series B Preferred Stock - 20,000 -
Proceeds from issuance of common stock 56 46,624
-
Repayment of capital leases (1,110) (667) (495)
Repayment of debt (20,000) (20,000) -
Shareholder option note (3,602) - -
Payment of stock issuance costs (preferred & common) - (3,161) (284)
Payment of debt issuance costs - (956) -
-------------------- ------------------ -------------------
Net cash provided (used) by financing activities (33,437) 63,319 21,846
-------------------- ------------------- -------------------
NET INCREASE/(DECREASE) IN CASH (7,958) 20,449 (14,158)
Cash beginning of period 27,515 7,066 21,224
-------------------- ------------------- ------------------
Cash end of period 19,557 $ 27,515 $ 7,066
==================== =================== ==================
The accompanying notes are an integral part of these
consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands, except share data)
Years Ended June 30,
-------------------------------------------------------
2001 2000 1999
------------------ ---------------- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for taxes $ 364 $ - $ -
------------------ ---------------- ----------------
Cash paid for interest $ 10,178 $ 9,094 $ 8,711
------------------ ---------------- ----------------
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accrued liability for purchase of equipment $ - $ - $ 1,874
------------------ ---------------- ----------------
Tax effect of non-qualified stock options $ 9 $ 973 $ 1,017
------------------ ---------------- ----------------
Stock issued for loan guaranty $ - $ - $ 40
------------------ ---------------- ----------------
Reversal of conversion of preferred stock
into shares of common stock (31,820 shares) $ - $ (318) $ -
------------------ ---------------- ----------------
Property and equipment acquired through capital leases $ 360 $ 1,667 $ 1,271
------------------ ---------------- ----------------
Conversion of 519, 19,879 and 55,905 shares, respectively,
of Series A preferred stock into common $ 5 $ 199 $ 559
------------------ ---------------- ----------------
Accrued Series A preferred stock dividend $ 1 $ 6 $ 14
------------------ ---------------- ----------------
Conversion of 1,000 shares of Series B preferred stock
into common stock $ 4,100 $ - $ -
------------------ ---------------- ----------------
Dividend on Series B preferred stock paid in common stock $ 489 $ - $ -
------------------ ---------------- ----------------
Accretion and loss on repurchase of Series B preferred stock $ 7,453 $ - $ -
------------------ ---------------- ----------------
The accompanying notes are an integral part of these
consolidated financial statements.
SHOP AT HOME, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. All dollar values in tables and the financial
statements and footnotes have been expressed in (000s) except for share and per
share data and per household data.
Principles of consolidation. The accompanying consolidated financial
statements include the accounts of Shop At Home, Inc. and its 100% directly
owned subsidiaries, SAH-Northeast Corporation ("Northeast"), SAH-Houston
Corporation ("Houston"), SAH Acquisition Corporation II ("SAH Acquisition II"),
SAH Acquisition Corporation ("SAH AQ") and Partners - SATH L.L.C. ("Partners"),
(collectively the "Company"). All material intercompany balances and
transactions have been eliminated in consolidation.
Operations. The Company markets various consumer products through a
televised "Shop At Home" service and over the Internet through its website
shopathometv.com. The programming is currently broadcast by satellite and is
available on the Internet on a twenty-four hours per day, seven days per week
schedule.
Northeast owns and operates a commercial television station, WMFP,
Channel 62, serving the Boston television market area. Northeast also operates a
commercial TV station, WSAH, channel 43, serving a portion of the New York City
market area. The assets of WSAH were acquired in June 1999.
SAH Acquisition II owns and operates three commercial television
stations: KCNS, Channel 38, serving the San Francisco television market area;
WOAC, Channel 67, serving the Cleveland television market area and; WRAY,
Channel 30, serving the Raleigh-Durham television market area, all of which were
acquired on March 27, 1998.
Partners owns real property located at 5388 Hickory Hollow Parkway,
Nashville, Tennessee, the Company's office headquarters and studios. The real
property is Partners' only asset. SAH AQ's principal asset is a 1% membership in
Partners.
Cash and cash equivalents. For the purpose of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Restricted cash. Restricted cash represented cash held in escrow of
$5,100 million for final settlement of the purchase of assets of WSAH-Bridgeport
(Note 15). The WSAH transaction was settled in November 2000.
Accounts receivable--trade. The Company has reduced accounts receivable
to the net realizable value through recording allowances for doubtful accounts.
At June 30, 2001, and 2000, the Company had recorded allowances of $2,639 and
$1,595, respectively.
Inventories. Inventories, which consist primarily of products held for
sale such as jewelry, electronics and sports collectibles, are valued at average
cost which approximates the first-in, first-out (FIFO) basis. Valuation
allowances are provided for carrying costs in excess of estimated market value.
Property and equipment. Property and equipment is stated at cost.
Expenditures for repairs and maintenance are expensed as incurred, and additions
and improvements that significantly extend the life of assets are capitalized.
Depreciation is computed under straight-line methods over the estimated
useful lives of the assets as reflected in the following table:
Furniture and fixtures 7 Years
Computer hardware and software 3 Years
Operating equipment 5-15 Years
Leasehold improvements 3-15 Years
Building 40 Years
FCC licenses for television stations. The Company has acquired five
full-power television station licenses. The licenses are granted by the Federal
Communications Commission for eight-year periods and are regularly renewed
absent serious violations of the law. Because of the resulting indeterminate
lives of the licenses, the Company has amortized the related costs over 40
years. License amortization expense of $2,673, $2,424 and $2,138 was recorded
for the fiscal years ended June 30, 2001, 2000 and 1999, respectively.
The Company has allocated the purchase price of its acquisitions based
upon independent appraisals. In each of the appraisals of broadcast properties,
with the exception of WMFP-Boston, the fair value of the property including the
intangible license was in excess of the purchase price, and accordingly,
resulted in no goodwill. The appraisal of WMFP-Boston resulted in the recording
of some goodwill.
Goodwill. Goodwill is amortized ratably over 40 years. The amortization
period for goodwill was determined based on the rationale developed to assign
lives to the FCC licenses. Goodwill amortization amounted to $239, $346 and $165
for fiscal years ended June 30, 2001, 2000 and 1999, respectively. Management
periodically evaluates the net realizability of the carrying amount of goodwill.
Debt issue costs. The Company has $3,798 and $2,732 as of June 30, 2001
and 2000 of debt issuance costs recorded as other assets. These deferred costs
relate to the issuance of the $75,000 Senior Secured Notes. The issuance costs
of the Notes are being amortized through the maturity date of April 1, 2005. An
additional $1,873 was added in fiscal year ended June 30, 2001, to cover costs
associated with soliciting noteholders' consent to a supplement to this
Indenture. (See Third Supplemental Indenture filed March 2001.). The
amortization of $653 and $579 for the fiscal years ended June 30, 2001 and 2000,
respectively, has been recorded as additional interest expense.
Sales returns. The Company generally allows customers to return
merchandise for full credit or refund within 30 days from the date of receipt.
At June 30, 2001 and 2000, the Company had recorded credits due to customers of
$3,443 and $2,711, respectively, for actual and estimated returns.
Revenue recognition. The Company's principal source of revenue is retail
sales to viewing and online customers. Other sources of revenue include rental
of customer lists. Product sales are recognized upon delivery of the merchandise
to the customer. List rental income is recognized over time as the lists are
utilized. Deferred revenue consists of sales related to in transit merchandise.
Cost of goods sold. Cost of goods sold represents the purchase price of
merchandise and inbound and outbound freight costs.
Advertising. Advertising is expensed as incurred.
Income taxes. The Company files a consolidated federal income tax return
with its subsidiaries. The Company files separate or consolidated state returns
as required by each jurisdiction. The Company determines deferred tax assets and
liabilities based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Earnings (Loss) per share. Statement of Financial Accounting Standards
No. 128, Earnings Per Share, requires the presentation of basic and diluted EPS.
Basic earnings (loss) per share is computed by dividing net income (loss)
available for common shareholders by the weighted average number of shares of
common stock outstanding. Diluted earnings (loss) per share is computed by
dividing adjusted net income (loss) by the weighted average number of shares of
common stock and assumed conversions of dilutive securities outstanding during
the respective periods. Dilutive securities represented by options, warrants,
redeemable preferred stock and convertible debt outstanding have been included
in the computation except in periods where such inclusion would be
anti-dilutive. The Company uses the treasury stock method for calculating the
dilutive effect of options and warrants and the converted method with respect to
the effect of convertible securities.
Use of estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impairment of long-lived assets. The Company follows Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets To Be Disposed Of, which requires
recognition of impairment losses for long-lived assets whenever events or
changes in circumstances result in the carrying amount of the assets exceeding
the sum of the expected future undiscounted cash flows associated with such
assets. The measurement of the impairment losses recognized is based on the
difference between the fair values and the carrying amounts of the assets. SFAS
121 also requires that long-lived assets held for sale be reported at the lower
of carrying amount or fair value less cost to sell. The Company has not
experienced such losses.
Stock-based compensation. The Company follows the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations in accounting for its employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. Certain pro forma
disclosures as required by Statement of Financial Accounting Standards No. 123,
Accounting and Disclosure of Stock-Based Compensation, are included in Note 11.
Recent accounting pronouncements. Pursuant to Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements (SAB101) the Company
changed its method of recognizing revenue on products it ships to its customers.
Prior to the adoption of SAB101 the Company recognized revenue when the products
were shipped to the customers, as the products were shipped FOB shipping point.
Pursuant to the new guidance in SAB101 the Company now recognizes the revenue
from shipments once the product is received by the customer. This change was
necessitated since the Company routinely maintains risk of loss, covered by
insurance, while the products are in transit. In accordance with SAB101, the
Company has reduced revenue for the products which were shipped at the end of
the period but not received by the customer by recording a cumulative effect of
an accounting change of $1,359 (net of a tax benefit of $832) for the effects
through June 30, 2000.
Pursuant to Emerging Issues Task Force (EITF) Issue 00-10, Accounting
for Shipping and Handling Fees and Costs, the Company changed its classification
of shipping and handling costs in the second quarter of fiscal 2001. Prior to
the issuance of EITF 00-10, the Company netted shipping and handling costs
against shipping and handling revenue and included the net amount in net
revenues. In accordance with EITF 00-10 the Company has reclassified all
shipping and handling costs to cost of goods sold which increased net revenue
and cost of goods as follows:
2001 2000 1999
-------------- -------------- -------------
Net Revenue 9,596 10,764 8,021
Cost of Goods Sold 9,596 10,764 8,021
The adoption of EITF 00-10 had no effect on operating loss or net loss.
On June 29, 2001, the Financial Accounting Standards Board (FASB or
the "Board") issued two Statements: Statement No. 141 (FAS 141), Business
Combinations, and Statement No. 142 (FAS 142), Goodwill and Other Intangible
Assets.
FAS 141 primarily addresses the accounting for the cost of an acquired
business (i.e., the purchase price allocation), including any subsequent
adjustments to its cost. FAS 141 supercedes APB 16, Business Combinations.
The most significant changes made by FAS 141 are:
o It requires use of the purchase method of accounting for all business
combinations, thereby eliminating use of the pooling-of-interests
method.
o It provides new criteria for determining whether intangible assets
acquired in a business combination should be recognized separately from
goodwill.
FAS 141 is effective for all business combinations (as defined in the
Statements) initiated after June 30, 2001, and for all business combinations
accounted for by the purchase method that are completed after June 30, 2001
(that is, the date of acquisition is July 1, 2001, or later).
FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition (i.e., the post-acquisition accounting),
and supercedes APB 17, Intangible Assets.
The most significant changes made by FAS 142 are:
o Goodwill and indefinite lived intangible assets will no longer be
amortized and will be tested for impairment at least annually.
o Goodwill will be tested at least annually at the reporting unit level.
o The amortization period of intangible assets with finite lives is no longer
limited to forty years.
FAS 142 is effective for fiscal years beginning after December 15,
2001, to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. Early application is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
period financial statements have not been issued previously. In all cases, the
provisions of FAS 142 should be applied at the beginning of a fiscal year.
Retroactive application is not permitted.
The Company intends to adopt these statements July 1, 2001. The effect
of such adoption will be to discontinue amortization of the license costs and
goodwill which totaled $2,912 for the year ended June 30, 2001.
Reclassifications. Certain amounts in the prior years' consolidated
financial statements have been reclassified for comparative purposes to conform
with the current year presentation.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following major classifications:
June 30,
2001 2000
---- ----
Leasehold improvements $ 626 $ 572
Building 11,908 11,908
Operating equipment 19,786 20,213
Software 20,828 18,075
Furniture and fixtures 3,168 2,975
Construction in progress - 2,255
Land 1,250 1,250
------------------ ----------------
57,566 57,248
Accumulated depreciation (18,395) (8,436)
------------------ ----------------
Property and equipment, net $ 39,171 $ 48,812
================== ================
Depreciation expense totaled $11,079, $5,736 and $2,145 for the fiscal
years ended June 30, 2001, 2000 and 1999, respectively. Of the $11,079
depreciation expense in year ending June 2001, $1,161 relates to the reduction
of lives of certain computer hardware and software from five years to three
years to better reflect the expected utility of these assets.
NOTE 3 -- INVENTORY
The components of inventory at June 30, 2000, and 1999 are as follows:
June 30,
2001 2000
---- ----
Products purchased for resale $ 11,670 $ 12,688
Finished goods (Collector's Edge) - 2,909
Work in progress (Collector's Edge) - 900
--------------- ---------------
11,670 16,497
Valuation allowance (1,717) (669)
--------------- ---------------
Total $ 9,953 $ 15,828
=============== ===============
NOTE 4 -- CAPITAL LEASES
Property and equipment includes $3,111 of various equipment acquired
pursuant to long term capital leases. The accumulated depreciation on these
assets is $1,373.
Future minimum lease payments under capitalized leases are as follows at
June 30, 2001:
2002 $ 972
2003 415
2004 98
2005 -
2006 -
Thereafter -
----------------
Total minimum lease payments 1,485
Less amount representing interest (124)
----------------
Present value of minimum lease payments 1,361
Less current portion (877)
----------------
Long-term portion $ 484
================
NOTE 5 -- INDEBTEDNESS
$75,000 of 11% Senior Secured Notes
In March 1998, the Company issued $75,000 of 11% Senior Secured Notes
Due 2005 ("Notes"). Interest on the Notes is payable semi-annually on April 1
and October 1 of each year. The Notes are not redeemable at any time prior to
April 1, 2002. On or after April 1, 2002, the Notes will be redeemable at the
option of the Company, in whole or in part, at a redemption price equal to the
par value plus a premium and also including accrued and unpaid interest, if any,
to the date of redemption. Upon the occurrence of a change of control, holders
of the Notes will have the right to require the Company to repurchase their
Notes, in whole or in part, at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase.
The Notes are collateralized by a lien on all of the issued and
outstanding capital stock of SAH Acquisition II and the assets of SAH
Acquisition II, other than the FCC licenses held by it. The Notes are also
collateralized by a lien on all of the issued and outstanding capital stock of
SAH-Northeast, the owner and operator of WMFP(TV) in Boston and WSAH(TV) in
Bridgeport. In addition, the obligations of the Company under the Notes are
jointly and severally guaranteed on a senior basis by each of the Company's
subsidiaries.
The Indenture restricts the Company from incurring additional
indebtedness in excess of $17,500, which indebtedness may be secured by a first
priority lien on certain of the Company's assets, including the Company's
accounts receivable and inventory and a first priority lien on the capital stock
and other assets of the broadcast properties not owned by SAH Acquisition II.
The indenture also restricts the Company's ability to issue preferred stock,
incur liens, pay dividends, make certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person, issue
or sell stock of subsidiaries, or sell, assign, transfer, lease, convey or
otherwise dispose of substantially all of the assets of the Company or encumber
the assets of the Company or its subsidiaries.
Senior Credit Facility
During the year ended June 30, 2001, the Company used a portion of the
proceeds from the sale of its Houston television station (see Note 18) to repay
its $20,000 senior bank facility. The senior bank facility bore interest at a
margin above LIBOR. Subsequent to year end, the Company executed a new $17,500
senior bank facility (see Note 19).
NOTE 6 -- REDEEMABLE PREFERRED STOCK
Series A Preferred Stock.
The Company is authorized to issue 1,000,000 shares of Series A
Preferred Stock, of which 16,088 shares were outstanding as of June 30, 2001.
The Series A Preferred Stock is entitled to receive dividends, preferences,
qualifications, limitations, restrictions and the distribution of assets upon
liquidation before the Company's common stock.
Holders of Series A Preferred Stock are entitled to receive, but only
when declared by the Board of Directors, cash dividends at the rate of $.10 per
share per annum.
In the event of the Company's liquidation, dissolution or winding up,
the holders of shares of Series A Preferred Stock are entitled to receive an
amount equal to $10.00 per share, plus accrued and unpaid dividends. The Company
must pay this amount before it distributes any of its assets to the holders of
common stock or any preferred stock that is junior to the Series A Preferred
Stock.
As long as there are shares of the Series A Preferred Stock outstanding,
the Company may not issue any capital stock that ranks senior to the Series A
Preferred Stock with respect to liquidation, dissolution and winding up without
the consent of the holders of the Series A Preferred Stock. Any holder of any
shares of Series A Preferred Stock may require the Company to redeem all or any
portion of the Series A Preferred Stock, for a redemption price per share of
$10.00, plus accrued and unpaid dividends. The Series A Preferred Stock is
convertible at any time into shares of common stock at a ratio of one share of
common stock for one share of Series A Preferred Stock.
The holders of Series A Preferred Stock generally are not entitled to
vote. There are some situations, however, in which the holders of Series A
Preferred Stock are entitled to vote. First, holders of Series A Preferred Stock
may vote if required by Tennessee corporate law. Second, the Company's charter
requires the holders of a majority of shares of the Series A Preferred Stock to
consent to (1) the authorization, creation or issuance of a new class of capital
stock or series of preferred stock having rights, preferences or privileges
senior to the Series A Preferred Stock, (2) any increase in the number of
authorized shares of any class of capital stock or series of preferred stock
having rights, preferences or privileges senior to the Series A Preferred stock,
or (3) the amendment of any provision of the Company's charter which would
materially and adversely affect any right, preference, privilege or voting power
of the Series A Preferred Stock. Holders of Series A Preferred Stock have no
preemptive rights with respect to any of the Company's shares or other
securities which may be issued, and such shares are not subject to assessment.
Series B Convertible Preferred Stock.
On June 30, 2000, the Company issued 2,000 shares of its Series B
Convertible Preferred Stock, $10,000 stated value per share, in consideration of
a payment of $20,000. Of the original 2,000 shares issued on June 30, 2000,
1,000 were redeemed for $10,682 cash and the balance was converted into
7,874,506 shares of common stock during the fiscal year ended June 30, 2001.
Included in the preferred stock accretion and dividends for the year
ended June 30, 2001 are $703 for dividends paid in cash and common stock, $3,810
for the beneficial conversion feature accretion, and $3,643 loss on repurchase
of preferred stock treated as a dividend.
The Company adopted certain provisions of EITF 00-27, "Application of
EITF Issue No. 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios to Certain
Convertible Securities", in the second quarter of fiscal 2001. EITF 00-27
changed the approach of calculating the conversion price used in determining the
value of the beneficial conversion feature from using the conversion price
stated in the preferred stock certificate to using the accounting conversion
price. The adoption of this EITF increased the original value of the beneficial
conversion feature from $3,596 to $7,796. In accordance with EITF 00-27, the
adoption was treated as a cumulative effect of an accounting change, which
resulted in a cumulative adjustment to dividends of $499 which was recorded in
the second quarter of fiscal 2001.
NOTE 7 -- COMMON STOCK
In April 1999, the Company's shareholders approved an amendment to its
charter which increased the number of authorized shares of common stock to 100
million from 30 million.
The Company's Board of Directors approved the authorization of 30
million shares of nonvoting common stock which was approved by shareholders at
the Annual Meeting held in March 1998. There are no shares issued for this class
of stock.
In July 1999, the Company issued a total of 5,828,000 shares of $.0025
par value common stock at $8.00 per share. The Company used $20,000 of the
proceeds to repay a $20,000 bridge loan used to acquire the Bridgeport
television station. In addition, the Company used the remaining funds for
operating costs and to pay a portion of the cost of the enterprise wide
information system.
NOTE 8 -- INCOME TAXES
The components of temporary differences and the approximate tax effects
at June 30, 2001 and 2000, are as follows:
June 30,
2001 2000
---- ----
Deferred tax assets:
Net operating loss carryforwards
and AMT credits $ 21,624 $ 16,922
Accruals 3,177 1,825
Valuation allowance (2,400) -
------------------- ------------------
Total deferred tax assets 22,401 18,747
------------------- ------------------
Deferred tax liabilities:
Licenses and intangibles 6,676 6,230
Depreciation 3,130 2,564
------------------- ------------------
Total deferred tax liabilities 9,806 8,794
Net deferred tax assets $ 12,595 $ 9,953
=================== ==================
Current deferred tax assets $ 3,177 $ 1,825
Long-term deferred tax assets, net 9,418 8,128
------------------- ------------------
Net deferred tax assets $ 12,595 $ 9,953
=================== ==================
At June 30, 2001 the Company had approximately $56,260 of net operating
loss carryforwards in addition to $95 of AMT credits available to offset taxable
income in future periods. Of these amounts, $53,342 of the net operating loss
carryforwards do not begin to expire until 2019. Due to the length of time until
the expiration date and the value of the Company's commercial television
stations the Company did not deem it necessary to provide a valuation allowance
at June 30, 2001 against its federal net operating loss carryforwards. However,
the Company did provide a full valuation allowance against its state net
operating loss carryforwards as these carryforwards primarily relate to states
in which no commercial television stations are present.
Income tax expense (benefit) varies from the amount computed by applying
the federal corporate income tax rate of 34% to income (loss) before income
taxes as follows:
Years Ended June 30,
-------------------
2001 2000 1999
---- ---- ----
Computed "expected" income tax benefit from
continuing operations $ (1,755) $ (6,941) $ (2,051)
Increase (decrease) in income taxes
resulting from:
State income tax expense (benefit), net
of federal effect (204) (859) (224)
Nondeductible expenses 94 64 45
Change in valuation allowance 2,400 - -
Other (273) 27 (262)
---------------- ---------------- -----------------
Actual income tax expense (benefit) $ 262 $ (7,709) $ (2,492)
================ ================ =================
The components of income tax expense (benefit) for the years ended June
30, 2001, 2000 and 1999, are as follows:
Years Ended June 30,
-------------------
2001 2000 1999
---- ---- ----
Current:
State $ 54 $ - $ (16)
Federal - - -
-------------- -------------- ---------------
$ 54 $ - $ (16)
-------------- -------------- ---------------
Deferred:
State 2,325 (794) (612)
Federal (2,117) (6,915) (1,864)
-------------- -------------- ---------------
208 (7,709) (2,476)
-------------- -------------- ---------------
Total expense (benefit) $ 262 $ (7,709) $ (2,492)
============== ============== ===============
The Company has allocated deferred tax benefits directly to additional
paid in capital for the years ended June 30, 2001, 2000 and 1999 of $9, $973 and
$1,017, respectively. These amounts reflect the tax benefit received from the
exercise of nonqualified stock options and disqualifying dispositions by
employees of qualified stock options.
NOTE 9 - COMMITMENTS
Transponder Use Agreement and Purchased Air-Time. In December 1995, the
Company's transponder lease became effective. The Company's principal satellite
transponder is leased on a fully protected and non-preemptible basis, which
means as a broker of satellite services, The SPACECONNECTION, Inc. has agreed to
furnish the Company alternative service on another transponder of similar
quality and location or, if necessary, on another satellite to support an
in-orbit failure of PanAmSat's G-11. The expenses for the transponder and
purchased air time (primarily for cable and direct broadcast satellite access
fees) were $35,463, $33,291 and $26,303 for the fiscal years ended June 30,
2001, 2000 and 1999, respectively.
Lease Commitments. Rental expense for office, studio and miscellaneous
equipment was $3,086, $3,194 and $2,874 for the fiscal years ended June 30,
2001, 2000 and 1999, respectively.
Future minimum lease payments of noncancelable operating leases are as
follows at June 30, 2001:
2002 $ 2,490
2003 2,445
2004 2,289
2005 271
2006 63
Thereafter 21
-----------------------
Total $ 7,579
=======================
The Company has agreements with various affiliated television and cable
system operators to purchase air-time. The terms of the agreements vary from
week-to-week to one year periods and are generally cancelable on 30 days notice.
NOTE 10 -- RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 2001, 2000 and 1999, the Company
engaged in some related party transactions in the normal course of business,
none of which exceeded $60 in total except as described below.
An entity affiliated with Frank A. Woods, a director of the Company,
was paid in October 2000 a finder's fee of $200 in connection with the Company's
$20,000 senior bank facility.
In May 2001, Charles W. Bone was added to the Board of Directors. Mr.
Bone is a partner in the firm Wyatt, Tarrant & Combs, LLP that represents Shop
At Home in various legal issues. During 2001, the Company paid $432 in fees with
Wyatt, Tarrant & Combs, LLP.
In May 2001, the Board of Directors appointed A.E. Jolley and J. Daniel
Sullivan, as a committee of Independent Directors, to set compensation for the
members of the Office of the Chair consisting of J.D. Clinton, Chairman, Charles
W. Bone, George R. Ditomassi, Jr. and Frank Woods. Compensation was set at $7.5
monthly for Charles W. Bone and Frank Woods. In addition to an initial grant of
options to purchase 12,500 shares of stock made by the Board of Directors for
the service of these Directors on an Executive Committee charged with running
the Company after the Chief Executive Officer's termination, the committee
decided that for their service as the Office of the Chair to grant additional
options to purchase 25,000 shares to Charles Bone and Frank Woods. The committee
also allowed Mr. Bone to exercise his outstanding warrants using a three year
note. The committee also granted options to purchase 50,000 shares to George R.
Ditomassi (see discussion of note below). In addition, J.D. Clinton was loaned,
by the Company, the exercise price for all of his remaining warrants. The loan
matures on June 30, 2004 (see discussion of loan below).
On June 30, 2001, Mr. Clinton exercised warrants to purchase 1,545,066
shares of Common Stock through an affiliated entity, SAH Holdings, Ltd., for a
total purchase price of $2,565 and exercised warrants to purchase 542,500 shares
of Common Stock through another affiliated entity Clinton Investments, Ltd., for
a total purchase price of $901. Mr. Bone, on the same date, exercised warrants
to purchase 82,500 shares of Common Stock through an affiliated entity, Caleb
Investments, LP, for a total purchase price of $137. The Company loaned these
entities the funds to make this purchase and each of these entities executed a
non-recourse promissory note to the issuer payable in full on June 30, 2004. The
notes carry interest at the prime rate, also payable at maturity. The loans are
non-recourse to the entities, but are collateralized by the underlying shares
purchased.
The Company leased its Knoxville office and studio space from William
and Warren, Inc., an entity owned by W. Paul Cowell, a director of the Company
until December 2, 1998, and paid total lease payments of approximately $82
during the fiscal year ended June 30, 1999. With the relocation of its offices
and studios to Nashville, Tennessee, the Company terminated this lease in
January 1999.
In connection with the relocation of the primary residence of Kent E.
Lillie, President & Chief Executive Officer of the Company, from Atlanta,
Georgia, to Nashville, Tennessee, the Company made an interest-free loan to Mr.
Lillie in the principal amount of $800. This note will be forgiven, under
certain circumstances, as part of Mr. Lillie's severance agreement.
In September 1999 the Company entered into a lease agreement with
INSOUTH Bank whereby the Company leased a portion of an office building located
adjacent to the Company's Nashville facilities. INSOUTH Bank is controlled by
J.D. Clinton, Chairman of the Board of Directors of the Company and a principal
shareholder. The Company paid INSOUTH $163, $101 and $0 for the fiscal year
2001, 2000 and 1999, respectively.
NOTE 11 -- STOCK OPTIONS AND WARRANTS
1999 Stock Option Plan. In 1999 the Company's Board of Directors
adopted the 1999 Employee Stock Option Plan which provides for the issuance of
up to 3,000,000 shares of common stock. The 1999 Plan is administered by a
committee of the Board of Directors consisting of non-employee directors. All
directors and key employees are eligible to receive options. Options granted
under the plan can be either incentive stock options or unqualified stock
options. Incentive stock options to purchase common stock may be granted at not
less than 100% of the fair market value of the stock on the date of the grant.
No options may be granted after July 21, 2009. No option that is an incentive
stock option shall be exercisable after the expiration of ten years from the
date such option was granted (five years if granted to a 10% shareholder). The
options may provide for vesting, in full or in part, after a change in control
of the Company.
1991 Stock Option Plan. In 1991, the Company adopted a stock incentive
plan for eligible employees. A special administrative committee of the Board of
Directors was appointed to administer the plan. All employees of the Company are
eligible to receive stock options under the plan. Options granted under the plan
can be either incentive stock options or nonqualified stock options. Incentive
stock options to purchase common stock may be granted at not less than 100% of
the fair market value of the common stock on the date of the grant. Options
granted under the plan become exercisable immediately in the event 80% or more
of the Company's outstanding stock or substantially all of its assets are
acquired by a third party. No options may be granted after October 15, 2001. No
option that is an incentive stock option shall be exercisable after the
expiration of ten years from the date such option was granted or five years
after the expiration in the case of any such option that was granted to a 10%
stockholder. A maximum of 1,500,000 shares of common stock may be issued under
the plan upon the exercise of options.
No compensation expense has been recognized for options granted under
the plans. Had compensation expense for the Company's plans been determined
based on the fair value at the grant dates for awards under the plans consistent
with the methods in SFAS 123, the Company's net income (loss) and net income
(loss) per share would have been adjusted to the pro forma amounts indicated in
the following table.
At June 30, 2001 there were 757,450 of remaining shares available for
grant under the 1999 and the 1991 stock option plans.
2001 2000 1999
------------------------- --------------------------- -------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
---------- ------------ ------------ ----------- ----------- -----------
Net income (loss) available to $ 18,402) $ (21,407) $ (13,499) $ (15,503) $ (3,318) $ (4,244)
common shareholders
Basic earnings (loss) per share $ (.51) $ (.58) $ (.44) $ (.51) $ (.14) $ (.18)
Diluted earnings (loss) per share $ (.51) $ (.58) $ (.44) $ (.51) $ (.14) $ (.18)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for the grants in the years ended June 30, 2001, 2000
and 1999, respectively: dividend yield of 0%; expected volatility of 90%, 77%
and 76% ; risk-free interest rate of 5.47%, 6.05% and 4.5%; and expected life of
7.5 years.
A summary of the status of the Company's options as of June 30, 2001,
2000 and 1999 and changes during the periods ending on those dates is presented
below:
June 30,
2001 2000 1999
---------------------------- ----------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------- ----------- -------------- ------------ ----------- -----------
Outstanding at beginning of
period: 2,821,600 7.62 2,449,200 $ 6.14 2,379,000 $ 2.51
Granted 1,797,350 2.24 1,007,000 9.18 1,143,000 10.02
Exercised (33,400) 1.53 (400,600) 2.00 (917,800) 2.47
Forfeited (1,096,700) 10.27 (234,000) 7.75 (155,000) 3.90
-------------- -------------- -----------
Outstanding at end of period 3,488,850 4.21 2,821,600 $ 7.62 2,449,200 $ 6.14
Options exercisable at period
end 1,507,100 987,500 901,800
Weighted average fair value of
options granted during the
year $ 1.85 $ 7.08 $ 7.78
Options Outstanding Options Exercisable
Weighted
Average WeightedAverage WeightedAverage
Number Remaining Exercise Number Exercise
Outstanding Contractual Price Exercisable Price
Range of Exercise Prices at 6/30/01 Life at 6/30/01
- -------------------------------- -------------- --------------- ------------ --------------- ------------
$0.00 - $1.99 1,003,500 8 years $ 1.47 300,200 $ 1.28
$2.00 - $2.99 1,007,250 6 years 2.74 746,600 2.75
$3.00 - $3.99 648,500 8 years 3.68 194,600 3.63
$4.00 - $5.99 132,500 9 years 4.79 25,300 4.89
$6.00 - $7.99 129,000 7 years 6.59 65,600 6.82
$8.00 - $9.99 135,500 8 years 8.66 27,900 8.66
$10.00 - $10.99 58,700 8 years 10.61 13,900 10.62
$11.00 - $11.99 15,900 8 years 11.26 3,900 11.36
$12.00 - $12.99 164,000 10 years 12.53 32,800 12.53
$13.00 - $13.99 194,000 8 years 13.13 96,300 13.11
-------------- ---------------
3,488,850 1,507,100
============== ===============
At June 30, 2001, warrants to purchase 2,000,000 shares of common stock
were outstanding. The warrants' exercise price is $2.82 per common share. The
warrants expire on June 30, 2003.
NOTE 12 -- EARNINGS (LOSS) PER SHARE
The following table sets forth for the periods indicated the calculation
of net earnings (loss) per share included in the Company's Consolidated
Statements of Operations:
Years Ended June 30,
2001 2000 1999
---- ---- ----
Numerator:
Net income (loss) $(10,246) $(13,493) $ (3,304)
Preferred stock accretion and dividends (8,156) (6) (14)
------------- ------------- ---------------
Numerator for basic earnings per
share-income (loss) available to
common stockholders $(18,402) $(13,499) $ (3,318)
============= ============= ===============
Denominator:
Denominator for basic earnings per
share-weighted-average shares 36,311 30,490 23,771
Effect of dilutive securities:
a) Employee stock options - - -
b) Non employee options - - -
c) Warrants - - -
d) Convertible preferred stock - - -
e) Convertible debt - - -
------------- ------------- ---------------
Denominator for diluted earnings per
Share-adjusted weighted-average
Shares and assumed conversions 36,311 30,490 23,771
============= ============= ===============
Basic earnings (loss) per share $ (.51) $ (.44) $ (.14)
============= ============= ===============
Diluted earnings (loss) per share $ (.51) $ (.44) $ (.14)
============= ============= ===============
Although the amounts are excluded from the computations in loss years because
their inclusion would be anti-dilutive they are shown here for informational and
comparative purposes only:
a) Employee stock options 3,489 1,007 1,143
b) Non Employee options - - 239
c) Warrants 2,000 2,035 2,389
d) Convertible preferred stock 16 94 121
NOTE 13 -- EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all full-time
employees who have attained one year of service and are age 21 or older.
Participants are permitted to make contributions in an amount equal to 1% to 15%
of their compensation actually paid. Employer contributions are discretionary
and allocated to each eligible employee in proportion to his or her compensation
as a percentage of the compensation of all eligible employees. During 2001, 2000
and 1999, the Company did not make any cash contributions to the plan. As of
July 1, 1999, the Company has elected to match in the form of Company stock a
portion of the employee's contribution up to a maximum of 50% of the employee's
annual contribution. The Company's match on the 401K for fiscal year ended June
30, 2001, and 2000 was 110,724 and 10,338 shares of common stock, respectively.
The match is awarded as of December 31.
NOTE 14 -- CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk include cash on deposit in financial
institutions and accounts receivable. Receivables are due from credit card
companies and ultimate customers. The Company maintains reserves which
management believes are adequate to provide for losses. Management believes the
financial institutions holding the cash to be financially sound.
The electronic retailing industry is sensitive to general economic
conditions and business conditions affecting consumer spending. The Company's
product lines include jewelry, sports memorabilia and other unique items that
may make the Company more sensitive to economic conditions than retailers of
ordinary items.
During the year ended June 30, 2001, the Company had three vendors from
whom it purchased more than 10% each of its total cost of goods sold. The three
vendors' products were in different categories and accounted for approximately
12.7%, 12.2% and 10.0% of the Company's cost of goods sold. The Company believes
that it could find replacement vendors for the products sold by any one of these
vendors without a material adverse effect on the Company.
NOTE 15 - ACQUISITION OF WSAH
On June 3, 1999, SAH-Northeast Corporation ("Northeast"), a wholly-owned
subsidiary of Shop At Home, acquired the assets of WBPT, Bridgeport,
Connecticut, and changed its call sign on that date to WSAH. Northeast acquired
WSAH at a potential total purchase price of $21,000, of which approximately
$4,800 was contingent consideration based on potential incremental increases
during the 12-month period following the purchase closing in the station's cable
household reach above the estimated 680,000 existing households at closing up to
a maximum of 900,000 households. The calculation of the contingent consideration
is at a rate of $22 per additional cable household (applied to the maximum of
220,000 incremental households). The Company estimates 765,000 households were
reached as of June 30, 2001 (representing 85,000 incremental households). Final
agreement was reached with the seller in November 2000 resulting in the purchase
price being recorded as follows:
FCC License $17,541
Property and equipment 933
------------------------
Total $18,474
========================
The purchase price (after applying the $1,000 escrow deposit) was funded
through a bridge loan which was repaid in July 1999 from the proceeds of Shop At
Home's public offering of common stock.
The acquisition of WSAH was accounted for by the Company as an
acquisition of assets and not the acquisition of a "business," as defined in SEC
Rule 210.11-01(d). The Company reached this conclusion because, with the
exception of a de minimis period of time, the acquired station had not been
historically operated as a broadcast outlet for television shopping programming
and the Company concluded that there was no continuity of revenues from this
station from which relevant historical information could be derived.
NOTE 16 -- CONTINGENCIES
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 certain
orders and that certain amounts it paid to the Company under a written agreement
should be refunded. The vendor is claiming entitlement to its lost profits
because the Company did not provide an amount of broadcast network time in 1999
that the vendor alleges was orally promised in connection with the written
agreement. The Company has filed its answer and has vigorously pursued its
defense of this action since the settlement discussions between the parties
failed. This case is set for trial in February 2002.
The Company is subject to claims in the ordinary course of business.
Management does not believe the resolution of such claims will result in a
material adverse effect on the future financial condition, results of
operations, or cash flows of the Company.
NOTE 17 -- DISCONTINUANCE OF COLLECTOR'S EDGE
The Company discontinued the operations of its subsidiary and segment,
Collector's Edge of Tennessee, Inc. (CET), which formerly manufactured and
distributed football trading cards at the end of December 2000. The Company sold
CET's assets on February 19, 2001, for $1,500, $500 in cash and a note for
$1,000 due in six equal installments which was paid in full on August 15, 2001.
Revenues from CET were as follows:
Twelve Months Ended
June 30,
2001 2000 1999
---------------- ---------------- ---------------
$2,519 $9,700 $9,438
NOTE 18 -- SALE OF HOUSTON TELEVISION STATION KZJL
On March 20, 2001 the Company sold its Houston Television Station KZJL
for $57,000. In addition to the cash received, the Company retained rights to
50% of any profits from any sale of the station's Channel 60 - 69 spectrum. The
gain recognized on the sale is the result of the proceeds less $6,753 for the
net book value of fixed assets and license cost and $1,319 in closing costs.
NOTE 19 -- SUBSEQUENT EVENTS
In August 2001, the Company executed and drew down a $17,500 senior
bank credit facility. The proceeds will be used for general corporate purposes.
Interest accrues on the facility at a rate of 90-day LIBOR plus 4.875%. The
facility matures on August 1, 2003 and is primarily collateralized by a first
priority interest in the Company's Boston and Bridgeport television stations,
merchandise inventory and accounts receivable. This credit facility restricts
the Company from using dividends on its common stock and has annual Earnings
Before Interest Taxes and Depreciation (EBITDA), as defined in the agreement,
requirements.
NOTE 20 -- OPERATING SEGMENTS
Effective June 30, 1999, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which supercedes
previously issued segment reporting disclosure rules and requires reporting
segment information that is consistent with the way in which management operates
the Company. The segment disclosures for prior years have been restated to
conform with the current year presentation. The Company operates principally in
two segments: Shop At Home Network and shopathometv.com. 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. Intersegment sales and
transfers are accounted for as if the sales or transfers were with third
parties, that is, at current market prices.
OPERATING SEGMENT DATA
Years Ended June 30,
2001 2000 1999
---- ---- ----
Revenue:
Network $ 161,589 $ 198,114 $ 150,399
shopathometv.com 18,686 4,675 -
Intersegment eliminations (2,660) (1,233) -
----------------- ------------------ ----------------
$ 177,615 $ 201,556 $ 150,399
================= ================== ================
Operating profit (loss):
Network $ (33,594) $ (4,447) $ 2,291
shopathometv.com (9,592) (6,901) -
----------------- ------------------ ----------------
$ (43,186) $ (11,348) $ 2,291
================= ================== ================
Depreciation and amortization:
Network $ 11,854 $ 7,761 $ 4,202
shopathometv.com 2,081 612 -
----------------- ------------------ ----------------
$ 13,935 $ 8,373 $ 4,202
================= ================== ================
Interest income:
Network $ 906 $ 749 $ 656
shopathometv.com - - -
----------------- ------------------ ----------------
$ 906 $ 749 $ 656
================= ================== ================
Interest expense:
Network $ 11,875 $ 9,490 $ 8,932
shopathometv.com - 173 -
----------------- ------------------ ----------------
$ 11,875 $ 9,663 $ 8,932
================= ================== ================
Income (loss) before taxes:
Network $ 4,429 $ (13,342) $ (6,031)
shopathometv.com (9,592) (7,074) -
----------------- ------------------ ----------------
$ (5,163) $ (20,416) $ (6,031)
================= ================== ================
Income taxes:
Network $ 3,907 $ (5,035) $ (2,492)
shopathometv.com (3,645) (2,674) -
----------------- ------------------ ----------------
$ 262 $ (7,709) $ (2,492)
================= ================== ================
Total assets:
Network $ 169,624 $ 211,433 $ 164,009
shopathometv.com 10,393 8,830 -
Collector's Edge - 8,331 7,855
Intersegment eliminations - (1,300) (1,167)
-------------------------------------------------------
$ 180,017 $ 227,294 $ 170,697
================= ================== ================
Capital expenditures:
Network $ 2,664 $ 11,133 $ 14,089
shopathometv.com 63 6,617 -
----------------- ------------------ ----------------
$ 2,727 $ 17,750 $ 14,089
================= ================== ================
NOTE 21 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following is summarized condensed consolidating financial
information for the Company, segregating the Parent from the guarantor
subsidiaries of the Notes. The guarantor subsidiaries are wholly owned
subsidiaries of the Company and guarantees are full, unconditional, joint and
several. The separate company financial statements of each guarantor subsidiary
have not been included herein because management does not believe that their
inclusion would be more meaningful to investors than the presentation of the
condensed consolidating financial information presented below.
CONSOLIDATING BALANCE SHEET DATA
June 30, 2001 June 30, 2000
Guarantor Guarantor
Parent Subsidiaries Consolidated(1) Parent Subsidiaries Consolidated(1)
Assets:
Cash and cash equivalents $ 19,562 $ (5) $ 19,557 $ 28,090 $ (575) $ 27,515
Accounts receivable 39,011 10 3,103 103,041 2,704 15,892
Inventories 9,953 - 9,953 12,367 3,461 15,828
Deferred tax assets 3,177 - 3,177 1,825 1,825
Prepaid expenses 873 11 884 1,144 70 1,214
Notes receivable 380 - 380 - - -
Income tax receivable 310 - 310 - - -
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current assets 73,266 16 37,364 146,467 5,660 62,274
Related party - note
receivable, net of discount 1,103 703
Deferred tax assets 9,418 - 9,418 6,084 2,044 8,128
Restricted cash - - - 5,058 - 5,058
Property and equipment,
Net 33,522 5,649 39,171 40,804 8,008 48,812
Intangibles 528 89,256 89,784 679 98,138 98,817
Other assets 4,128 152 4,280 3,179 323 3,502
Investment in subsidiaries 23,816 - - 27,071 1,400 -
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total assets $ 144,678 $ 95,073 $ 180,017 $ 230,445 $ 115,573 $ 227,294
============== ================= ============== ================ =============== ================
Liabilities and
Stockholders' Equity:
Accounts payable and
accrued expenses $ 25,425 $ 60,073 $ 25,784 $ 28,129 $ 91,250 $ 32,215
Current portion--capital
leases and long-term
debt 877 - 877 12,775 - 12,775
Deferred revenue 2,124 - 2,124 475 3 478
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current liabilities 28,426 60,073 28,785 41,379 91,253 45,468
Long-term debt including
Capital leases 75,484 - 75,484 84,336 400 84,336
Deferred income taxes - 17,194 - - - -
Redeemable preferred
Stock 161 - 161 12,504 750 12,504
Common stock 105 - 105 78 2 78
Additional paid-in capital 110,904 - 110,904 106,482 27,719 106,482
Note receivable (3,602) (3,602)
Accumulated deficit (66,800) 17,806 (31,820) (14,334) (4,551) (21,574)
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total liabilities and
Stockholders' equity $ 144,678 $ 95,073 $ 180,017 $ 230,445 $ 115,573 $ 227,294
============== ================= ============== ================ =============== ================
(1) Intercompany balances have been eliminated in the consolidated totals.
Consolidating Statement of Operations and Cash Flow Data
June 30, 2001 une 30, 2000 June 30, 1999
Parent Guarantor Consolidated Parent Guarantor Consolidated Parent Guarantor Consolidated
Subsidiaries (1) Subsidiaries (1) Subsidiaries (1)
------------ ------------ -------------- --------- --------- ---------- ---------- ----------- ------------
Net revenues $ 168,460 $ 9,155 $ 177,615 $ 194,602 $ 6,954 $ 201,556 $ 143,188 $7,211 $150,399
Cost of goods sold 122,353 122,353 133,751 133,751 93,396 93,396
Operating expenses 88,612 9,836 98,448 69,605 9,548 79,153 46,613 8,099 54,712
------------ ------------ ------------- ---------- -------- --------- ---------- -------- ----------
Income (loss) from
continuing operations (42,505) (681) (43,186) (8,754) (2,594) (11,348) 3,179 (888) 2,291
Interest expense 11,875 11,875 9,663 9,663 8,890 42 8,932
Interest income 901 5 906 749 - 749 655 656
Other income (expense) 63 48,929 48,992 (185) 31 (154) (64) 18 (46)
------------ ------------ ------------- ---------- -------- --------- ---------- -------- ----------
Income (loss) before
taxes (53,416) 48,253 (5,163) (17,853) (2,563) (20,416) (5,120) (912) (6,031)
Income tax expense
(benefit) (18,074) 18,336 262 (6,735) (974) (7,709) (2,157) (336) (2,492)
------------ ----------- -------------- ---------- -------- --------- ---------- --------- ----------
Net income (loss) before
discontinued operations $(35,342) $ 29,917 $ (5,425) (11,118) $(1,589) $ (12,707) $ (2,963) $ (576) $(3,539)
------------ ----------- -------------- ---------- -------- --------- ---------- --------- ----------
Discontinued operations (3,462) (3,462) (786) (786) 235 235
Cumulative effect of
accounting change (1,359) (1,359) - - - - - -
------------ ----------- ------------ ---------- -------- --------- ---------- --------- ----------
Net income (loss) (36,701) 26,455 (10,246) (11,118) (2,375) (13,493) (2,963) (341) (3,304)
============ =========== =========== ========== ======== ========= ========== ========= ==========
CASH FLOWS
Cash provided by
(used in) operations $ 1,229 $ (33,258) $ (32,029) $ (24,693) $ 1,468 $ (23,225) $ (18,883) $ 17,956 $ (927)
Cash provided by
(used in) investing
activities 1,906 55,602 57,508 (17,394) (2,251) (19,645) (17,051) (18,026) (35,077)
Cash provided by
(used in) financing
activities (11,565) (21,872) (33,437) 63,319 - 63,319 21,846 - 21,846
------------ ------------ ------------ ----------- -------- ------------- ---------- ----------- ---------
Increase (decrease) in
cash (8,430) 472 (7,958) 21,232 (783) 20,449 (14,088) (70) (14,158)
Cash at beginning of
period 27,992 (477) 27,515 6,760 306 7,066 20,848 376 21,224
------------ ------------ ------------ ---------- --------- ------------ ---------- ----------- ---------
Cash at end of period $ 19,562 $ (5) $ 19,557 $27,992 $ (477) $ 27,515 $ 6,760 $ 306 $ 7,066
============ ============ ========== =========== ========= ============= ========== ============ =========
(1) Intercompany balances have been eliminated in the consolidated totals.
NOTE 22 - LIQUIDITY
The Company had $19,557 of cash on hand at June 30, 2001. In addition,
during August 2001, the Company executed and drew down a $17,500 senior bank
credit facility. Management believes that this facility, when combined with its
cash position at June 30, 2001, is sufficient to fund the Company's operations
during its turnaround period.
Nevertheless, during fiscal 2001, the Company experienced a large loss
from operations of $43,186. If the Company is unable to reduce its operating
losses significantly during fiscal 2002 and beyond, additional financing or
asset sales will be required. However, there can be no assurance that the
Company could obtain additional financing or that asset sales could be
consummated. Also, some or all of the proceeds generated by asset sales could be
required to repay the Company's indebtedness.
The Company's Board of Directors responded to the lack of performance
in fiscal 2001 by terminating the Chief Executive Officer and creating an Office
of the Chairman ("OTC") to manage the Company. The OTC consists of four Board
members who are all experienced executives.
The OTC has formulated a comprehensive turnaround plan for fiscal 2002.
Significant reductions in affiliate charges have already been achieved since
June 30, 2001. Payroll continues to be reduced. The turnaround plan, however,
emphasizes multiple sales initiatives with the common goals of increasing
shipped volume, reducing returns and improving margin (lowering cost of goods
sold). The Company's merchandise mix, on-air presentation, customer service and
vendor relationships are changing, and will continue to evolve during 2002, as
management seeks revenue growth comparable to that of the competition. The
Company has hired a new Executive Vice President of Sales and Merchandising who
has substantial experience in similar positions with its largest competitor.
Management believes its turnaround plan is sound and attainable. However, there
can be no assurance that the Company will successfully implement its turnaround
plan or that its plan is adequate.
If the Company fails to make sufficient progress in improving net
revenues and gross profit before operating expenses, the latter may be reduced
further. Also, the Company may be required to seek to amend certain operating
performance covenants in its senior bank facility if its financial performance
does not meet targets established in the turnaround plan. If the Company were
unable to obtain waivers or amend its senior bank facility, then the lender
could require repayment of the $17,500 as well as put the Company in default,
pursuant to cross default provisions, under its $75,000 of senior secured notes.
The Company believes that it would be able to either obtain waivers or
amendments to its senior bank facility or obtain additional sources of funding.
However, there can be no assurance that the Company will be able to obtain
waivers or amendments or obtain additional funding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information with respect to directors and executive officers of the
Company to be included in the definitive Proxy Statement which the Company will
file for the 2001 Annual Meeting of Shareholders (the "Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Remuneration of Directors and
Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information with respect to security ownership by management in the
Proxy Statement under the caption "Security Ownership of Certain Beneficial
Owners" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Item 8 of
Form 10-K:
1.Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of June 30, 2001 and
2000 Consolidated Statements of Operations for the
years ended June 30,
001, 2000 and 1999
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 2001, 2000, and 1999
Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999.
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
The other schedules are omitted because the
required information is either inapplicable or
has been disclosed in the consolidated
financial statements and notes thereto.
3. Exhibits
The Index to Exhibits is at page 56.
(b) Reports on Form 8-K
Form 8-K filed April 2, 2001, reported that on March 29, 2001, the
Company announced that it had received consent from the majority of its 11%
Senior Secured Note holders to waive and amend certain provisions of the
indenture and related pledge agreements involving the notes, to permit the
Company to use a portion of the proceeds from the sale of its Houston television
station, KZJL, to redeem all of the remaining outstanding Series B Convertible
Preferred Stock. On March 30, 2001, the Company announced that it had redeemed
all outstanding shares of its Series B Convertible Preferred Stock for $6.4
million in cash, including dividends.
Form 8-K filed May 16, 2001, reported that on May 16, 2001, the Company
announced that it had reached an agreement with its former President and Chief
Executive Officer, Kent E. Lillie, concerning his severance agreement. Mr.
Lillie also resigned from the Company's Board of Directors effective as of this
date.
Form 8-K filed May 17, 2001, reported that on May 16, 2001 the Company
held a conference call to discuss the Company's financial results for the third
quarter of its fiscal year 2001. These results were filed with the SEC on Form
10-Q dated May 15, 2001.
Form 8-K filed June 22, 2001, reported that on June 22, 2001 the
Company's Office of the Chair announced that it had accepted the resignation of
its Chief Operating Officer, Theodore M. Engle III. It was also announced that
Mr. Engle would continue in his current position until early August 2001 to
ensure an orderly transition.
SHOP AT HOME, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 2001, 2000, AND 1999
(Thousands of Dollars)
Balance at Charged to Balance
beginning Returns and at end
of year Allowances Deductions (1) of year
--------------- ---------------- --------------- ------------
Year ended June 30, 2001
estimated credits
due to customers $ 2,711 $ 58,734 $ 58,002 $ 3,443
=============== ================ =============== ============
Year ended June 30, 2000
estimated credits
due to customers $ 3,069 $ 58,582 $ 58,940 $ 2,711
=============== ================ =============== ============
Year ended June 30, 1999
estimated credits
due to customers $ 3,987 $ 32,610 $ 33,528 $ 3,069
=============== ================ =============== ============
(1) Merchandise returned
Balance at Balance
beginning Additional at end
of year provisions Reduction of year
--------------- ---------------- --------------- ------------
Year ended June 30, 2001
Accounts receivable
Reserves $ 1,595 $ 2,517 $ 1,623 $ 2,489
=============== ================ =============== ============
Year ended June 30, 2000
Accounts receivable
Reserves $ 543 $ 1,816 $ 764 $ 1,595
=============== ================ =============== ============
Year ended June 30, 1999
Accounts receivable
Reserves $ 535 $ 561 $ 553 $ 543
=============== ================ =============== ============
Balance at Balance
beginning Additional at end
of year provisions Deductions of year
--------------- ---------------- --------------- ------------
Year ended June 30, 2001
Inventory reserves $ 669 $ 3,587 $ 2,539 $ 1,717
============== =============== ============== ============
Year ended June 30, 2000
Inventory reserves $ 304 $ 855 $ 490 $ 669
============== =============== ============== ============
Year ended June 30, 1999
Inventory reserves $ 21 $ 602 $ 319 $ 304
============== =============== ============== ============
INDEX TO EXHIBITS
Exhibit
No. Description
3(i).4 Restated Charter, recorded August 13, 1999, filed as Exhibit
3(i).4 to the Annual Report on Form 10-K, filed on August 31,
1999, and incorporated herein by this reference.
3(i).5 Articles of Amendment to the Restated Charter, recorded
April 13, 2000, filed as Exhibit 3.3 to the Registration
Statement on Form S-3, filed on July 26, 2000, and
incorporated herein by this reference.
3(i).6 Articles of Amendment to the Restated Charter, recorded June
30, 2000, filed as Exhibit 3.1 to the Current Report on
Form 8-K, filed on July 5, 2000, and incorporated herein by
reference.
3(i).7 Amendment to Amended and Restated Charter, filed as Exhibit
3.1 to the Current Report on Form 8-K, filed June 1,
2001, and incorporated by this reference.
3(ii).1 Restated Bylaws, adopted July 21, 1999, filed as Exhibit
3(ii).1 to the Annual Report on Form 10-K, filed on August
31, 1999, and incorporated herein by this reference.
4.4 Specimen of Preferred Stock certificate, filed as Exhibit
4.9 to Amendment No. 1 to the Registration Statement on
Form S-4, filed on January 20, 1995, and incorporated herein
by this reference.
4.6 Form of Trust Indenture with PNC Bank, N.A., as Trustee, with
regard to the 11% Secured Notes due 2005, containing a
specimen of the Note, filed as Exhibit 4.6 to Amendment No. 2
to the Registration Statement on Form S-1, filed on
March 21, 1998, and incorporated herein by this reference.
4.7 Form of Security and Pledge Agreement, filed as Exhibit 4.7
to Amendment No. 2 to the Registration Statement on Form
S-1, filed on March 21, 1998, and incorporated herein by this
reference.
4.8 Form of Warrant, filed as Exhibit 4.2 to the Current Report
on Form 8-K, filed on July 5, 2000, and incorporated
herein by this reference.
4.9 First Supplement to Indenture, between the Company and Chase
Manhattan Trust Company, National Association, Dated
October 26, 2000, filed as Exhibit 4.1 to the Quarterly
Report on Form 10-Q, filed May 15, 2001, and incorporated by
this reference.
4.10 Second Supplement to Indenture, between the Company and Chase
Manhattan Trust Company, National Association, dated
February 20, 2001, filed as Exhibit 4.2 to the Quarterly
Report on Form 10-Q, filed May, 15, 2001, and incorporated
by this reference.
4.11 Third Supplement to Indenture, between the Company and Chase
Manhattan Trust Company, National Association, dated
March 30, 2001, filed as Exhibit 4.3 to the Quarterly Report
on Form 10-Q, filed May 15, 2001, and incorporated by
this reference.
4.12 Rights Agreement, adopted by the Board of Directors of the
Company, dated June 1, 2001, filed as Exhibit 4.1 to the
Current Report on Form 8-K, filed June 1, 2001, and
incorporated by this reference.
10.1 Company's Omnibus Stock Option Plan, filed as Exhibit 10.3
to the Annual Report on Form 10-K, for the fiscal year
ended June 30, 1992,and incorporated herein by this reference.
10.12 Form of Option Agreement for options issued to employees,
executive officers and others, filed as Exhibit 10.13 to the
Registration Statement on Form S-4, filed on December 28,
1994, and incorporated herein by this reference.
10.43 Employment Agreement between Kent E. Lillie and the Company
dated July 1, 1997, filed as Exhibit 10.43 to the Annual
Report on Form 10-K for the fiscal year ended June 30, 1997,
filed on September 29, 1997, and incorporated herein by
this reference.
10.49 Amendment No.1 to Company's Omnibus Stock Option Plan
filed as Appendix A to the Company's Proxy Statement on
Schedule 14A for the fiscal year ended June 30, 1996, filed
on November 18, 1996, and incorporated herein by this
reference.
10.50 Form of options issued to directors dated June 19, 1997,
filed as Exhibit 10.50 to the Registration Statement on
Form S-1, filed on January 14, 1998, and incorporated herein
by this reference.
10.53 1999 Employee Stock Option Plan, filed as Exhibit 10.53 to
the Annual Report on Form 10-K, filed August 31, 1999,
and incorporated herein by this reference.
10.54 Employment Agreement with Kent E. Lillie and Shop At Home,
Inc. dated January 27, 1999, filed as Exhibit 10.54 to
the Annual Report on Form 10-K/A, filed on October 28, 1999,
and incorporated herein by this reference.
10.55 Employment Agreement with Arthur D. Tek and Shop At Home,
Inc. dated February 25, 1999, filed as Exhibit 10.55 to
the Annual Report on Form 10-K/A, filed on October 28, 1999,
and incorporated herein by this reference.
10.56 Lease Agreement with INSOUTH Bank dated September 1, 1999,
filed as Exhibit 10.56 to the Annual Report on Form
10-K/A, filed on October 28, 1999, and incorporated herein by
this reference.
10.57 Registration Rights Agreement, between the Company and
certain investors, dated June 30, 2000, and filed as Exhibit
10.1 to the Current Report on Form 8-K, filed on July 5, 2000,
and incorporated herein by this reference.
10.58 Securities Purchase Agreement, between the Company and
certain investors, dated June 30, 2000, and filed as Exhibit
10.2 to the Current Report on Form 8-K, filed on July 5, 2000,
and incorporated herein by this reference.
10.59 Revolving Credit Agreement between the Company and Union Bank
of California, N.A. dated December 15, 1999, and filed as
Exhibit 10.3 to the current report on Form 8-K, filed on July
5, 2000, and incorporated by this reference.
10.60 First Amendment to the Revolving Credit Agreement, dated
August 31, 2000, between the Company and Union Bank of
California, N.A.
10.61 Waiver and Agreement, between the Company and the holders
of the Series B Convertible Preferred Stock, dated
September 21, 2000, filed as Exhibit 10.1 to the Current
Report on Form 8-K, filed September 22, 2000, and
incorporated by this reference.
10.62 Loan and Security Agreement, between the Company and Foothill
Capital Corporation, dated October 30, 2000, filed as Exhibit
10.1 to the Current Report on Form 8-K, filed October 31,
2000, and incorporated by this reference.
10.63 Asset Purchase Agreement, between the Company and its
affiliates and LBI Holdings II, Inc., and its affiliates,
regarding KZJL (TV) Houston, Texas, dated November 10, 2000,
filed as Exhibit 10.1 to the Quarterly Report on Form
10-Q, filed November 4, 2000, and incorporated by this
reference.
10.64 Redemption and Waiver Agreement, between the Company and the
holders of the Series B Convertible Preferred Stock,
dated December 22, 2000, filed as Exhibit 10.1 to the
Current Report on Form 8-K, filed January 2, 2001, and
incorporated by this reference.
10.65 Employment Agreement, between the Company and Theodore M.
Engle, III, dated February 1, 2001, filed as Exhibit 10.1
to the Quarterly Report on Form 10-Q, filed May 15, 2001, and
incorporated by this reference.
10.66 Severance Agreement, between the Company and Kent E. Lillie,
dated May 16, 2001, filed as Exhibit 10.1.1 to the
Current Report on From 8-K, filed May 16, 2001, and
incorporated by this reference.
10.67 Notice of Company to the holders of the Series B Convertible
Preferred Stock, dated July 3, 2001, filed as Exhibit
99.1 to the Current Report on Form 8-K, filed July 5, 2001,
and incorporated by this reference.
10.68* Loan and Security Agreement, between the Company and Foothill
Capital Corporation, dated August 1, 2001.
11 Schedule of Computation of Net Income Per Share (in Note 12 to
Consolidated Financial Statements of the Company for
the period ended June 30, 2000, included herein).
21* Subsidiaries of the Company.
23.1* Consent of Independent Accountants
27* Financial Data Schedule. (For SEC Use Only)
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SHOP AT HOME, INC.
By: /s/ Frank Woods Date: 08/30/01
-----------------------------------
Frank Woods
Office of the Chairman, Director
By: /s/ Arthur D. Tek Date: 08/30/01
-----------------------------------
Arthur D. Tek
Executive Vice President and
Chief Financial Officer
By: /s/ R. Steven Chadwell Date: 08/30/01
---------------------------
R. Steven Chadwell
Vice President, Finance
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
on behalf of the Company and in the capacities on the dates indicated.
By: /s/ J.D. Clinton Date: 08/30/01
---------------------------
J.D. Clinton, Chairman
By: /s/ Charles W. Bone Date: 08/30/01
---------------------------
Charles W. Bone
Office of the Chairman, Director
By: /s/ George R. Ditomassi Date: 08/30/01
---------------------------
George R. Ditomassi
Office of the Chairman, Director
By: /s/ A.E. Jolley Date: 08/30/01
---------------------------
A.E. Jolley, Director
By: /s/ Joseph I. Overholt Date: 08/30/01
---------------------------
Joseph I. Overholt, Director
By: /s/ Daniel J. Sullivan Date: 08/30/01
---------------------------
Daniel J. Sullivan, Director
By: /s/ Frank A. Woods Date: 08/30/01
---------------------------
Frank A. Woods, Director
Exhibit 21 Direct Subsidiaries of the Company
Name State of Incorporation or Organization
SAH Acquisition Corporation Tennessee
SAH Acquisition Corporation II Tennessee
SAH-Northeast Corporation Tennessee
SAH-Houston Corporation Tennessee
Partners-SATH, L.L.C. Tennessee
SAH License, Inc. Nevada
SAH License II, Inc. Nevada
Exhibit 23.1
Consent of Independent Accountant
---------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Forms S-3/A (No. 333-42258) and S-8 (No. 333-15033 and 333-34680)
of Shop At Home, Inc. of our report dated September 12, 2001 relating to the
financial statements and financial statement schedule, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Nashville, Tennessee
September 12, 2001