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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2003
Commission file number 0-25596
SUMMIT AMERICA TELEVISION, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-1282758
(State of incorporation) (IRS EIN)
400 Fifth Avenue South, Suite 203
Naples, Florida 34102
(Address of principal executive offices)
Registrant's telephone number, including area code: (786) 206-0047
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No ____
Number of shares of Common Stock outstanding as of March 31, 2003 was
42,394,097.
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SUMMIT AMERICA TELEVISION, INC. AND SUBSIDIARIES
Index to Form 10-Q
Three Months Ended March 31, 2003 and 2002
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Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Item 3 - Quantitative and Qualitative Disclosure
About Market Risk 16
Item 4 - Controls and Procedures 16
Part II OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 4 - Submission Of Matters To A Vote Of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 17-18
Exhibit 99.1
SUMMIT AMERICA TELEVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
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March 31, December 31,
2003 2002
--------------------- -------------------
(Unaudited)
ASSETS
Cash and cash equivalents 885 1,634
Accounts receivable - net 123 125
Prepaid expenses 558 502
Deferred tax assets 330 418
--------------------- -------------------
Total current assets 1,896 2,679
Property and equipment, net 6,156 6,254
Deferred tax asset 17,726 16,947
Television station licenses 89,251 89,251
Goodwill 528 528
Other assets 164 1,470
--------------------- -------------------
Total assets 115,721 117,129
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses 2,044 2,435
--------------------- -------------------
Total current liabilities 2,044 2,435
Long-term debt 47,500 47,500
Redeemable preferred stock:
Series A - Redeemable at $10 per share, $10 par value, 1,000,000 shares
authorized; 3,718 shares issued and outstanding at March 31, 2003 and
December 31, 2002, respectively 37 37
Series B - $10 par value, 2,000 shares
authorized, 0 issued and outstanding - -
Series C - $10 par value, 10,000 shares
authorized, 0 issued and outstanding - -
Series D - $10 par value, 10,000 shares
authorized, 3,000 issued and outstanding 3,000 3,000
Stockholders' equity:
Common stock - $.0025 par value, 100,000,000 shares authorized; 42,394,097
and 42,258,097 shares issued and outstanding at March 31, 2003
and December 31, 2002, respectively 106 106
Non-voting common stock - $.0025 par value,
30,000,000 shares authorized, 0 issued and outstanding - -
Additional paid in capital 111,928 111,707
Accumulated deficit (45,128) (43,926)
Note receivable from related party (3,766) (3,730)
--------------------- -------------------
Total liabilities and stockholders' equity $ 115,721 $ 117,129
===================== ===================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
SUMMIT AMERICA TELEVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002
(Thousands of Dollars)
2003 2002
------------------- ------------------
(Unaudited) (Unaudited)
Net revenues $ 1,673 $ 49,745
Operating expenses:
Cost of goods sold - 32,145
Salaries and wages 236 4,532
Transponder and affiliate charges - 10,944
General and administrative 1,164 5,067
Depreciation and amortization 166 2,915
Offering costs - 837
------------------- ------------------
Total operating expenses 1,566 56,440
------------------- ------------------
Income (loss) from operations 107 (6,695)
Interest income 38 58
Interest expense (732) (2,731)
Loss on unconsolidated subsidiary (1,306) -
------------------- ------------------
Net loss before taxes (1,893) (9,368)
Income tax benefit 691 3,185
------------------- ------------------
Net loss (1,202)
(6,183)
------------------- ------------------
Preferred stock accretion and dividends (44) -
Net loss available for common shareholders $ (1,246) $ (6,183)
=================== ==================
Basic and diluted loss per common share: $ (0.03) $ (0.15)
=================== ==================
Weighted average number of shares and share equivalent outstanding:
Basic and diluted 42,361 41,861
=================== ==================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
SUMMIT AMERICA TELEVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002
(Thousands of Dollars)
2003 2002
------------------- -------------------
(Unaudited) (Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,202) $(6,183)
Non-cash expenses/(income) included in net loss:
Depreciation and amortization 166 2,915
Deferred tax benefit (691) (3,185)
Deferred interest - 295
Interest accrued on shareholder note (36) -
Provision for bad debt - 260
Loss on unconsolidated subsidiary 1,306 -
Changes in current and non-current items:
Accounts receivable 2 307
Inventories - 808
Prepaid expenses and other assets (56) -
Accounts payable and accrued expenses (435) 1,952
Deferred revenue - (328)
------------------- -------------------
Net cash used by operations (946) (3,159)
=================== ===================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (68) (749)
Net change in restricted cash - (343)
Other assets - 8
------------------- -------------------
Net cash used in investing activities (68) (1,084)
=================== ===================
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred finance charges - (125)
Repayments of capitalized leases - (234)
Exercise of stock options and warrants 265 5
------------------- -------------------
Net cash provided (used) by financing activities 265 (354)
=================== ===================
NET INCREASE/(DECREASE) IN CASH (749) (4,597)
Cash beginning of period 1,634 19,924
------------------- -------------------
Cash end of period $885 $15,327
=================== ===================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
SUMMIT AMERICA TELEVISION, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
Three Months Ended March 31, 2003 and 2002
(Thousands of Dollars)
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2003 2002
-------------------------- --------------------------
(Unaudited) (Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 739 $ 159
========================== ==========================
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accrued Series D preferred stock dividends $ 44 $ -
========================== ==========================
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
SUMMIT AMERICA TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002 AND DECEMBER 31, 2002
NOTE 1 - BASIS OF PRESENTATION AND SALE OF ASSETS
Basis of Presentation. All dollar values have been expressed in
thousands (000s) unless otherwise noted except for per share data. The
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of the Company, necessary for a fair
presentation of financial condition and results of operations of the periods.
The accounting policies followed by the Company are set
forth in the Company's financial statements on its Transition Report on Form
10-K for the fiscal year ended December 31, 2002.
The condensed consolidated balance sheet data for the year ended
December 31, 2002 were derived from audited consolidated financial statements,
but do not include all disclosures required by generally accepted accounting
principles.
Sale of Assets. On October 31, 2002, Summit America Television Inc.
("the Company") (formerly Shop At Home, Inc.) closed the sale of a 70% interest
in its television and internet home shopping network, Shop At Home Network, LLC
(the "Network"), to a subsidiary of The E.W. Scripps Company ("Scripps"). The
Company retains a 30% interest in the Network and also retains ownership of its
five full-power television stations, certain wireless spectrum assets and
tax-loss carry-forward benefits. In connection with the sale, the Company
formally changed its legal name from Shop At Home, Inc. to Summit America
Television, Inc.
NOTE 2 - STOCK-BASED COMPENSATION
The Company follows the provisions of APB No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its employee
stock options. Under APB No. 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.
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 No. 123, the Company's net loss per share would have been
adjusted to the pro forma amounts indicated in the following table.
March 31, March 31,
2003 2002
-------------- --------------
Net earnings available to common shareholders:
As reported ($1,246) ($6,183)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of related
tax effects 73 108
-------------- --------------
Pro forma ($1,319) ($6,291)
============== ==============
Basic earnings per share available to common shareholders
As reported ($0.03) ($0.15)
Pro Forma ($0.03) ($0.15)
Diluted earnings per share available to common
shareholders: ($0.03) ($0.15)
As reported ($0.03) ($0.15)
Pro forma
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 three months ended March 31, 2003
and 2002 and dividend yield of 0%; expected life of 7.5 years; expected
volatility of 46% and 61% for the three months ended March 31, 2003 and March
31, 2002, respectively; risk-free interest rate of 3.75% and 4.76% for the three
months ended March 31, 2003 and March 31, 2002, respectively.
NOTE 3 - ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring). The
principal difference between this Statement and EITF Issue No. 94-3 relates to
its requirements for recognition of a liability for a cost associated with an
exit or disposal activity. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred rather than at the date of an entity's commitment to an exit plan. SFAS
No. 146 is effective for all exit or disposal activities after December 31,
2002. The adoption of SFAS No. 146 did not have a material effect on the
Company's consolidated balance sheet or consolidated statements of operation.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN 45"). The
interpretation requires that upon issuance of a guarantee, the entity must
recognize a liability for the fair value of the obligation it assumes under that
obligation. This interpretation is intended to improve the comparability of
financial reporting by requiring identical accounting for guarantees issued with
separately identified consideration and guarantees issued without separately
identified consideration. The initial recognition and measurement provision of
FIN 45 are applicable to the guarantees issued or modified after December 31,
2002. The adoption of FIN 45 did not have a material effect on the Company's
consolidated balance sheet or consolidated statements of operation.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). This interpretation clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
The Company did not create or obtain any variable interest entities that contain
the characteristics addressed in FIN 46 during the three months ended March 31,
2003. For variable rate entities in which an interest was held prior to February
1, 2003, FIN 46 applies in the first fiscal year or interim period beginning
after June 15, 2003. The Company does not expect that the adoption of FIN 46 as
it relates to variable interest rate entities held prior to February 1, 2003
will have a material effect on the Company's consolidated balance sheet or
consolidated statement of operations.
NOTE 4 - INDEBTEDNESS
$47,500, 6% Secured Note
Concurrent with its purchase of the Network assets discussed in Note 1,
Scripps loaned $47,500 to the Company payable in full on or before October 31,
2005. Interest accrues on the loan at the rate of 6% and is payable quarterly.
Payment and performance of the loan obligation are secured by assignment of the
Company's 30% interest in the Network, a security interest in the
Company's television stations located in the Boston, San Francisco and Cleveland
markets, and a security interest in the stock of the Company's subsidiaries that
own the assets. The Company's carrying value of the television station licenses
used to secure the loan is $61,563 at March 31, 2003. As required by the loan
agreement, the Company must adhere to various non-financial covenants and is
prohibited from encumbering further any secured assets, redeeming or issuing
outstanding stock or issuing additional shares of common or preferred stock.
NOTE 5 - LOSS PER SHARE
The following table sets forth for the periods indicated the calculation
of net loss per share included in the Company's Consolidated Statements of
Operations:
March 31,
(shares in thousands)
2003 2002
---- ----
Numerator:
Loss from continuing operations $ (1,202) $(6,183)
Preferred stock accretion and dividends (44) -
----------------- ----------------
Numerator for basic earnings per
share loss available to
common stockholders $ (1,246) $(6,183)
================= ================
Denominator for basic earnings per
share-weighted-average shares 42,361 41,861
Effect of dilutive securities - -
----------------- ----------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 42,361 41,861
================= ================
Basic loss from continuing operations per share $ (0.03) $ (0.15)
================= ================
Diluted loss from continuing operations per share $ (0.03) $ (0.15)
================= ================
Although the following 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 (in thousands):
Employee stock options 3,166 5,256
Warrants 2,000 2,000
Convertible preferred stock 4 16
NOTE 6 - REVENUE FROM AFFILIATE FEES
For periods subsequent to the sale of 70% of the Company's interest in
the Network, substantially all of the Company's revenues will be derived from
the affiliate fees charged to the Network.
NOTE 7 -- OPERATING SEGMENTS
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires reporting segment information that is consistent with the
way in which management operates the Company. Until October 31, 2002, the
Company operated principally in two segments: Shop At Home Network and
shopathometv.com. The Company operated almost exclusively in the United States.
After October 31, 2002, the Company operates in one segment: television
broadcast stations. No comparison of segment information for the quarter ended
March 31, 2003 to the quarter ended March 31, 2002 is deemed relevant.
NOTE 8 -- INVESTMENTS
As a result of the sale of the Network, the Company has retained an
equity method investment in 30% of the Network operations. The carrying value of
this equity method investment is included in other assets in the accompanying
consolidated balance sheets.
Summarized balance sheet information of the Company's equity-method
investee is as follows:
March 31, 2003
--------------
Current Assets $ 29,251
Noncurrent Assets $ 20,235
Current Liabilities $ 30,872
Noncurrent liabilities $ -
Summarized statement of operations information of the Company's equity-method
investee, calculated for the period during which the Company had the equity
method investment, is as follows:
For the Three Months Ended
March 31, 2003
Net sales $58,316
Gross profit $19,461
Net loss $(7,430)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the "Selected Financial Data" and the Company's consolidated financial
statements and related notes included elsewhere herein.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements 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 periods. Management continually
evaluates its estimates and assumptions. Management bases its estimates and
assumptions on historical information and on various other factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. Management believes the following critical accounting
policies affect the more significant assumptions and estimates used in the
preparation of its consolidated financial statements:
The carrying value of the Company's goodwill and television station
licenses is tested for impairment in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. If
an impairment test indicates that the carrying value of goodwill is impaired,
the carrying value of goodwill is reduced by the amount by which the carrying
value exceeds the implied fair value of that goodwill. If an impairment test
indicates that the carrying value of the television station licenses is
impaired, the carrying value of the television station licenses is reduced by
the amount by which the carrying value exceeds the fair value of the television
station licenses. Both the implied fair value of goodwill and the fair value of
the television station licenses are based upon assumptions which may prove to be
untrue in the future.
The Company records a valuation allowance to reduce its net deferred
tax assets to the amount that is more likely than not to be realized. While
management has considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for its valuation allowance, in
the event the Company were to determine that it would be able to realize its
deferred tax assets in the future in an amount in excess of the net recorded
amount, an adjustment to the valuation allowance would decrease income tax
expense in the period such determination was made. During the second quarter of
the calendar year, the Company rescinded certain transactions that it had
previously authorized. The Company believes that no tax liability arose out of
the rescission of such transactions. Should the Company determine that it would
not be able to realize all or part of its net deferred tax assets in the future
or should such rescission be found to be ineffective for tax purposes, in whole
or in part, there would be an increase in income tax expense, which increase
could be material.
OVERVIEW
Seeking to reduce operating losses and to improve shareholder value,
the Company's management completed the sale of 70% of the Company's interest in
the Network to Scripps on October 31, 2002. The sale substantially reduced the
size of the Company's operations. Results after October 31, 2002 are therefore
not easily comparable with those previously reported.
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:
Three Months Ended March 31,
2003 2002
Net revenues 100.0 % 100.0 %
Cost of goods sold - 64.6
Salaries and wages 14.1 9.1
Transponder and affiliate charges - 22.0
General and administrative expenses 69.6 10.1
Depreciation and amortization 9.9 5.9
Offering expenses 1.7
------------ -----------
Total operating expenses 93.6 113.4
Interest income 2.2 0.1
Interest expense (43.7) (5.5)
Loss on unconsolidated subsidiary (78.0) -
------------ -----------
Loss from continuing operations
before income taxes (113.1) (18.8)
Income tax benefit (41.3) (6.4)
------------ -----------
Net loss (71.8) (12.4)
RESULTS OF OPERATIONS
Three Months Ended March 31, 2003 compared with Three Months Ended
March 31, 2002
Because the Company sold a 70% interest in the Network on
October 31, 2003, but retained ownership of its five television stations, its
operations were fundamentally different during the quarter ended March 31, 2002,
compared to the same quarter in 2002. These differences resulted from the change
in operation of the Company from a retail seller of merchandise to a television
station operator which receives substantially all its revenues from the
affiliate fees charged to the Network. The following paragraphs, which describe
material changes in certain significant line items of its financial statements,
illustrate this conclusion:
Net Revenues. The Company's net revenues for the quarter ended March
31, 2003, were $1.7 million, a decrease of 96.6% from $49.7 million in the prior
year.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and related shipping charges. For the quarter ended March 31, 2003,
the cost of goods sold was 64.6% of revenues. The cost of goods sold was $32.1
million for the quarter ended March 31, 2002, and there were no cost of goods
sold in the quarter ended March 31, 2003.
Salaries and Wages. Salaries and wages for the quarter ended March 31,
2003 were $0.2 million, compared to $4.5 million in the prior year. Salaries and
wages, as a percent of revenues, increased to 14.1% in the March 31, 2003 period
compared to 9.1% in the prior year.
Transponder and Affiliate Charges. Transponder and affiliate charges
for the quarter ended March 31, 2003 were $0 million compared to $10.9 million
in the quarter ended March 31, 2002. The decrease is due to the sale of Network
assets.
General and Administrative. General and administrative expenses for the
quarter ended March 31, 2003 were $1.2 million, a decrease of $3.9 million or
77.0% from the prior year.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended March 31, 2003 was $0.2 million, compared to $2.9 million in the
prior year.
Offering Costs. The Company incurred $0.8 million in non-recurring
offering costs during the quarter ended March 31, 2003. The costs related to the
Company's uncompleted refinancing of its long-term debt.
Interest. Interest expense of $0.7 million decreased by $2.0 million or
73.1% from the prior year. The decrease is primarily due to interest associated
with the Company's prior debt being repaid as a result of the sale of Network
assets.
Income Tax Benefit. Income tax benefit from continuing operations was
$0.7 million for the quarter ended March 31, 2003 versus $3.2 million expense
for the quarter ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $0.9 million of cash on hand at March 31, 2003.
Management believes that the affiliate fee income from its owned stations will
be sufficient to fund operating expenses and interest payments. The Company may
be required to borrow, however, up to $5 million for general corporate purposes
and to fund the construction of new digital transmission facilities for three of
its stations. Management believes that such funding will be reasonably
obtainable.
The Company's future contractual obligations and commitments at March
31, 2003 consist of the following:
PAYMENTS DUE BY PERIOD
LESS THAN OVER
TOTAL 1 YEAR 1 - 2 YEARS 3 - 4 YEARS 4 YEARS
(In thousands)
Long-term debt $ 47,500 $ - $ - $ 47,500 $ -
Redeemable
preferred stock 3,000 - - 3,000 -
Operating lease
obligations 3,256 755 770 749 982
----------------- --------------- ---------------- ---------------- ----------------
$ 53,756 $ 755 $ 770 $ 51,249 $ 982
================= =============== ================ ================ ================
In addition to the above commitments, the Company has 3,718 shares of
redeemable preferred stock outstanding at March 31, 2003. 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 the Company's common stock at a ratio of
one share of common stock for one share of Series A Preferred Stock. Holders of
the Series A Preferred Stock are entitled to receive, but only when declared by
the Board of Directors, cash dividends at the rate of $0.10 per share per annum.
CAPITAL EXPENDITURES
The Company projects capital expenditures during 2003 of approximately
$0.4 million, primarily for digital transmission facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The principal
difference between this Statement and EITF Issue No. 94-3 relates to its
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred rather than at the date of an entity's commitment to an exit plan. SFAS
No. 146 is effective for all exit or disposal activities after December 31,
2002. The adoption of SFAS No. 146 did not have a material effect on the
Company's consolidated balance sheet or consolidated statements of operation.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN 45"). The
interpretation requires that upon issuance of a guarantee, the entity must
recognize a liability for the fair value of the obligation it assumes under that
obligation. This interpretation is intended to improve the comparability of
financial reporting by requiring identical accounting for guarantees issued with
separately identified consideration and guarantees issued without separately
identified consideration. The initial recognition and measurement provision of
FIN 45 are applicable to the guarantees issued or modified after December 31,
2002. Effective December 31, 2002, the Company has adopted FIN 45. The adoption
of FIN 45 did not have a material effect on the Company's consolidated balance
sheet or consolidated statements of operation.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). This interpretation clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date.
The Company did not create or obtain any variable interest entities that contain
the characteristics addressed in FIN 46 during the three months ended March 31,
2003. For variable rate entities in which an interest was held prior to February
1, 2003, FIN 46 applies in the first fiscal year or interim period beginning
after June 15, 2003. The Company does not expect that the adoption of FIN 46 as
it relates to variable interest rate entities held prior to February 1, 2003
will have a material effect on the Company's consolidated balance sheet or
consolidated statement of operations.
ITEM 3. 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 $0.9 million as of March 31, 2003. 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 $47.5 million of long-term debt, because interest
accrues on this debt at the fixed rate of 6%.
The Company has no activities related to derivative financial
instruments or derivative commodity instruments.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including George R. Ditomassi, who is the
chief executive officer and the principal financial officer, have evaluated the
effectiveness of the Company's "disclosure controls and procedures," as such
term is defined in Rules 13a-14 and 15d-14 promulgated under the Securities
Exchange Act of 1934, as amended, within 90 days prior to the filing date of
this Quarterly Report on Form 10-Q. Based upon management's evaluation, the
chief executive officer and principal financial officer concluded that the
Company's disclosure controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, since the date on which the controls
were evaluated.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A lawsuit was filed against the Company in January 2000 by a former
vendor, Classic Collectibles, LLC, in state Chancery Court in Chattanooga,
Tennessee. The vendor alleges that the Company improperly canceled certain
orders, that certain amounts it paid to the Company under a written agreement
should be refunded, and that certain amounts were left owing on the account. The
vendor also claims entitlement to alleged lost profits of approximately $2
million, 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 against Classic Collectibles, LLC. The case was initially set for a
jury trial in November 2002 but has been postponed by the court until September
2003.
On September 27, 2002, Dixie Health, Inc. ("Dixie") sued the Company,
later adding the Network as a defendant, in the United States District Court for
the Middle District of Tennessee at Nashville. Dixie asserts causes of action
based upon Summit's alleged use of trade dress owned by Dixie, arising from
events occurring after the Company's termination of Dixie as a vendor.
Dixie asserted causes of actionable violation of the Lanham Act, unfair
competition and false advertising, and unfair or deceptive acts or practices,
and claims entitlement to $69,221.82 for goods sold to the Company. The Company
has filed its answer and counterclaim and intends to vigorously pursue its
defense.
In addition, 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 financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. REPORTS ON FORM 8-K.
The Company filed one report on Form 8-K during the quarter ending
March 31, 2003, reporting the following:
On Form 8-K filed February 14, 2003, reporting that on February 13,
2003, the Board of Directors of the Registrant approved a change of its fiscal
year from June 30 to December 31, and that the Registrant would file a
transition report on Form 10-K for the six months ended December 31, 2002 (in
lieu of filing a quarterly report on Form 10-Q for the three months ended
December 31, 2002). A press release describing the Board's action was attached
to the Form 8-K as Exhibit 99.1.
Exhibits
Exhibit Number Description
99.1 Certificate of the Chief Executive
Officer and Principal Financial
Officer under 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-0xley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUMMIT AMERICA TELEVISION, INC.
By: /s/ George R. Ditomassi Date: May 20, 2003
-----------------------------------
George R. Ditomassi
Chief Executive Officer
(in his capacities as Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
CERTIFICATION
I, George R. Ditomassi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Summit America
Television, Inc.:
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 20, 2003
/s/George R. Ditomassi
George R. Ditomassi
Chief Executive Officer
and Principal Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Summit America Television, Inc. (the
"Company") on Form 10-Q for the period beginning January 1, 2003, and ending
March 31, 2003, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, George R. Ditomassi, Chief Executive Officer and
Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: May 20, 2003
/s/ George R. Ditomassi
George R. Ditomassi
Chief Executive Officer and
Principal Financial Officer
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.