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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] 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 0-20680
CONCEPTS DIRECT, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1781893
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2950 Colorful Avenue, Longmont, Colorado 80504
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (303) 772-9171
_______________________________________________
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 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) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 6, 2001 was approximately $3,705,902. This
figure was calculated as follows: The number of shares beneficially
owned by executive officers and directors of the registrant as a group
and by persons known to the registrant to be beneficial owners of more
than 5% of the outstanding common stock of the registrant was subtracted
from the total number of shares outstanding. The resulting figure was
then multiplied by the average of the bid and asked prices of the
registrant's stock in the over-the-counter market on March 6, 2001. The
foregoing calculation should not be deemed an admission that any of the
officers and directors of the registrant or any holder of more than 5%
of the outstanding common stock of the registrant is an "affiliate."
The number of shares outstanding of the registrant's common stock as of
March 6, 2001 was 4,991,748.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its annual meeting of
shareholders scheduled for May 10, 2001 are incorporated by reference
into Part III.
PART 1
ITEM 1. BUSINESS
General
Concepts Direct, Inc. ("Concepts Direct" or "the Company") is a direct
retailing company, headquartered in Longmont, Colorado. From 1988 to
1992, operations were conducted in the Consumer Products division of
Wiland Services, Inc. ("Wiland"), which provided a variety of database
management, list processing and marketing research services to direct
marketing companies. The Company was organized as a Delaware
corporation in May 1992 and began operations under its name on September
30, 1992, as a result of a spin-off from Wiland. Since its inception,
Concepts Direct's primary focus has been on utilizing its direct
marketing expertise and its database to produce multiple independent
revenue streams from multiple marketing vehicles. Today it owns and
operates five catalog titles, their associated websites and related
niche marketing vehicles.
In early 2000, after a period of extensive Internet infrastructure
development activity, the Company moved certain of its technology assets
and liabilities to two wholly owned subsidiary corporations called
iConcepts, Inc. (iConcepts) and BOTWEB, Inc. (BOTWEB). This
reorganization was accomplished to enhance focus of the companies on
their various missions and goals and to better communicate the status of
each company to investors.
iConcepts was established to provide technology support to Concepts
Direct, BOTWEB and, at an appropriate time, third parties. Other
services and development directions of iConcepts, Inc. were planned to
include Internet site hosting and development, online order processing,
database management and the establishment of new Internet retailing
brands. BOTWEB was to operate the Internet portal, BOTWEB.com, with a
plan to focus on developing superior portal features and services and
building significant traffic to the site. The parent company, Concepts
Direct was to focus on obtaining profitable results for the catalog
business and the related Internet sites associated with the catalog
titles.
During the third quarter of 2000, as a result of greater than
anticipated losses and lack of available third party capital to support
continued expansion of the two Internet companies, the Company
significantly scaled back its planned Internet initiatives, including
the discontinuance of BOTWEB and the elimination of all on-going
expenditures associated with BOTWEB. The operations of iConcepts were
scaled back to support only the on-going operations of the catalog
business of Concepts Direct, and were effectively completely absorbed
back into Concepts Direct.
Concepts Direct operates the established catalog business and associated
Internet sites. Concepts Direct's five primary direct marketing
vehicles are the "Colorful Images(," "Linda Anderson(," "Snoopy( etc.,"
"Linda Anderson's Collectibles(" and "the Music Stand(" catalogs.
Through these media and related Internet sites, it currently sells
personalized paper products and a diverse line of merchandise, including
collectibles, gift items, home decorative items and casual apparel. Two
primary strengths of Concepts Direct are its proprietary database
(consisting of approximately 12.1 million customers, catalog requesters,
catalog referrals and gift recipients as of December 31, 2000) and its
direct marketing expertise.
Financial Information about Foreign and Domestic Operations and Export
Sales
Identifiable assets are attributable entirely to domestic operations.
There are no foreign operations, but Concepts Direct has advertised in
Canada in prior years and may do so again in the future. Export sales
are insignificant, and consist solely of sales shipped within the United
States, for reshipment by the purchasers. The Company expects to begin
taking orders for shipment directly to other countries beginning
sometime in 2001.
Strategic Focus
The strategic focus of Concepts Direct is to prudently increase revenues
and earnings through the successful operation of its catalogs and
related Internet sites. It may also launch or acquire additional
catalogs when timing and capital make it appropriate to do so, although
it has no specific plans to do so at this time. The principal
strategies for achieving current goals are as follows:
* Concepts Direct employs an analytical approach to prospecting for new
customers which emphasizes list testing and segment analysis, adherence
to list performance guidelines and the recognition of the long-term
value of a customer.
* Concepts Direct seeks to maximize effective use of its proprietary
database. In addition to recency, frequency of purchase and other
monetary data typically used in database direct marketing, Concepts
Direct also collects information concerning the types and themes of
merchandise purchased by its customers. The use of this data, in
conjunction with purchase history data such as latest order date and
order size, facilitates selections from the database and product
offerings that are suited to the styles and tastes of customers. This
information is used to determine which names from Concepts Direct's
database are to be selected for subsequent marketing contacts.
* Concepts Direct plans to effectively manage the circulation of its
catalogs and marketing offers. Concepts Direct believes that its list
testing strategy, evaluation of performance data and recognition of the
long-term value of a new customer have been significant contributing
factors to its success in expanding and contracting circulation in
various business environments. As response rates allow, Concepts Direct
may attempt in 2001 to increase circulation and enlarge its proprietary
database more rapidly than in 2000.
* Concepts Direct believes that it enjoys strong brand recognition and
customer loyalty for its catalogs. As a result, Concepts Direct intends
to leverage its proprietary database and understanding of product
preferences of its primary audience by introducing new complementary
catalog offers under existing catalog brand names. Colorful Images( and
other Concepts Direct catalogs have produced a database comprised in
part of customers who have purchased many different product types. This
database provides an opportunity to launch new marketing programs under
the umbrella of the various catalog titles, targeted to address these
particular interests.
* Concepts Direct plans to leverage its fulfillment infrastructure, its
direct marketing expertise and technological expertise to market
products via e-commerce sites. Concepts Direct believes that it can use
certain e-commerce advantages such as ease of ordering, constant
availability to the consumer and cost effective means of offer
presentation to achieve a significant retailing presence via electronic
media.
* Concepts Direct may seek to acquire catalog assets that have a
strategic fit with its long-term plans. Such efforts will only occur
when market timing and the availability of capital make it appropriate
to do so.
Customer Database
The Concepts Direct proprietary database stores information on each
customer. The information is derived primarily from customer
transactions and is updated as new transactions are recorded. Concepts
Direct also conducts prospect mailings to rented and exchanged mailing
lists obtained from other companies and sources. The use of rented and
exchanged mailing lists is expected to be a component of future efforts
to obtain new customers and add them to the proprietary database.
During 2000, Concepts Direct mailed over 41 million copies of its
catalog titles.
At the end of 2000, the proprietary database contained approximately
12.1 million customers, catalog requesters, catalog referrals and gift
recipients, approximately 1.3 million of whom had placed orders during
the last fiscal year. The database has grown substantially during the
past three years, increasing from 7.7 million names at the end of 1997
to 12.1 million names at the end of 2000. The 1999 acquisition of the
assets of the Music Stand (r) catalog added approximately 2.1 million
names to the database. Information contained in the customer database
assists in determining which offers customers are to receive and the
frequency of those offers.
Concepts Direct selects from its database the individuals it believes
are most likely to respond to a particular merchandise offer, thus
maximizing sales while managing costs as a percent of sales. Concepts
Direct believes that its ability to analyze its database and select
recipients for a particular direct marketing campaign are significant
factors in its growth. Various indicators, including frequency and size
of order, date of last order, and style and theme of products purchased
are utilized to direct specific catalog mailings to those most likely to
purchase its merchandise. The customer database is updated in a real
time environment.
Marketing Lines
Concepts Direct not only markets to its customer database but also
exchanges lists with and rents lists from other direct marketers in
order to gain new customers. Concepts Direct is also developing an
extensive Internet presence that makes its products available to
customers and prospects.
Concepts Direct currently markets its products primarily under five
catalog titles:
1. Colorful Images(r)
Colorful Images(r) is the trade name under which Concepts Direct markets
its line of personalized labels, personalized notepads, various other
personalized paper products and general merchandise such as T-shirts and
collectibles. Colorful Images(r) creates its own designs, purchases
styles and designs from outside sources and licenses certain images on a
royalty basis.
The Colorful Images(r) line of personalized self-adhesive labels is one of
the largest assortments of such products available from any company.
There are over 1,600 different label choices appropriate to popular
interests, most regions of the country, hobbies, professions and
lifestyles. In addition, labels are available with popular licensed
characters such as Snoopy(r), other PEANUTS(r) characters and Boyds Bears(r).
The primary marketing vehicle utilized to sell Colorful Images(r) products
is a digest-sized catalog (measuring approximately 5" x 7 1/2") with
price points typically ranging from $6.95 to about $60.00, excluding
shipping and handling. The catalog features photographs of labels and
other products
Although certain segments of the Colorful Images(r) customer database may
prefer one product line or the other, generally, all customers receive
the same version of the catalog. During 2001, the Company plans to
mail the primary Colorful Images catalog to customers and prospects
eight times, one more than the seven times it was mailed in 2000.
In addition, Colorful Images(r) plans to send niche versions of the
catalog with more narrowly focused product selection to carefully
targeted and selected customers and prospects. This strategy was tested
in the fall of 1999 and expanded on in the fall of 2000 with the release
of the "Colorful Christmas" niche catalog. Results from both years met
or exceeded management's expectations and circulation will be expanded
in 2001. In addition, Concepts Direct plans to extend this strategy of
mailing niche catalogs in 2001. The first such offering, "Colorful
Cats," is expected to be mailed to customers in April. Additional
small, focused mailings may follow if the positive response to these
marketing efforts is repeated.
Colorful Images(r) has been a successful catalog for several years. It is
normal for catalogs to mature at certain points in their life cycle and
not grow at the same rate as at points earlier in their life cycle.
During 1999, revenue declined compared to 1998 primarily as a result of
less catalog circulation. During 2000, Colorful Images produced modest
growth in both sales and catalog circulation above 1999 levels.
Management anticipates that Colorful Images will continue to produce a
significant contribution to profitability and general and administrative
costs and anticipates continued modest growth in 2001.
ColorfulImages.com, featuring a full array of Colorful Images(r) products
was launched in late 2000. Management believes that it is less expensive
to process orders received via the website and will encourage customers
to place orders at ColorfulImages.com Management intends to pursue
various "percent of sales" marketing arrangements with other
organizations to affordably attract new customers via the Internet.
2. Linda Anderson(r)
Linda Anderson(r) markets an assortment of gifts, home decorative
merchandise and casual apparel, generally at higher price points than
Colorful Images(r). This merchandise is offered through the Linda
Anderson(r) catalog and at LindaAnderson.com. Price points for Linda
Anderson (r) merchandise typically range from about $9.00 to about
$175.00, excluding shipping and handling.
About 107,000 customers placed orders through the Linda Anderson(r)
catalog in the twelve month period ended December 31, 2000, compared to
more than 185,000 in 1999. This decrease resulted from a strategic
decision to reduce the level of investment in acquiring new customers by
reducing the prospecting loss per mail cycle. Although this decision
reduced the number of new customers acquired during 2000 and reduced
overall sales for the catalog, it significantly increased the
contribution to profitability and general and administrative costs from
this catalog. The Company plans to continue to limit Linda Anderson(r)'s
non-profitable prospecting in 2001. Six unique editions of Linda
Anderson( are planned for 2001, plus one major remail, identical to the
six plus one remailed edition in 2000.
In the spring of 1999, a test of a targeted catalog version called
"Linda's Lawn & Garden" was conducted. Results from this offer led to a
decision to defer further testing of similar offerings, at least
temporarily. Management is testing Linda's Lawn & Garden again in early
2001 and will closely review the results of the latest test before
committing to further testing.
New customers of the Linda Anderson(r) catalog have responded to our
other catalogs at a favorable rate. Because of this, during 1998 and
the first half of 1999, Linda Anderson(r) invested heavily in prospecting
for new customers. While this effort produced a significant number of
new customers, the financial investment was substantial. During the
second half of 1999 and throughout 2000, Linda Anderson(r) reduced
prospecting volumes by limiting the prospecting investment per mail
cycle. This action resulted in a decline in the rate of revenue and
database growth from 1999 levels, but significantly improved the overall
financial performance of the catalog in 2000. Linda Anderson(r) plans to
continue this strategy of limiting prospecting investment per cycle in
2001.
LindaAnderson.com was launched in June of 1999, as our first Internet
retailing site. It offers a wide range of current and past products
from the Linda Anderson catalog and the Linda Anderson's Collectibles(r)
catalog. Management is pleased with these results and will attempt to
increase Internet sales to customers and prospects in a profitable
manner.
3. Linda Anderson's Collectibles(r)
Linda Anderson's Collectibles(r) was launched in 1997 featuring an
extensive line of collectible merchandise and information about
collecting and the lines represented. The catalog was mailed four times
in 2000 and the number of customers climbed to over 213,000, compared to
about 176,000 as of December 31, 1999.
During 1999, a strategic decision to decrease the level of investment in
acquiring new customers by reducing the prospecting loss per mail cycle
was implemented. As a result, volume fell during the later part of the
year but contribution to profitability and general and administrative
costs improved significantly. Active twelve-month customers as of
December 31, 2000 were 38,000, down from 49,000 at the end of 1999. It
is anticipated that Linda Anderson's Collectibles(r) will be mailed four
times during 2000, the same number of mailings as in 1999.
During 1999 and 2000, a number of "microniche" collectible offers were
mailed. These offers are highly targeted marketing offers mailed to a
limited number of carefully selected customers with a known affinity for
the featured product lines based on prior purchasing history. Although
these microniche offers had limited circulation quantities, response
rates and contribution to profitability and general and administrative
costs generated by the microniche offers were extremely encouraging. A
careful continuation of such mailings is planned for 2001 with the focus
being on contribution optimization. Also in early 2001, the Company
tested a "continuity program" offer, featuring a series of exclusive,
limited edition collectible figurines. Preliminary results from the
continuity program test are encouraging.
The LindaAnderson.com site offers current and past products from the
Linda Anderson's Collectibles(r) catalog. In order to enhance the
brand's Internet presence, a dedicated site may be developed in 2001.
Catalog mailings currently direct consumers to LindaAnderson.com .
4. Snoopy(tm) etc.
Operating under an agreement with United Feature Syndicate, Concepts
Direct has developed a catalog consisting exclusively of merchandise
featuring Snoopy(tm) and the other PEANUTS(r) characters. The merchandise in
the catalog is a combination of items from licensed manufacturers and
items designed exclusively for the catalog. A royalty on sales
generated by the catalog is paid to United Feature Syndicate.
Snoopy(tm) etc., a catalog with character was issued five times in 2000
with products generally priced between $7.95 and $940.00 per item.
Since 1996, Concepts Direct has had a license to feature PEANUTS(r)
characters on personalized label products and has accumulated
information on its proprietary database concerning buyers of PEANUTS(r)
personalized label products and other PEANUTS( merchandise sold in its
catalogs. Consistent with Concept Direct's overall strategy to develop
its catalogs into a profitable status Concepts Direct curtailed mail
volume to prospect names and focused on improving contribution from
Snoopy(tm) etc., beginning in September 1999. Management was pleased with
the results of these efforts.
In late 1999, Peanuts creator, Mr. Charles M. Schulz, announced his
planned retirement for early 2000. This was followed by another
announcement that Mr. Schulz was ill. Mr. Schulz's passed away in early
2000. Following the untimely passing of Mr. Schulz, all our license
arrangements remain in place and consumer interest in the brand remains
strong.
Seven editions of the catalog are planned for 2001 as compared to six in
2000.
In late 2000, we launched SnoopyStore.com, featuring products from the
Snoopy, Etc. catalog. In addition to functioning as a stand-alone
website, SnoopyStore.com also serves as the "store" for Snoopy.com, the
official website managed by United Feature Syndicate.
5. the Music Stand (r)
In June 1999, Concepts Direct purchased substantially all of the assets
of the Music Stand catalog. The catalog is a well established title
with a loyal following of customers, some of whom have been purchasers
for up to twenty years. The acquisition included primarily the customer
database and inventory of the catalog.
Two editions of the Music Stand(r) catalog were mailed in the fall of 1999
and five editions in 2000. Results from the 1999 mailings were
encouraging, generating a positive contribution to profit and general
and administrative costs. Results from 2000 mailings were somewhat
disappointing and the brand did not have a positive contribution in
2000.
It is planned that four editions of the catalog will be mailed to
customers and prospects in 2001. Strategically, Concepts Direct plans
to carefully test this catalog until we have a full understanding of its
database and seasonality. Management anticipates reducing circulation
quantities in early 2001 until it has more experience with this catalog.
During late 1999, theMusicStand.com web site was launched.
Approximately 11% of total sales for the brand were entered via the
website during 2000.
Product Lines
Approximately 97% of the Company's 2000 net sales are attributable to
product sales directly to individual consumers of the five catalog
brands and NewBargains.com. The Company's two major product lines are
personalized paper products and gift, home decor and other merchandise
items.
Personalized paper products, which generally have product costs less
than 15% of the product sales price, accounted for approximately 47% of
direct to consumer product sales in 2000. All of the Company's
personalized paper products sold are stocked and shipped directly to
customers from the Company's headquarters and fulfillment facility in
Longmont, Colorado.
Gift, home decor and other merchandise items, which generally have
product costs in excess of 30% of the product sales price, accounted for
about 53% of direct to consumer product sales in 2000. Approximately
98% of the gift, home decor and other merchandise items sold are stocked
and shipped directly from the Company's headquarters and fulfillment
facility in Longmont, Colorado. The remaining product is shipped
directly to consumers by third party vendors.
Licensing and Service Marks
Federally registered service marks exist for each of the five Concepts
Direct catalog titles, except Snoopy, etc. Registered service marks for
other business concepts and catalog titles may be applied for in the
future.
Concepts Direct has developed certain artwork used in its labels and
other products. In addition, the Company has purchased or licensed
rights to certain artwork from third parties, generally for a period of
at least three to five years. Certain rights are also licensed on a
royalty basis, including PEANUTS(r), Boyds Collection Ltd.(r),
Dreamsicles(r) and others. Management anticipates the licenses and
royalty arrangements may be renewed or replaced, as appropriate, with
minimal disruption to ongoing operations.
Concepts Direct relies on technology that is licensed from third
parties, including software integrated with internally developed
software to perform key functions. These third party licenses may not
continue to be available on commercially reasonable terms. Management
believes that technology licensed from third parties can be replaced
with minimal disruption to the Company's operations from a number of
other vendors.
Product Liquidation
Concepts Direct liquidates its overstock inventory via vendor returns,
sales through the Company's two outlet stores, and the NewBargains.com
liquidation website.
The Internet retailing site NewBargains.com was launched in January 2000
and is one of several liquidation channels used by the Company to
liquidate excess inventory. The site currently has over 1,500 products
available at prices ranging from 25% to 85% off of the original retail
price. Products offered at the site are first quality and generally in
the original packaging from the vendor. The site encourages
bargain-seeking consumers to visit the site often. Each day at least
some items have their price lowered. Consumers are encouraged to review
the "daily specials", "deepest discount" and other featured products.
All products available at NewBargains are excess inventory items of
Concepts Direct.
Materials and Inventory
Product inventory is purchased from numerous domestic manufacturers and
several importers and domestic representatives of foreign manufacturers.
Domestic sources supply essentially all of the gift and apparel
merchandise. Purchase arrangements with suppliers are generally for a
specified product, price and quantity of product. While Concepts Direct
purchases the base paper stock for most of its personalized labels from
a few vendors, management believes alternative vendors are available, if
needed. The remainder of the product line and material used in the
production of catalogs are available from many different sources.
Except for a few specialized items that are drop shipped directly from
suppliers, Concepts Direct maintains an inventory of the products it
sells. Most items offered at the Company's Internet sites are from the
Concepts Direct inventory. Concepts Direct analyzes past catalog
mailings, evaluates probable customer buying patterns and projects sales
levels for new products, to try to avoid committing excessive amounts of
working capital to inventory for substantial periods of time. During
the fourth quarter of 1997, gift and merchandise backorder levels rose
to an unsatisfactory level primarily as a result of a few vendors'
inability to meet Company product demand in a timely fashion. In the
fourth quarter of 1998, the Company was successful in minimizing the
backorder problems that occurred in the fourth quarter of 1997. In the
process of correcting the backorder problem, inventory levels increased
significantly over historic levels. Efforts were made in 1999 and 2000
and will continue in 2001 to reduce the level of inventories by such
measures as running these items in catalogs, featuring the items on
appropriate Internet sites, liquidation and returns to vendors.
Gift and apparel inventory liquidation processes include product
exchange agreements with vendors, sale of outdated products through
small retail outlets and discarding of some items. Concepts Direct and
iConcepts Internet retail sites also offer channels to market
merchandise not currently offered in catalogs.
Concepts Direct spends significant amounts on paper used in the
production of its catalogs and paper products. The cost of paper
fluctuates. In the last half of 1996 and early 1997, the cost of paper
used to produce Concepts Direct catalogs was lower than in previous
periods. Accordingly, the cost of doing business during these periods
was lower. Paper costs increased during the latter part of 1997 and in
early 1998 and declined near the end of 1998. Paper costs remained
relatively stable in 1999, but again increased in 2000. Management
believes paper costs may decrease in 2001, however costs may instead
remain constant or rise. While Concepts Direct cannot predict future
paper cost increases, such increases would have an impact on future
earnings.
Order Fulfillment
Orders for merchandise are received by mail, telephone, the Internet and
facsimile. All orders are received and processed at a single location
in Longmont, Colorado. The ability to timely fulfill orders, especially
during the busy pre-Christmas season, is important to success. This
ability depends, in part, on the availability of part-time employees who
have adequate training before the peak of the holiday season and the
efficiency of the in-house telephone call center. During 2000,
approximately 51.9% of customer orders were received by telephone, 43.6%
by mail or facsimile and 4.5% via the Internet.
Order backlog was approximately $821,000 as of December 31, 2000 and
$1,034,000 as of December 31, 1999. Orders represented by this backlog
shipped within approximately 11.2 days in 2000 compared to approximately
9.4 days in 1999. The level of order backlog fluctuates with seasonal
sales patterns as discussed above.
Customers generally pay in advance for merchandise ordered and
associated shipping and handling. Orders are shipped via the United
States Postal Service (USPS) and other carriers. Priority or express
service is available for an extra charge.
USPS implemented a significant price increase in early 2001 and has
announced tentative plans for a significant price increase later in 2001
or in early 2002. While Concepts Direct cannot predict future postage
costs, such increases could have a material impact upon its future
operating and financial results.
Customer Service
Great emphasis is placed on customer service. A return policy attempts
to guarantee customer satisfaction and to encourage first time and
repeat orders. The retail value of refunds issued under the return
policy in 2000 was approximately 2.7% of net sales. If returned
merchandise cannot be restocked, it is returned to the manufacturer if
defective, held for disposal in inventory liquidation processes
described above under "Materials and Inventory" or discarded. Product
and order problem inquiries are directed to customer service personnel
who are trained to resolve most customer issues.
Seasonality
The Concept Direct business is seasonal. Historically, a substantial
portion of revenues and net income has been realized during the fourth
quarter. Management believes this is the general pattern associated
with the mail order and retail industries. Accordingly, inventory of
both paper products and gift and apparel merchandise is typically
increased during the Christmas holiday season to accommodate anticipated
increases in sales.
Competition
Direct marketing is highly competitive. Thousands of companies offer
products via catalog, direct mail, newspaper inserts, television, the
Internet and other media. Concepts Direct competes on the basis of the
quality, diversity and price of merchandise offered, customer service
and effectiveness of customer targeting.
Management believes that, although many companies offer personalized
labels, note pads and note cards, there are only a few companies that
offer a broad variety of personalized labels comparable to that offered
by Colorful Images(, which management believes is a competitive
advantage. Other merchandise product lines face greater competition in
the marketplace than paper products. A substantial number of
competitors distribute catalogs that contain portions of the merchandise
contained in Concepts Direct's catalogs. In addition, certain
merchandise sold in the catalogs is available through retail stores and
other sources.
Management believes that e-commerce is becoming a significant force in
the marketplace in which it operates. Management also believes that the
Internet retailing sites supporting its catalog brands compare favorably
to sites operated by competitors.
Certain current and potential competitors have significantly greater
development, order fulfillment, marketing and capital resources and name
recognition than Concepts Direct.
Employees
As of December 31, 2000, there were approximately 539 employees, 363 of
whom were part-time. Of the 176 full-time employees, 26 supported
creative and marketing functions, 102 supported fulfillment operations,
20 supported information technology functions and 28 supported other
administrative functions. The part-time employees supported fulfillment
operations. Many of the part-time employees work on a seasonal basis
for the Company. The employees are not covered by collective bargaining
agreements. The Company considers its relationship with its employees
to be satisfactory.
Government Regulations
The Company must comply with federal, state and local laws that affect
its business. In particular, they are subject to Federal Trade
Commission regulations governing advertising and trade practices. While
the Company believes it is currently in compliance with such
regulations, in the event of noncompliance, we may be subject to
injunctive proceedings, cease and desist orders, civil fines and other
penalties.
Concepts Direct has historically collected and remitted sales and
similar taxes only in those states in which it operates a location. In
recent years, a number of states have asserted that advertising by a
corporation within their borders provides sufficient nexus to require
the collection and remittance of such taxes. In a decision rendered on
May 26, 1992, the United States Supreme Court held that application of
North Dakota's use tax statute against an out-of-state mail order house
with neither sales representatives nor outlets in the state placed an
unconstitutional burden on interstate commerce. However, the Court also
noted that Congress may be better equipped to resolve the issue
presented by the case. If Congress should pass applicable legislation,
it could have an impact on the future operations of Concepts Direct.
The actual impact would depend on the specifics of any such legislation.
Some states also require residents of the state who purchase products by
mail order to remit to the state the state sales tax that would be
collected by the merchant if the product was sold from a location within
the state. To date, this type of legislation has not had a material
impact.
Internet Infrastructure and Database Management Software
A key asset of the Company is its database management, fulfillment
management and Internet infrastructure software known as Enable. This
software has been developed and enhanced over several years. The
current release of Enable is fully integrated with our established order
fulfillment software. The software is stable, proven and designed to
serve many companies. Purchasing, general ledger, receiving,
warehousing, order fulfillment, shipping, marketing reporting, Internet
site development and hosting are all integrated in Enable. The Company
may gradually add a variety of new features in the future.
Segment Reporting
During 1999 and 2000, the Company managed its operations in three
business segments. The results of operations and assets of each segment
are detailed in the audited financial statements included in Item 8 of
this filing. Further discussion of the Company's segments is detailed
Management Discussion and Analysis of Financial Condition and Results of
Operations included in Item 7 of this filing.
ITEM 2. PROPERTIES
Real Property
The Company's corporate headquarters, administrative offices and
operations are located in Longmont, Colorado, approximately 40 miles
from downtown Denver. The Company believes that the facilities it
occupies are well maintained and in excellent operating condition. The
Company purchased approximately 139 acres of undeveloped land in January
1997 and developed and constructed the current headquarters on
approximately 11 acres of the site. In late August 1997, the Company
moved essentially all of its operations to the new facility. In 2000,
the Company sold all but about 20 acres of the undeveloped land and
intends to hold the remaining land for possible future expansion.
During 2000, the Company raised $11,000,000 through the sale and
subsequent leaseback arrangement in which the Company's primary facility
in Longmont, Colorado was sold to a real estate investment limited
partnership. In connection with this transaction, the Company purchased
a 25% interest in the limited partnership for $625,000 and deposited
$1,010,000 with the limited partnership as a security deposit, providing
security to the limited partnership for the Company's future performance
under the lease. The twenty-year lease, which requires monthly lease
payments, including annual lease escalations of at least 3% per year, is
treated as a financing transaction for accounting purposes due to the
Company's continuing involvement with the limited partnership.
Accordingly, the building, land and associated transaction costs are
capitalized as an asset of the Company and the proceeds from the
sale/leaseback were recorded as debt financing, which will be repaid
from the monthly lease payments.
The following table sets forth the primary real property that the
Company owns and leases.
Location Function Lease Expiration 2001 Rent Square Feet
Longmont, CO Headquarters Leased (1) $1,242,180 117,000
Longmont, CO Retail Outlet 2/28/2003 $37,221 1,700
Loveland, CO Retail Outlet 9/30/2002 $38,400 2,400
Mead, CO Warehouse 9/30/2002 $181,992 27,500
(1) Facility lease under a sale and subsequent leaseback arrangement
described above.
Fulfillment Hardware and Software
Substantially all of Concepts Direct's order fulfillment hardware is
located at its headquarters facility, and except for certain computer
and telephone hardware, is owned by Concepts Direct. Concept Direct
believes that the existing facility should accommodate near-term growth
strategy.
The primary computer hardware is manufactured by Sun Microsystems, Inc,
Cisco Corporation and Data General Corporation. Concepts Direct
currently uses an internally developed order processing system and
Internet infrastructure developed using Oracle as the primary software
platform. The Company anticipates that the current software with minor
additions and modifications should accommodate near-term growth
strategy.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation which management believes
is material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information concerning the current executive officers of
the Company is included in this report pursuant to General Instruction G
(3) of Form 10-K. No person other than those identified below has been
chosen to become an executive officer of the Company. The executive
officers serve at the pleasure of the Board of Directors. No family
relationships exist among the executive officers of the Company.
Phillip A. Wiland, 54, Chairman of the Board of Directors since December
18, 1992. Chief Executive Officer from December 18, 1992 to February
24, 2000.
J. Michael Wolfe, 42, Chief Executive Officer and President of Concepts
Direct since February 24, 2000. President and Chief Operating Officer
of Concepts Direct from December 18, 1992 to February 24, 2000. Member
of the Board of Directors since December 1998.
David H. Haddon, 42, Vice President of Finance, Secretary-Treasurer and
Chief Financial Officer since February 24, 2000. Vice President since
August 1998 and Controller of Concepts Direct from April 1995 to August
1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market and Price Information
The Company's common stock, par value $.10 (the "Common Stock"), is
currently traded on the Nasdaq SmallCap Market under the symbol CDIR.
The following table sets forth the high and low sale prices per share of
the Company's Common Stock for the periods indicated.
Quarter and Year High Low
Calendar 1999
1st Quarter $11.500 $6.500
2nd Quarter 11.000 6.875
3rd Quarter 9.500 4.500
4th Quarter 14.125 5.500
Calendar 2000
1st Quarter $15.250 $9.250
2nd Quarter 12.000 7.063
3rd Quarter 9.000 1.750
4th Quarter 3.500 1.563
Number of Shareholders
As of March 10, 2001, there were approximately 130 record holders of the
Common Stock, according to the Company's Stock transfer agent and
registrar and approximately 400 round lot beneficial holders.
Dividends
Except for the distribution of proceeds from the disposal of the
Company's Direct Marketing Services division in 1992, no cash dividends
have been paid on the Common Stock. Earnings will be retained for use in
the business and Management does not anticipate paying any cash
dividends in the foreseeable future. Payment of dividends is within the
discretion of the Board of Directors, which periodically reviews the
dividend policy, considering the Company's earnings, capital
requirements, and financial condition, among other factors.
ITEM 6. SELECTED FINANCIAL DATA
December 31,
2000 1999 1998 1997 1996
(amounts in thousands except per share data)
INCOME STATEMENT DATA
Net sales $55,453 $55,475 $84,773 $78,489 $51,126
Operating income (loss) from
continuing operations (1,515) (3,539) (1,979) 2,075 2,562
Income (loss) from continuing
operations before income taxes 52 (3,914) (2,030) 2,490 2,808
Income (loss) from continuing
operations 52 (3,125) (1,378) 1,615 1,937
Loss from discontinued operations (2,786) (503) - - -
Net income (loss) (2,734) (3,628) (1,378) 1,615 1,937
Basic earnings (loss) per share
Income (loss) from continuing
operations $0.01 $(0.63) $(0.28) $0.36 $0.46
Loss from discontinued operations$ (0.56) $(0.10) $- $- $-
Total $(0.55) $(0.73) $(0.28) $0.36 $0.46
Diluted earnings (loss) per share
Income (loss) from continuing
operations $0.01 $(0.63) $(0.28) $0.33 $0.44
Loss from discontinued operations $(0.56) $(0.10) $- $- $-
Total $(0.55) $(0.73) $(0.28) $0.33 $0.44
Weighted average common shares 5,003 4,977 4,959 4,528 4,233
Weighted average common shares and
dilutive stock options 5,149 4,977 4,959 4,828 4,439
BALANCE SHEET DATA
Current assets $12,087 $10,205 $19,237 $28,223 $13,443
Current liabilities 5,566 7,371 8,554 15,079 7,518
Total assets 27,632 26,078 32,073 40,378 14,487
Long-term liabilities 10,910 4,818 6,079 6,486 -
Stockholders' equity 11,156 13,889 17,440 18,813 6,969
Earnings per share data and weighted average common shares and dilutive
stock options outstanding has been restated to reflect the 1997
two-shares-for-one-share stock split.
The earnings per share amounts for 1996 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and
the impact of Statement No. 128, see the notes to the financial
statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
The period from 1998-2000 has been a time of many changes for Concepts
Direct, Inc. (the Company). The Company began 1998 as a direct
retailing business in transition. The Company had a single significant
brand, Colorful Images, and several specialty brands in various stages
of development. Over the three years, the Company rapidly grew its
specialty brands, acquired another catalog, and launched significant
Internet initiatives that were housed in two subsidiaries formed in
early 2000. At the end of this period, although the Company shut down
the two Internet subsidiaries, it has four brands providing positive
contribution to general and administrative expenses and profits in 2000,
a fifth brand producing a small negative contribution and an integrated
Internet infrastructure to support all its brands. The Company
considers a brand's contribution to be revenue from the brand minus
advertising expenses and certain product, delivery and brand related
general and administrative expenses which management believes would be
eliminated if the brand were discontinued.
During 1998, Concepts Direct, Inc. emphasized the development of the
Linda Anderson, Linda Anderson's Collectibles and Snoopy( etc brands.
Circulation to customer lists and to comparatively large quantities of
prospect lists led to significant expenses and, ultimately, losses
associated with new customer acquisition. During this time, the
Company's aggressive growth orientation also resulted in significant
excess inventory levels.
During 1999 and continuing through 2000, management made the decision to
limit planned customer acquisition losses in order to improve brand
contribution. The resulting 47% reduction in catalog circulation in
1999 improved contribution, but it also led to a 35% decline in annual
revenue in comparison to 1998.
In June of 1999, the Company purchased certain assets of the Music Stand
catalog, which increased the customer database by over two million
names.
During the latter part of 1998, 1999 and the first half of 2000, the
Company engaged in significant development efforts, with attendant
significant costs, related to various Internet initiatives. Additional
employees, equipment and services were added to promote these new
business initiatives. The costs associated with these efforts
contributed substantially to the losses in 1999 and 2000. In early
2000, the Company moved certain of its Internet assets and activities to
two subsidiary corporations, iConcepts, Inc. ("iConcepts") and BOTWEB,
Inc. ("BOTWEB") to provide the best opportunity for investors to
understand its Internet strategy and benefit from assets that were
created to support its Internet initiatives. During the third quarter of
2000, as a result of greater than anticipated losses and lack of
available third party capital to support continued expansion of the two
Internet companies, the Company discontinued BOTWEB and significantly
scaled back iConcepts. At December 31, 2000, all the remaining
operations and assets of iConcepts are part of the Concepts Direct
business segment. While this structure was in place, the Company
provided business segment financial information for each of the three
segments of the business. The subsidiary operations are discussed more
fully below in the Business Segments section of this report.
For the nine months ended September 30, 2000, the total loss from the
Company's two subsidiaries was $5.9 million. After the discontinuance
of BOTWEB, as discussed below, and the scaling back of the activities of
iConcepts, losses from the two subsidiaries in the fourth quarter of
2000 were $28,000.
During 2000, the trading price of the common stock of Concepts Direct,
Inc. fell to levels that failed to meet the minimum market value of
public float requirements of the Nasdaq National Market, causing the
listing of the common stock to move to the Nasdaq SmallCap Market in
February 2001.
Discontinued Operations
As mentioned above, our BOTWEB subsidiary has discontinued its
operations. For accounting purposes, most of the revenues and costs
attributable to the BOTWEB business segment have been classified as
discontinued operations. Certain costs allocated to the BOTWEB business
segment for segment reporting purposes remain in the calculation of the
Company's net income from continuing operations to conform to accounting
principals generally accepted in the United States.
The total loss from discontinued operations for 2000 was $2,786,000,
including a loss on disposal of $433,000, compared to an operating loss
of $503,000 for 1999.
Management anticipates that on-going expenses related to BOTWEB will be
nominal.
Business Segments
During late 1999 and through the third quarter of 2000, the Company
managed and reported its operations in three business segments - the
Concepts Direct segment ("Concepts Direct"), the iConcepts segment and
the BOTWEB segment. Despite the reorganization during the third quarter
of 2000, the Company has reported segment information for the full year
2000 for comparison purposes.
Concepts Direct contains the catalog brands including the associated
websites. In the new structure, the parent company, Concepts Direct,
was to focus on obtaining profitable results for the catalog brands and
the associated Internet sites. Excluding the one-time gain from the land
sale, the Concepts Direct business segment had income before taxes of
approximately $800,000 in 2000.
iConcepts was established to provide technology support to Concepts
Direct, BOTWEB and, at an appropriate time, third parties. Other
services and development directions of iConcepts were planned to include
Internet site hosting and development, online order processing, database
management and the establishment of new Internet retailing brands.
BOTWEB was to operate an Internet portal, BOTWEB.com, with a plan to
focus on developing superior portal features and services and building
significant traffic to the site. As noted above, the Company undertook a
series of actions in the third quarter of 2000 to substantially curtail
the operations of its subsidiaries, including the discontinuance of
BOTWEB, Inc. and the elimination of all on-going expenditures and
activities associated with BOTWEB.com.
The operations of iConcepts, Inc. were scaled back to support only the
on-going operations of the catalog brands of Concepts Direct, Inc.
Concurrent with the scaling back of the iConcepts, Inc. operations, the
Company undertook a series of actions that resulted in anticipated
substantial future cash and expense savings including over $2.0 million
dollars per year in labor savings. The remaining assets and employees
of iConcepts, Inc. were incorporated back into the parent company,
Concepts Direct, Inc., in the fourth quarter of 2000. These assets and
employees had been charged to the Concepts Direct business segment by
the iConcepts business segment during the first three quarters of 2000,
as well as in 1999 and 1998. The iConcepts Internet retailing sites,
excluding NewBargains.com and TheBearHouse.com, have been shut down.
NewBargains.com has been folded into the parent company as part of the
Company's continuing inventory liquidation program. TheBearHouse.com
has been retained for its potential value to the Collectibles brand,
although no efforts are currently being put forth to maintain or enhance
the site.
As noted above, certain assets and employees of iConcepts were moved
into the parent as of October 1, 2000. The parent company, Concepts
Direct, Inc. paid most of the costs associated with these assets and
employees through intercompany cost sharing arrangements during the
first three quarters of 2000. Management expects losses from the two
subsidiaries to be insignificant in 2001.
Use of "the Company" refers to all of the segments combined.
Net Sales
Net sales remained level at $55.5 million in 2000, which was the same as
1999 and a 35% decrease from 1998 revenues of $84.8 million. In 1999,
the sales decreased primarily because of a reduction in total catalog
circulation as compared to the prior year. Management planned these
decreases to achieve its objective of reducing prospecting losses per
mail cycle. Personalized paper products increased as a percentage of
total sales from 34% in 1998 to 41% in 1999 to 47% in 2000. The
increases for personalized paper products in 2000 and 1999 occurred
primarily because of a reduction in circulation of catalogs that
primarily sold gift, home decor and other merchandise. Circulation of
the Colorful Images catalog, which advertises a wide variety of
high-margin personalized paper products, increased during 2000, as did
associated sales from the catalog.
All of the net sales in 1998 and substantially all of the net sales in
1999 and 2000 occurred in the Concepts Direct business segment.
Cost of Product and Delivery and Gross Profit
Cost of product and delivery as a percentage of sales was 59% in 2000,
compared to 66% in 1999 and 56% in 1997. Gross profit increased by $3.7
million, or 19%, to $22.8 million in 2000 from $19.1 million in 1999,
and decreased $18.2 million, or 49%, in 1999 compared to $37.3 million
in 1998.
Gross profit as a percentage of net sales was 41% in 2000, 34% in 1999
and 44% in 1998.
An increase in the Company's inventory allowance due to a change in the
allowance methodology in 1999 had a significant impact on its gross
profit during the three-year period. The increase in gross profit in
2000 resulted primarily from the absence of an increase in the inventory
allowance in 2000 and from the increase in personalized paper products
as a percent of sales. Gift, home decor and other merchandise items
generally have higher product costs as a percentage of sales than
personalized paper products. In 2000, 1999 and 1998, personalized
paper product costs were generally less than 15% of sales price compared
to gift and merchandise products whose costs were generally in excess of
30% of sales price. In addition, but to a lesser degree, lower variable
costs of operations contributed to the increase in gross profit as a
percentage of sales. These lower variable costs included order
processing labor efficiencies. The amount of excess inventory on hand
at the end of 1999 was substantially reduced in 2000 through a number of
liquidation initiatives, with no significant effect on margins. The
total charge to expense for the inventory obsolescence allowance was a
credit of $114,000 in 2000.
The lower gross profit in 1999 compared to 1998 resulted primarily from
the increase in the inventory obsolescence allowance to reflect more
accurately the net realizable value of inventory, lower sales over which
to spread fixed costs of fulfillment such as facilities and equipment
and additional costs in the form of labor, equipment and services to
accommodate the e-commerce business initiatives. In addition, the
expansion of specialty brands that primarily sell gift and merchandise
items produced a greater need to increase inventory of those items.
During the second half of 1998, Concepts Direct acquired more inventory
of certain items than was required. Efforts to dispose of the excess
inventory were not as successful as hoped, resulting in the fourth
quarter 1999 increase in the inventory allowance by $2.2 million to more
accurately reflect the inventory carrying value at an appropriate net
realizable value. Total increases to the inventory obsolescence
allowance charged to expense in 1999 were $3,226,000, compared to
$541,000 in 1998.
Gross profit of Concepts Direct, the catalog business, excluding the
operations of iConcepts and BOTWEB, was 43% in 2000 compared to 34% in
1999 and 44% in 1998. The decrease in gross profit in 1999 resulted
primarily from the increase in the inventory obsolescence allowance
discussed above.
Selling, General and Administrative Expense
Selling, general and administrative expenses increased $1.2 million, or
5%, to $23.9 million in 2000 from $22.7 million in 1999 and decreased
$16.6 million, or 42%, in 1999 from $39.3 million in 1998.
Selling, general and administrative expenses as a percentage of sales
were 43% in 2000, 41% in 1999 and 46% in 1998. The increase in 2000
resulted primarily from higher marketing costs as a percentage of sales.
The most significant factor in the 2000 increase in marketing costs as a
percentage of sales was the increase in paper costs incurred for catalog
production compared to such costs in 1999. The decrease in 1999
occurred primarily because of a reduction of total catalog circulation
during 1999 as compared to 1998 and, to a lesser degree, to self-imposed
limits placed on planned prospecting losses per mail cycle. Prospect
marketing generally has higher marketing costs as a percentage of sales
than customer marketing because customers tend to be more responsive to
marketing offers than prospects do.
Restructuring Costs
One-time, non-cash restructuring costs of $417,000 were recorded during
the third quarter of 2000. These charges related to certain capitalized
software and website development costs, the value of which were impaired
as a result of the Company's scaling back of its Internet initiatives in
the iConcepts subsidiary.
Operating loss from continuing operations
The Company's loss from continuing operations was $1.5 million in 2000,
$3.5 million in 1999 and $2.0 million in 1998.
Losses attributable to the iConcepts business segment and the portion of
the BOTWEB business segment activities included in continuing operations
were $3.1 million in 2000, $1.4 million in 1999 and $0.5 million in
1998. Of the $3.1 million losses from continuing operations
attributable to iConcepts and BOTWEB in 2000, all but $10,000 was
incurred during the first nine months of the year. The decrease in
losses from the operations of the subsidiaries late in 2000 reflects the
Company's decision to cancel commitments of resources to Internet
initiatives not directly in support of the operations of Concepts
Direct.
Other income (expense)
Other income (expense), consisting primarily of gains on the sale of
assets, interest expense, interest income and vendor payment discounts,
was income of $1,567,000 in 2000, expense of $375,000 for 1999 and
expense of $51,000 for 1998.
The Company realized a gain of $2.4 million on the sale of surplus land
in the fourth quarter of 2000. The Company owned approximately 120
acres of undeveloped land adjacent to its corporate headquarters and
fulfillment facility in Longmont, Colorado. The Company sold
approximately 100 acres of the land for approximately $3.9 million, net
of closing costs. The Company financed $880,000 of the sale price
through a note receivable due in 2003. Management does not anticipate
that future years will benefit from similar events.
In November, 2000, the Company refinanced its corporate headquarters and
fulfillment center in Longmont, Colorado through the sale and subsequent
leaseback of the facility to a real estate investment limited
partnership (the Limited Partnership) for $11,000,000. The Company will
continue to occupy the facility under the terms of a twenty-year lease,
which has an initial monthly rental amount of $103,000 and which
escalates 3% per year. In accordance with Statement of Financial
Accounting Standards No. 98, "Accounting for Leases," the lease has been
recorded as a financing transaction due to the Company's continuing
involvement in the Limited Partnership. The Company effectively
retained a 25% ownership interest in the building via the purchase of a
25% ownership interest in the Limited Partnership for $625,000. The
investment in the Limited Partnership is accounted for using the equity
method. The Company's equity in the net income of the Limited
Partnership was immaterial for the year ended December 31, 2000. The
financing transaction, which carries an imputed interest rate of 12.48%,
will cause interest expense to increase in 2001.
Interest expense was $884,000 for 2000, $530,000 for 1999 and $507,000
for 1998. The increase in interest expense in 2000 resulted primarily
from short-term borrowings caused primarily by the cash needs associated
with the Internet initiatives of iConcepts and BOTWEB. Those needs have
now been effectively eliminated.
Income taxes
The Company had an income tax benefit of $789,000 in 1999 and $652,000
in 1998. The Company had no income tax provision or benefit in 2000.
The income tax rate of 0% in 2000, and the benefit rate in 1999 of
approximately 20%, was because of the reduction of the deferred tax
asset attributable to net operating losses generated during those
periods to a value anticipated by management to be realizable in the
near future. The income tax rate in 1998 was approximately 32%. The
1999 and 1998 income tax rates were lower than the statutory federal and
state tax rates because of the availability of certain state income tax
credits. Management anticipates the income tax rate in 2001 will be
approximately 0%, principally because of the net operating loss
carryforwards available but not utilized.
Outlook
During 2001, the Company will continue to operate its catalog brands and
their associated Internet sites. It will focus on attempting to provide
profitability with, at best, modest growth in sales. The Company may
also consider appropriate acquisition opportunities. A major objective
will be to produce improved brand contribution and performance and
continue certain controls such as prospecting loss limits on the quality
of catalog performance. This may restrict the development of new
catalogs until earnings are consistent with levels management believes
are appropriate to support development costs. During 2001, Concepts
Direct may extend its microniche marketing program and may test narrowly
niched catalogs under its existing brands.
The Company does not intend to renew the operations of either its
iConcepts or BOTWEB subsidiaries during 2001 or beyond.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $1,058,000 in 2000 to $2,289,000,
decreased by $2,839,000 in 1999 to $1,231,000 and decreased by
$9,707,000 in 1998 to $4,070,000. Activity in several significant areas
had the greatest impact on cash and cash equivalents as described below.
* Significant operating activities that affected cash and cash
equivalents during 2000, 1999 and 1998 included:
- - The net losses from continuing operations of $3,125,000 and $1,378,000
contributed significantly to the decrease in cash in 1999 and 1998,
respectively.
- - The production and distribution of January 2001 catalogs earlier than
occurred for January 2000 catalogs was the primary reason for the
increase in deferred advertising costs of $1,632,000 in 2000. The
decrease in the number of catalogs distributed in 1999 as compared to
1998 and the production and distribution of January 2000 catalogs later
than occurred for the January 1999 catalogs were the primary reasons for
the decrease in deferred advertising costs of $2,603,000 in 1999. A
decrease in the number of catalogs distributed near the end of the
fourth quarter of 1998 as compared to the same period in 1997, and
reduced costs incurred for distribution of a lesser number of catalogs
in the first quarter of 1999 as compared to the same period in 1998 were
the primary factors resulting in a $3,161,000 decrease in deferred
advertising costs in 1998.
- - The decreases in inventory of $494,000 in 2000 and $2,127,000 in 1999
primarily related to reduced levels of sales compared to 1998. The
increase in net inventories of $5,458,000 in 1998 primarily related to
increased inventory purchasing to avoid backorder problems and the
increase in sales as a percentage of total Concepts Direct sales of the
gift, home decor and other merchandise items which generally have higher
unit costs than paper products. The increase in inventory in 1998
resulted in significant excess inventory resulting in the non-cash
provision for losses in inventory values of $3,226,000 in 1999.
- - The increase in accounts payable of $1,063,000 in 2000 and the
decrease in accounts payable of $1,528,000 in 1999 and $3,869,000 in
1998 related primarily to the timing of payments for advertising and
inventory purchases. Also, in 2000 the Company refinanced $1,088,000 of
trade payables with a vendor for short-term debt, which was paid off in
late 2000.
- - Improvement in inventory backorder and fulfillment function efficiency
were the main factors in a decrease of customer liabilities (primarily
unshipped customer orders and reserve for future customer warranty costs
and product returns) in 1998 by $1,222,000.
* Significant items of investment of cash during 2000, 1999 and 1998
included:
- - Capital expenditures of $1,300,000, $3,102,000 and $1,251,000 in 2000,
1999 and 1998, respectively. The capital expenditures related primarily
to purchases of software and assets related to development of e-commerce
infrastructure and Internet sites. Management does not expect 2001
capital expenditures to recur at the levels experienced during 2000,
1999 and 1998.
- - Investment of $500,000 in restricted cash in 2000 to secure a $500,000
line of credit with a Bank.
- - The acquisition of the assets of the Music Stand catalog for
$1,925,000 during 1999.
- - Proceeds from the sale of property, equipment and investments of
$3,162,000 in 2000. The primary component of these proceeds was
$2,989,000 in net cash proceeds from the sale of approximately 100 acres
of unused land. Until 2000, the Company owned approximately 120 acres
of undeveloped land adjacent to its corporate headquarters and
fulfillment facility in Longmont, Colorado. The Company financed the
balance of the sale price of the land sale through the issuance of a
note receivable due in 2000 for $880,000. Since purchasing the land in
1997, management has planned to dispose of portions of the property at
the appropriate time. Management believes that the land retained is
sufficient for the Company's growth opportunities for at least the next
several years.
* Significant items of financing included:
- - During 2000, the Company raised $11,000,000 through the sale and
subsequent leaseback arrangement in which the Company's primary facility
in Longmont, Colorado was sold to a limited partnership. In connection
with this transaction, the Company purchased a 25% interest in the
limited partnership for $625,000 and deposited $1,010,000 with the
limited partnership as a security deposit, providing security to the
limited partnership for the Company's future performance under the
lease. The twenty-year lease, which requires monthly lease payments,
including annual lease escalations of at least 3% per year, is treated
as a financing transaction for accounting purposes. Accordingly, the
building, land and associated transaction costs are capitalized as an
asset of the Company and the proceeds from the sale/leaseback were
recorded as debt financing, which will be repaid from the monthly lease
payments. Proceeds from the sale were used to retire approximately $7.0
million of bank debt.
- - The Company had available through a bank a revolving line of credit
for $3.0 million for general purposes under which the Company borrowed
and repaid $4,750,000 in 2000. The line of credit expired in 2000 and
has not been renewed.
- - The $13,749,000 and $2,992,000 increase in debt during 2000 and 1999,
respectively, primarily represented refinancing of existing mortgage
arrangements and the $11,000,000 incurred in 2000 in connection with the
sale/leaseback transaction on the Company's primary facility, as
discussed above.
- - The $10,196,000 and $3,762,000 in principal payments of debt and lease
obligations in 2000 and 1999 primarily represented payments on these
credit facilities, including payments made using the proceeds of the
sale/leaseback transaction on the Company's primary facility, as
discussed above.
* Net cash used by the discontinued operations of BOTWEB of $2,262,000
in 2000 and $1,018,000 in 1999 were also a significant use of cash.
Management anticipates that future cash expenditures in connection with
BOTWEB will be insignificant.
During much of 2000, the Company experienced cash flow problems that
disrupted the Company's relationships with a number of suppliers. With
the completion of the refinancing of the Company's primary facility
through a sale and subsequent leaseback transaction, the sale of excess
land and the funds generated by operations during the fourth quarter of
2000, management does not expect such problems to recur in 2001.
Management believes that results of operations, continued operational
planning, and current cash balances should produce funds necessary to
meet the operating capital requirements of Concepts Direct for 2001.
Further, the Company intends to investigate the possibility of obtaining
a line of credit, although there is no assurance the Company will be
able to successfully obtain a line of credit.
FORWARD-LOOKING STATEMENTS
The provisions of the Private Securities Litigation Reform Act of 1995
(the "Act") provide companies with a "safe harbor" when making
forward-looking statements. This "safe harbor" encourages companies to
provide prospective information about their companies without fear of
litigation. Statements that are not historical facts, including
statements about management's expectations, beliefs, plans and
objectives for fiscal year 2001 and beyond are forward looking
statements (as such term is defined in the Act) and involve various
risks and uncertainties. Factors that could cause the Company's actual
results to differ materially from management's projections, forecasts,
estimates and expectations include, but are not limited to, the
following:
* changes in postal rates, including significant rate increases
experienced beginning in January 2001 and possible additional postal
rate increases requested by the United States Postal Service;
* changes in the cost of paper used in the production of the Company's
advertising material including paper used for catalogs;
* changes in the general economic conditions of the United States
leading to increased competitive activity and changes in consumer
spending generally or specifically with reference to the types of
merchandise that Concepts Direct offers in its catalogs;
* changes in Concepts Direct's merchandise product mix or changes in
Concepts Direct's customer response to advertising offers;
* competitive factors including name recognition, the limited operating
history for several of the Company's specialty brands, and the Company's
limited e-commerce operating history;
* lack of availability/access to capital or sources of supply for
appropriate inventory, forward purchasing of catalog paper, capital
expenditures, etc.;
* lack of effective performance of third party suppliers with respect to
production and distribution of catalogs;
* issues related to management transitions at the Company;
* state tax issues relating to the taxation of out of state mail-order
companies and out of state Internet companies with neither sales
representatives nor outlets in a particular state seeking to impose
sales and similar taxes;
* inability to hire sufficient numbers of employees to maintain
acceptable levels of customer satisfaction with catalog order
fulfillment services;
* inability to recruit and retain management personnel;
* lack of effective performance of customer service and the Company's
order fulfillment systems; and
* changes in strategy and timing related to testing and rollout of new
catalogs and those catalogs still in the test stage of development.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference to Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of Concepts Direct, Inc. are set
forth below: Page #
Report of Independent Auditors on the financial statements and schedules
of Concepts Direct, Inc. for the years ended December 31, as set
forth below.
Balance Sheets as of December 31, 2000 and 1999
Income Statements for the years ended December 31, 2000, 1999 and 1998
Statements of Stockholders' Equity for the years ended December 31, 2000,
1999 and 1998
Statements of Cash flows for the years ended December 31, 2000, 1999 and
1998
Notes to Financial Statements - December 31, 2000
The financial statement schedules of Concepts Direct, Inc. are set forth
below:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
Report of Independent Auditors
Stockholders and Board of Directors
Concepts Direct, Inc.
We have audited the accompanying balance sheets of Concepts Direct, Inc.
as of December 31, 2000 and 1999, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2000. Our audits also included the financial
statement schedule II. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Concepts
Direct, Inc. at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/S/ERNST & YOUNG LLP
Denver, Colorado
February 16, 2001
BALANCE SHEETS
December 31,
2000 1999
ASSETS
Current assets:
Cash and cash equivalents $2,289,000 $1,231,000
Restricted cash 500,000 -
Accounts receivable, less allowances 404,000 641,000
Deferred advertising costs 3,747,000 2,115,000
Inventories, less allowances 4,841,000 5,221,000
Prepaid expenses and other 306,000 473,000
Net assets of discontinued operations - 524,000
Total current assets 12,087,000 10,205,000
Property and equipment, net 9,607,000 11,844,000
Capitalized software costs, net 1,938,000 2,239,000
Trademark and other intangibles, net 1,130,000 1,241,000
Other assets 2,870,000 549,000
TOTAL ASSETS $27,632,000 $26,078,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,481,000 $ 4,506,000
Current maturities of debt and capital
lease obligations 35,000 1,503,000
Accrued employee compensation 537,000 583,000
Customer liabilities 513,000 779,000
Total current liabilities 5,566,000 7,371,000
Debt and capital lease obligations 10,910,000 4,818,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, authorized
7,500,000 shares, issued and outstanding
5,015,448 and 4,985,618 in 2000 and 1999,
respectively 502,000 499,000
Additional paid-in capital 14,396,000 14,398,000
Accumulated deficit (3,742,000) (1,008,000)
Total stockholders' equity 11,156,000 13,889,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,632,000 $26,078,000
See notes to financial statements.
INCOME STATEMENTS
Year Ended December 31,
2000 1999 1998
Net sales $55,453,000 $55,475,000 $84,773,000
Operating costs and expenses
Cost of product and delivery 32,653,000 36,356,000 47,493,000
Selling, general and administrative 23,898,000 22,658,000 39,259,000
Restructuring costs 417,000 - -
Total operating costs and expenses 56,968,000 59,014,000 86,752,000
Operating loss from continuing operations (1,515,000) (3,539,000) (1,979,000)
Other income (expense), net 1,567,000 (375,000) (51,000)
Income (loss) from continuing operations
before income taxes 52,000 (3,914,000) (2,030,000)
Benefit for income taxes - 789,000 652,000
Income (loss) from continuing operations 52,000 (3,125,000) (1,378,000)
Discontinued operations, net of taxes: "
Operating loss (2,353,000) (503,000) -
Loss on disposal (433,000) - -
Total loss from discontinued operations (2,786,000) (503,000) -
Net loss $(2,734,000 $(3,628,000)$(1,378,000)
Basic and diluted earnings (loss) per share
Continuing operations $0.01 $(0.63) $(0.28)
Discontinued operations $(0.56) $(0.10) $ -
Net loss $(0.55) $(0.73) $(0.28)
Weighted average number of common shares
used in computing basic earnings
(loss) per share 5,002,586 4,976,819 4,959,286
Weighted average number of common shares
used in computing diluted earnings
(loss) per share 5,149,342 4,976,819 4,959,286
See notes to financial statements.
STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
Balance at Dec.31,1997 4,957,286 $496,000 $14,319,000 $3,998,000 $18,813,000
Net loss - - - (1,378,000) (1,378,000)
Exercise of stock options 10,000 1,000 5,000 - 6,000
Balance at Dec.31,1998 4,967,286 497,000 14,324,000 2,620,000 17,441,000
Net loss - - - (3,628,000) (3,628,000)
Exercise of stock options 18,332 2,000 74,000 - 76,000
Balance at Dec.31,1999 4,985,618 499,000 14,398,000 (1,008,000) 13,889,000
Net loss - - - (2,734,000) (2,734,000)
Exercise of stock options 29,830 3,000 (2,000) - 1,000
Balance at Dec.31,2000 5,015,448 $502,000 $14,396,000$(3,742,000)$11,156,000
See notes to financial statements.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
OPERATING ACTIVITIES
Income (loss) from continuing
operations $ 52,000 $(3,125,000) $(1,378,000)
Adjustments to reconcile income (loss)
from continuing operations to net
cash provided by (used in)
continuing operating activities:
Decrease (increase) for losses on
accounts receivable (48,000) 23,000 12,000
Decrease (increase) for losses in
inventory values (114,000) 3,226,000 541,000
Depreciation 1,803,000 1,156,000 1,015,000
Amortization 504,000 310,000 -
Increase (decrease) in current and
deferred income taxes payable - (733,000) (1,075,000)
Loss (gain) on disposals of property
and equipment (2,398,000) - 60,000
Loss on disposal of other assets 53,000 - -
Changes in operating assets and liabilities:
Accounts receivable 285,000 (248,000) (144,000)
Deferred advertising costs (1,632,000) 2,603,000 3,161,000
Inventories 494,000 2,127,000 (5,426,000)
Income taxes recoverable - - 373,000
Prepaid expenses and other 167,000 (206,000) 637,000
Accounts payable 1,063,000 (1,528,000) (3,869,000)
Accrued employee compensation (46,000) 35,000 (554,000)
Customer liabilities (266,000) 285,000 (1,222,000)
Interest payable - (29,000) 8,000
NET CASH PROVIDED BY (USED IN)
CONTINUING OPERATING ACTIVITIES (83,000) 3,896,000 (7,861,000)
INVESTING ACTIVITIES
Cash restricted as collateral (500,000) - -
Release of cash restricted as collateral - - 128,000
Capital expenditures (1,300,000) (3,102,000) (1,251,000)
Acquisition of assets - (1,925,000) -
Sales of property, equipment and
investments 3,162,000 - -
Sales of other assets 75,000 - -
Investment in real estate limited
partnership (625,000) - -
Issuance of security deposit to real
estate limited partnership (1,010,000) - -
Other investing activities, net 47,000 4,000 (268,000)
NET CASH USED IN CONTINUING INVESTING
ACTIVITIES (151,000) (5,023,000) (1,391,000)
FINANCING ACTIVITIES
Advances on revolving line of credit 4,750,000 - -
Repayments on revolving line of credit(4,750,000) - -
Principal payment on debt and capital
lease obligations (10,196,000) (3,762,000) (574,000)
Issuance of debt and capital lease
obligations 13,749,000 2,992,000 115,000
Exercise of stock options 1,000 76,000 6,000
NET CASH PROVIDED BY (USED IN)
CONTINUING FINANCING ACTIVITIES 3,554,000 (694,000) (453,000)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FROM CONTINUING OPERATIONS 3,320,000 (1,821,000) (9,705,000)
NET CASH USED IN DISCONTINUED OPERATIONS (2,262,000) (1,018,000) -
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,058,000 (2,839,000) (9,705,000)
Cash and cash equivalents at
beginning of year 1,231,000 4,070,000 13,775,000
Cash and cash equivalents at end of year $2,289,000 $1,231,000 $ 4,070,000
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Organization: In this document, the following terms and definitions are used:
The Company refers to Concepts Direct, Inc. and its former subsidiaries,
which includes the Concepts Direct catalogs, associated Internet sites and
related operations, the iConcepts hosting equipment and software and related
operations and the BOTWEB.com Internet portal and related operations. As
discussed more fully in Notes 2 and 3, the operations of iConcepts have been
significantly curtailed and the operations of BOTWEB are classified as a
discontinued operation of the Company.
Concepts Direct markets various products directly to individual consumers,
including personalized paper products, gift items, home decorative items and
other merchandise under various catalog titles and Internet sites associated
with the catalog titles. Concepts Direct's corporate and operations
facilities are primarily located in Longmont, Colorado and it sells its
products nationwide and in Canada and Japan.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.
Revenue Recognition: Revenues from the sale of products are recognized when
products are shipped to customers.
The Company's sales are attributable entirely to United States operations.
Export sales to Canada and Japan were immaterial during the years ended
December 31, 2000, 1999 and 1998.
Cash Equivalents: The Company considers all highly liquid investments,
including marketable securities, with a maturity of three months or less when
purchased to be cash equivalents.
Restricted Cash: The restricted cash balance of $500,000 as of December 31,
2000 represents cash used to secure a $500,000 line of credit with a
financial institution.
Accounts Receivable, less allowances: These receivables relate primarily to
the rental of Concepts Direct, Inc. customer names less allowance for bad
debt. List rental allowances for bad debt was $18,000 and $66,000 in 2000
and 1999 respectively.
Deferred Advertising Costs: These costs primarily relate to printing and
distribution of advertising materials. Such costs are deferred for financial
reporting purposes until the advertising materials are distributed, then
amortized over succeeding periods (not to exceed twelve months) on the basis
of estimated sales. Amortization is accelerated in the earlier months of the
amortization period. Historical sales statistics are the principal factor
used in estimating the amortization rate. Other advertising and promotional
costs are expensed as incurred. Advertising costs were $17,388,000,
$16,721,000 and $34,729,000 in 2000, 1999 and 1998, respectively.
Property and Equipment: Such assets are stated on the basis of cost.
Buildings and purchased and leased computer software is depreciated using the
straight-line method. All other property and equipment is depreciated using
accelerated methods.
Inventories: Inventories of products, net of valuation allowances of
$1,840,000 and $4,488,000 at December 31, 2000 and 1999, respectively, are
stated at the lower of cost (first-in, first-out method) or market.
Capitalized Software Costs: Costs of internally developed software
applications, which are for internal use, are capitalized and are being
amortized over five years. Amortization of capitalized software costs
totaled $391,000, $236,000 and $0 in 2000, 1999, $236,000 and $0 in 2000,
1999, and 1998, respectively.
Trademark and other intangibles: Trademarks and other intangibles are carried
at cost less accumulated amortization which is calculated on a straight-line
basis over 20 and 5 years, respectively. Accumulated amortization on
intangibles was $188,000 and $74,000 at December 31, 2000 and 1999,
respectively.
Warranties: The Company's sales of products are subject to a satisfaction
guarantee. Certain sales of products are also under warranty against defects
in material and workmanship for various periods. The Company accrues for
anticipated future warranty costs and product returns with periodic
adjustments to reflect actual experience.
Income Taxes: Deferred income taxes are based on the liability method as
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires an adjustment to the deferred
tax liability to reflect income tax rates currently in effect rather than
historical rates. When income tax rates increase or decrease, a
corresponding adjustment to income tax expense or benefit is recorded by
applying the rate change to the cumulative temporary differences.
Earnings Per Share: Basic net income per share is computed using the
weighted average number of common shares outstanding during the periods
represented. Diluted net income per share is computed using common and
dilutive common equivalent shares outstanding during the periods represented.
Common equivalent shares are options issued under the Stock Option Plans which
are exercisable as of the end of the year. The common equivalent shares are
excluded from the computation of diluted net loss per share when their effect
is antidilutive.
Dividend Policy: At the present time, the Company intends to retain
earnings to provide funds for operations and expansion of the Company's
business. Thus, it does not foresee paying cash dividends in the future.
Barter Transactions: The Company regularly exchanges customer lists with
other direct marketers, on a name-for-name basis, with no payment made or
received. Such exchanges are not reflected in the Company's financial
statements.
Reclassifications: Certain amounts in the 1999 and 1998 financial statements
have been reclassified to conform to the 2000 presentation.
Impact of Recently Issued Accounting Standards: In December 1999 the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements," (SAB 101) which
provides guidance on the recognition, presentation and disclosure of revenue
in financial statements filed with the SEC. As amended, SAB 101, outlines
the basic criteria that must be met in order to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. The
SEC deferred the implementation date of SAB 101 until the quarter ended
December 31, 2000 with retroactive application to the beginning of the
Company's calendar year. The Company believes that revenue recorded through
December 31, 2000 complies with SAB 101.
In March, 2000, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on EITF 00-2,
"Accounting for Web Site Development Costs." This consensus provides
guidance on what types of costs incurred to develop Web sites should be
capitalized or expensed. The Company adopted the consensus in 2000. During
the year ended December 31, 2000, the Company capitalized $140,000 of web
site development costs, of which $16,000 were written off in conjunction
with the discontinuance of BOTWEB and the restructuring of iConcepts. The
remaining capitalized costs are included in Capitalized software costs,
net and will generally be depreciated over a period of two years.
In June, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS No.
138, which was issued in June 2000. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction and, if it is, the type of
hedge transaction. The Company has no derivative instruments and therefore
the adoption of SFAS No. 133 had no effect on the Company's financial
statements.
In March 2000, the FASB issued Financial Interpretation No. 44 (FIN 44),
"Accounting for Certain Transactions Involving Stock Compensation." FIN
44 clarifies the application of Accounting Principles Board (APB) Opinion No.
25 for certain issues, such as the definition of an employee for purposes of
applying APB Opinion No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. Adoption of FIN 44 did not change the Company's existing
accounting policies or disclosures.
NOTE 2 - Discontinued Operations
During the third quarter of 2000, the Company discontinued the operations of
the BOTWEB business segment. Specifically, all employees of BOTWEB were
terminated, the BOTWEB.com website was shut down and the related software
costs were fully written off. Future expenses related to completing the
dissolution of BOTWEB are expected to be minimal.
Operating results of the discontinued operations of BOTWEB were as follows:
December 31,
2000 1999
Net external sales $ 64,000 $ 64,000
Loss before income taxes (2,786,000) (630,000)
Benefit for income taxes - 127,000
Net loss $(2,786,000) $(503,000)
Following is a summary of the net assets and liabilities of BOTWEB, Inc.:
December 31,
2000 1999
Assets:
Property $ - $ 668,000
Accumulated depreciation - (28,000)
Total assets $ - $ 640,000
Liabilities:
Accounts payable $ - $(109,000)
Accrued employee compensation - (7,000)
Total liabilities $ - $(116,000)
Net assets $ - $ 524,000
NOTE 3 - Restructuring Costs
During the third quarter of 2000, the Company restructured it business,
including a decision to significantly reduce the on-going activities of its
iConcepts business segment. In connection with this restructuring, management
determined that certain capitalized software and website development costs
associated with the operations of the iConcepts business segment were
significantly impaired. Accordingly, the carrying value of such assets were
fully written off in the third quarter of 2000, with associated charges to
restructuring costs totaling $417,000. The Company wrote off approximately
$668,000 of capitalized software net of $251,000 accumulated amortization in
the third quarter.
NOTE 4. Statements of Cash Flows
Following is supplemental information to the statements of cash flows:
Year Ended December 31,
2000 1999 1998
Non-cash investing and financing activities:
Interest financed as debt $ 10,023 $ - $ 13,000
Equipment financed through capital leases - 122,000 236,000
Note receivable issued pursuant to
land sale (see note 5) 880,000 - -
Accounts payable refinanced as debt 1,088,000 - -
Cash - flow data:
Cash paid during the year for interest $884,000 $561,000 $486,000
NOTE 5. Property and Equipment
Following is a summary of property and equipment at:
Principal
December 31, Estimated
2000 1999 Useful Lives
Data processing equipment $ 2,293,000 $ 2,101,000 3-5 years
Computer software and website
development 1,296,000 1,441,000 2-5 years
Furniture and equipment 2,392,000 2,211,000 3-5 years
Building and land leased under
financing arrangement 7,830,000 - 20 years
Land held for sale or expansion 303,000 1,950,000 N/A
Building - 7,294,000 30 years
Land used in operations - 1,111,000 N/A
14,114,000 16,108,000
Less accumulated depreciation (4,507,000) (4,264,000)
$ 9,607,000 $11,844,000
Until 2000, the Company owned approximately 128 acres of undeveloped land in
Longmont, Colorado, (classified as "Land held for sale or expansion"
above). In 2000, the Company sold approximately 100 acres of the land for
approximately $3,869,000 (net of $111,000 of closing costs.) Of the
$3,869,000 of net proceeds, $880,000 was received as a Note Receivable. The
Note Receivable carries an interest rate of 8.0%, with interest only
payments due quarterly through December 2003, at which time the unpaid
interest and principal payments are due in full. The Company has recognized a
gain on the transaction of approximately $2,393,000, which is recorded as
other income.
In November 2000, the Company refinanced its corporate headquarters and
fulfillment center in Longmont, Colorado through the sale and subsequent
leaseback of the facility to a real estate investment limited partnership (the
Limited Partnership) for $11,000,000. The Company will continue to occupy
the facility under the terms of a twenty-year lease, which has an initial
monthly rental amount of $103,000 and which escalates 3% per year. In
accordance with Statement of Financial Accounting Standards No. 98
"Accounting for Leases" (Statement No. 98) the lease is recorded as a
financing transaction due to the Company's continuing involvement in the
Limited Partnership. The Company effectively retained a 25% ownership
interest in the building via the purchase of a 25% ownership interest in the
Limited Partnership for $625,000. The Company's performance under the lease
is secured by the Company's investment in the Limited Partnership as well as
a security deposit of $1.0 million at December 31, 2000. The Company
accounts for its investment in the Limited Partnership under the equity
method.
NOTE 6. Other Assets
Following is a summary of other assets at: December 31,
2000 1999
Investments $ - $ 32,000
Investment in Limited Partnership 625,000 -
Note receivable 880,000 -
Security deposit 1,010,000 -
Refundable deposits 108,000 113,000
Product development costs (net of amortization) 247,000 404,000
$2,870,000 $549,000
NOTE 7. Lines of Credit, Debt and Capital Lease Obligations
Debt and capital lease obligations consist of
the following at December 31: 2000 1999
Financed real estate obligation, principal and
interest payable monthly though 2020, with
interest at 12.48%. $10,910,000 $ -
Mortgage loan payable to bank, principal and
interest payable monthly through 2005 at prime
(8.50% at December 31, 1999). - 4,233,000
Mortgage loan payable to bank, principal and
interest payable monthly through 2002,with
interest at 7.875% at December 31, 1999 - 925,000
Note payable to bank, principal and interest
payable monthly, balance due in 2000 with
interest at prime plus 1.5% (10.0%
at December 31,1999). - 804,000
Note payable to bank, principal and interest
payable monthly through 2002, with interest
at prime (8.5% at December 31, 1999) - 125,000
Liabilities connected with acquisition of
assets, balance due in 2000. - 67,000
Capital lease obligation, principal and interest
payable monthly through 2001, with interest at 8.56% 35,000 167,000
Total debt and capital lease obligations 10,945,000 6,321,000
Less current maturities 35,000 1,503,000
Long-term debt obligations $10,910,000 $4,818,000
The estimated aggregate debt and capital lease
maturities as of December 31, 2000 are:
2001 $35,000
2002 -
2003 -
2004 -
2005 -
Thereafter 10,910,000
Total debt and capital lease obligations. $10,945,000
The carrying amounts of the Company's borrowings approximate their fair market
value as all borrowings have interest rates which approximate the current
market rates for such borrowings.
In September, 1998, the Company entered into a $300,000 credit facility with a
bank, bearing interest at a variable rate equal to the bank's prime rate and
expiring February, 2002. As of December 31, 2000 and 1999, $0 and $124,846
were outstanding under this agreement. After February, 1999, borrowings
under the credit facility were not allowed. As of November 30, 2000 the
credit facility has been cancelled.
As of December 31, 2000, the Company had $500,000 available from a revolving
line of credit with a Bank, secured by restricted cash of a like amount.
NOTE 8. Operating Lease Obligations
Future minimum lease payments for all non-cancelable operating leases
are as follows at December 31, 2000:
2001 $1,104,000
2002 511,000
2003 120,000
2004 16,000
2005 3,000
Total future minimum lease payments $1,754,000
The Company leases various equipment used in operations under agreements
which expire at various dates through January 2005, excluding various
renewal options available, some of which are subject to annual
adjustments for cost escalation. Total rental expense for all operating
leases amounted to $1,144,000, $1,340,000 and $1,281,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.
NOTE 9. Other Income (Expense), Net
Following is a summary of the Company's other income (expense):
Year Ended December 31,
2000 1999 1998
Interest income $59,000 $92,000 $363,000
Interest expense (884,000) (530,000) (507,000)
Gain (loss) on disposal of property
and equipment 2,398,000 - (60,000)
Loss on disposal of other assets (53,000) - -
Other, net 47,000 63,000 153,000
$1,567,000 $(375,000) $(51,000)
NOTE 10. Income Taxes
The differences between federal statutory income tax rates and the Company's
effective tax rates are as follows:
Year Ended December 31,
2000 1999 1998
Federal tax expense (benefit) at
statutory rate $(930,000) $(1,545,000) $(690,000)
Valuation allowance 923,000 674,000 -
Effect of permanent differences 2,000 2,000 2,000
Revision of prior year estimates 5,000 (47,000) 36,000
$ - $ (916,000) $(652,000)
The income tax expense (benefit) consists of the following:
Year Ended December 31,
2000 1999 1998
Current Deferred Current Deferred Current Deferred
Federal $ - $ - $(55,000) $(861,000) $423,000 $(1,075,000)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets consist of the following:
December 31,
2000 1999
Deferred tax liabilities:
Deferred advertising costs $(1,081,000) $ (410,000)
Property and equipment (152,000) (1,153,000)
Deferred tax liabilities (1,233,000) (1,563,000)
Deferred tax assets:
Allowance for doubtful accounts 10,000 24,000
Inventory differences 904,000 1,819,000
Sale/leaseback 1,070,000 -
Other nondeductible accruals 168,000 187,000
Net operating loss carryforwards/carrybacks 678,000 335,000
Deferred tax assets 2,830,000 2,365,000
Valuation allowance (1,597,000) (674,000)
Net deferred tax assets (liabilities) $ - $ 128,000
NOTE 11. Stockholders' Equity
Under the terms of the Concepts Direct, Inc. 1992 Employee Stock Option Plan
(the 1992 Employee Plan), certain key employees have been granted options to
purchase shares of common stock of the Company at an option price equal to
fair market value on the date of the grant. Options granted are exercisable in
annual increments of 25% commencing four years following the date of grant and
expire ten years following the date of grant. The 1992 Employee Stock Option
Plan also provides for the issuance of incentive stock to key employees.
There were 323,000 and 355,000 shares of common stock reserved for issuance
under this plan as of December 31, 2000 and 1999.
Under the terms of the Concepts Direct, Inc. 1992 Non-Employee Directors Stock
Option Plan, the outside directors have been granted options to purchase
shares of common stock of the Company at an option price equal to fair market
value on the date of grant. Options are exercisable in annual increments of
33.3% commencing one year following the date of grant and expire five years
following the date of the grant. There were 37,334 shares of common stock
reserved for issuance under this plan as of December 31, 2000 and 1999,
respectively. No additional options may be granted under this plan.
Under the terms of the Concepts Direct, Inc. 1998 Non-Employee Directors Stock
Option Plan, the outside directors have been granted options to purchase
shares of common stock of the Company at an option price equal to fair market
value on the date of grant. Options are exercisable in annual increments of
33.3% commencing one year following the date of grant and expire five years
following the date of the grant. There were 52,000 shares of common stock
reserved for issuance under this plan as of December 31, 2000 and 1999.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees"(APB25) and related
Interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (statement No. 123), requires use of option valuation models
that were not developed for use in valuing the stock options. Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required
by Statement No. 123, and has been determined as if the Company had accounted
for its stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
2000 1999 1998
Risk-free interest rate 5.5% 5.5% 5.5%
Dividend yield 0.0% 0.0% 0.0%
Volatility factors of the expected market price
of the Company's common stock 0.807 0.560 0.563
Weighted-average expected life of the employee
stock options 5.5 years 5.5 years 5.5 years
Weighted-average expected life of the
non-employee stock options 2 years 2 years 2 years
The weighted-average fair value of options granted were as follows:
2000 1999 1998
Employee plan $3.68 $5.14 $5.50
Non-employee plans $ - $ - $3.55
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair" value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. The Company's pro
forma information follows:
2000 1999 1998
Pro forma net loss from continuing
operations $ (179,000) $(3,356,000) $(1,508,000)
Pro forma basic and diluted loss per
share from continuing operations $ (0.04) $ (0.67) $ (0.30)
Pro forma net loss $(2,965,000) $(3,859,000) $(1,508,000)
Pro forma basic and diluted loss
per share $ (0.59) $ (0.78) $ (0.30)
NOTE 11. Stockholders' Equity (Continued)
A summary of the Company's stock option activity, and related information
follows:
Employee Plan Non-Employee Plans
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Outstanding at Dec. 31, 1997 252,000 $ 3.92 26,666 $ 6.95
Granted at market price 81,000 $ 9.81 22,000 $10.51
Exercised (10,000) $ 0.54 - $ -
Canceled (30,000) $ 14.64 - $ -
Outstanding at Dec. 31, 1998 293,000 $ 4.57 48,666 $ 8.56
Granted at market price 25,000 $ 9.19 - $ -
Exercised (5,000) $ 4.06 (13,332) $ 4.15
Canceled - $ - - $ -
Outstanding at Dec. 31, 1999 313,000 $ 4.94 35,334 $ 10.22
Granted at market price 50,000 $ 5.08 - $ -
Exercised (32,000) $ 0.75 - $ -
Canceled (13,000) $ 7.41 - $ -
Outstanding at Dec. 31, 2000 318,000 $ 5.29 35,334 $ 10.22
A summary of outstanding options, by year they become exercisable, follows:
Employee Plan Non-Employee Plans
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Currently exercisable 118,750 $ 1.79 28,006 $ 10.15
2001 46,000 $ 3.51 7,328 $ 10.51
2002 46,250 $ 6.72 - $ -
2003 39,000 $ 7.99 - $ -
2004 27,750 $ 9.96 - $ -
2005 27,750 $ 9.96 - $ -
2006 8,750 $ 10.24 - $ -
2007 3,750 $ 11.38 - $ -
Outstanding at December 31, 2000 318,000 $ 5.29 35,334 $ 10.22
Exercise price range of options outstanding:
Employee Plan
Weighted Avg. Weighted
Number Remaining Average
Exercise Price Outstanding Contractual Life Exercise Price
$0.50 - $0.875 87,000 2.56 $ 0.62
$2.375 - $6.25 95,000 6.38 3.09
$9.125 - $9.50 116,000 9.39 6.33
$11.375 - $14.50 20,000 8.68 12.16
318,000 5.88 $ 5.29
Weighted-average remaining contractual life of options outstanding:
Non-Employee Plan
Weighted Avg. Weighted
Number Remaining Average
Exercise Price Outstanding Contractual Life Exercise Price
$8.94 16,000 3.00 $ 8.94
$9.75 13,334 1.00 9.75
$14.70 6,000 2.34 14.70
35,334 2.10 $10.22
NOTE 12. Employee Retirement Savings Plan
In May 1985, the Company adopted a Retirement Savings Plan (the Plan) under
Section 401(k) of the Internal Revenue Code. Participation in the Plan, as
amended, is available to any employee of the Company who has completed six
months of service and is age twenty-one or older. The Company matches up
to $.50 for each dollar contributed by each participant on the first 6% of
eligible compensation, depending on years of service. The Company may
contribute an additional amount if it has sufficient profits. The Company's
contributions to employees of the plan were $120,000, $100,000 and $9,000 in
2000, 1999 and 1998 respectively.
NOTE 13. Quarterly Financial Information (Unaudited)
Basic and Diluted
Earnings (Loss)
Income per Common Basic and Diluted
(Loss) from Loss from Net Share from Earnings(Loss)
Net Continuing Discontinued Income Continuing per Common
Sales Operations Operations (Loss) Operations Share
(Dollars in thousands except per share data)
2000:
First $12,743 $ (259) $(1,496) $(1,755) $(0.05) $(0.35)
Second 11,179 (1,254) (596) (1,850) (0.25) (0.37)
Third 11,391 (2,162) (676) (2,838) (0.43) (0.57)
Fourth 20,140 3,727 (18) 3,709 0.01 0.74
1999:
First $12,546 $ (440) $ (5) $ (445) $(0.09) $(0.09)
Second 11,068 (711) (25) (736) (0.14) (0.15)
Third 11,252 (622) (114) (736) (0.12) (0.15)
Fourth 20,609 (1,352) (359) (1,711) (0.26) (0.34)
1998:
First $15,480 $(1,045) $ - $ (624) $(0.13) $(0.13)
Second 15,855 (286) - (193) (0.04) (0.04)
Third 19,495 (1,423) - (985) (0.20) (0.20)
Fourth 33,943 775 - 424 0.09 0.09
NOTE 14. Segment Disclosure
During 1999, the Company began to pursue several e-commerce business
strategies designed to compliment and enhance its core catalog business. The
initiatives included web service and hosting as well as design of an Internet
portal. As part of this continuing development in late 1999, management
began to assess and evaluate these initiatives as separate business lines.
Consistent with this perspective and to provide better operational focus,
management also at this time initiated a reorganization process designed to
reflect its business as three separate operating segments. These segments
were:
Concepts Direct
Concepts Direct markets various products directly to individual consumers,
including personalized paper products, gift items, home decorative items and
other merchandise under several catalog titles and Internet sites associated
with the catalog titles. Concepts Direct will also provide back office
functions for all segments such as warehousing, distribution, fulfillment,
order entry, inventory procurement, accounting and human resources. Concepts
Direct also operates an Internet inventory liquidation site.
iConcepts
iConcepts was to operate as a business incubator, conceptualizing and
developing new Internet businesses. iConcepts also planned to provide
technology support to Concepts Direct, BOTWEB and third parties. Services
offered by iConcepts would have included site hosting and development,
online order processing and database management. As discussed more fully in
note 3, the operations of iConcepts business segment have been
significantly curtailed. At December 31, 2000 all remaining operations of
iConcepts are a part of Concepts Direct.
BOTWEB
BOTWEB was a portal whose primary target customers were female catalog or
Internet shoppers. In addition to offering a directory and Internet search of
reviewed sites that BOTWEB had classified Best Of The WEB, BOTWEB offered a
variety of free services, including email, driving directions and maps,
news, weather and sports. As discussed more fully in note 2, the operations
of the BOTWEB business segment are classified as a discontinued operation of
the Company.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(Statement No. 131). The Company evaluated the performance of its business
segments based on operating profit (loss). The accounting policies of the
Company's segments were the same as those described in Note 1.
Pertinent financial data by operating segment for the three years ended
December 31, 2000 are as follows (in thousands):
Concepts Discontinued
Direct iConcepts BOTWEB Operations Eliminations Total
2000
Net sales to third parties $54,839 $ 614 $ 64 $ (64) $ - $55,453
Net sales to related parties 112 (1)1,450 (2) 28 (3) - (1,590) -
Total net sales 54,951 2,064 92 (64) (1,590) 55,453
Cost of product and delivery
from third parties 30,413 2,240 1,044 (1,044) - 32,653
Cost of product and delivery
from related parties 863 116 543 - (1,522) -
31,276 2,356 1,587 (1,044) (1,522) 32,653
Selling, general and admin-
istrative from third parties 22,120 1,778 1,373 (1,373) - 23,898
Selling, general and admin-
istrative from related
parties 18 10 40 - (68) -
22,138 1,788 1,413 (1,373) (68) 23,898
Restructuring costs - 417 - - - 417
Loss on discontinuance of
business segment - - 433 (433) - -
Total expenses 53,414 4,561 3,433 (2,850) (1,590) 56,968
Operating loss 1,537 (2,497) (3,341) 2,786 - (1,515)
Other income (expense) 1,674 (107) - - - 1,567
Income (loss) before income
taxes $ 3,211 $(2,604) $(3,341) $2,786 $ - $ 52
Identifiable assets $27,632 $ - $ - $ - $ - $27,632
Concepts Discontinued
Direct iConcepts BOTWEB Operations Eliminations Total
1999
Net sales to third parties $55,471 $ 4 $ 64 $ (64) $ - $55,475
Net sales to related parties 10 (1)1,268 (2) 19 (3) - (1,297) -
Total net sales 55,481 1,272 83 (64) (1,297) 55,475
Cost of product and delivery
from third parties 35,661 695 202 (202) - 36,356
Cost of product and delivery
from related parties 796 6 52 - (854) -
36,457 701 254 (202) (854) 36,356
Selling, general and admin-
istrative from third parties 20,765 1,893 492 (492) - 22,658
Selling, general and admin-
istrative from related parties 425 9 9 - (443) -
21,190 1,902 501 (492) (443) 22,658
Total expenses 57,647 2,603 755 (694) (1,297) 59,014
Operating loss (2,166) (1,331) (672) 630 - (3,539)
Other expense (375) - - - - (375)
Loss before income taxes $(2,541) $(1,331) $(672) $630 $ - $(3,914)
Identifiable assets $19,091 $ 6,404 $ 699 $524 $ (524) $26,194
Concepts Discontinued
Direct iConcepts BOTWEB Operations Eliminations Total
1998
Net Sales to third parties $84,773 $ - $ - $ - $ - $84,773
Net Sales to related parties - (1) 1,266 (2) - - (1,266) -
Total net sales 84,773 1,266 - - (1,266) 84,773
Cost of product and delivery
from third parties 46,123 1,370 - - - 47,493
Cost of product and delivery
from related parties 1,266 - - - (1,266) -
47,389 1,370 - - (1,266) 47,493
Selling, general and admin-
istrative from third parties 38,872 387 - - - 39,259
Selling, general and admin-
istrative from related
parties - - - - - -
38,872 387 - - - 39,259
Total expenses 86,261 1,757 - - (1,266) 86,752
Operating loss (1,488) (491) - - - (1,979)
Other expense (51) - - - - (51)
Loss before income taxes $(1,539) $ (491) $ - $ - $ - $(2,030)
Identifiable assets $27,519 $4,554 $ - $ - $ - $32,073
(1) Represents intercompany product sales, inventory ordering and storage fees
and product fulfillment charges.
(2) Represents Internet site development, production and maintenance charges
(3) Represents BOTWEB directory advertising charges
NOTE 15. Subsequent Events
In January 2001, the Board of Directors authorized the repurchase of up to
$250,000 of the Company's common stock in the open market or in privately
negotiated transactions in accordance with applicable securities laws. As
of February 16, 2001 an immaterial amount has been purchased.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CONCEPTS DIRECT, INC.
Year Ended December 31, 2000
COL. A COL. B COL. C COL. D COL. E COL. F
Charged Charged to
Balance at (Credited) Other Balance at
Beginning to Costs Accounts- Deductions End
DESCRIPTION of Period and Expenses Describe Describe of Period
Year Ended December 31, 2000
Deducted from asset accounts:
Allowance for doubtful accounts $ 66,000 $ (48,000) $ - $ - $18,000
Allowance for inventory
obsolescence 4,488,000 (114,000) - (2,534,000) (b)1,840,000
Totals deducted from asset
accounts $4,554,000 $(162,000) $ - $(2,534,000) $1,858,000
Product warranty liability $ 251,000 $ (27,000) $ - $ - $ 224,000
Year Ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts $ 42,000 $ 24,000 $ - $ - $ 66,000
Allowance for inventory
obsolescence 740,000 3,226,000 756,000(c) (234,000)(b) 4,488,000
Totals deducted from asset
accounts $ 782,000 $3,250,000 $756,000 $ (234,000) $4,554,000
Product warranty liability $ 274,000 $ (23,000) $ - $ - $ 251,000
Year Ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts $ 57,000 $ 12,000 $ - $ (27,000)(a)$ 42,000
Allowance for inventory
obsolescence 394,000 541,000 - (195,000)(b) 740,000
Totals deducted from asset
accounts $ 451,000 $ 553,000 $ - $ (222,000) $ 782,000
Product warranty liability $286,000 $(12,000) $ - $ - $ 274,000
(a) Uncollectible accounts written off, net of recoveries.
(b) Inventory written off, net of recoveries.
(c) Reserve established pursuant to the Music Stand acquisition of assets.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
N/A
PART III
Certain information required by Part III is omitted from this Report in
that the Company will file a definitive Proxy Statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after
the end of the fiscal year covered by this report and certain
information included therein is incorporated herein by reference.
With the exception of the information incorporated by reference from the
Proxy Statement in Items 10, 11, 12 and 13 of Part III of this Form
10-K, the Proxy Statement for its annual meeting of shareholders
scheduled for May 10, 2001 is not to be deemed filed as a part of this
Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information concerning the directors of the Company is incorporated
herein by reference to material contained under the heading "Election of
Directors" and "Section 16(a) compliance" in the Proxy Statement for its
annual meeting of shareholders scheduled for May 10, 2001.
Information concerning the executive officers of the Company is set
forth under the heading "Executive Officers of the Registrant" at the
end of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to material contained under the headings "Compensation of
Directors", "Executive Compensation" and "Compensation Committee
Interlocks and Insider Participation" in the Company's Proxy Statement
for its annual meeting of shareholders scheduled for May 10, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to security ownership of certain beneficial owners and
management is incorporated herein by reference to material contained
under the heading "Stock Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for its annual meeting of
shareholders scheduled for May 10, 2001. Management does not know of
any arrangements the operation of which may at a subsequent date results
in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
N/A
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMS
8-K
(a) Documents filed as part of this report:
1. The financial statements and related Report of Independent
Auditors required by this item are listed and included in Item
8 of this report.
2. The financial statement schedules required by this item
are listed and included in Item 8 of this report.
3. Exhibits required to be filed by Item 601 of Regulation
S-K: SEE INDEX TO EXHIBITS
(b) No Reports on Form 8-K have been filed during the last quarter
of the year ended December 31, 2000.
INDEX TO EXHIBITS
(3) Articles of incorporation and bylaws.
3(a) Registrant's Amended and Restated Certificate of
Incorporation filed as Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 is
expressly incorporated herein by this reference.
3(b) 3(a)(i) Registrant's Amendment of Amended and Restated
Certificate of Incorporation filed as Exhibit 3(i)(b) to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1999, is expressly incorporated herein by this
reference.
3(c) Registrant's Bylaws and Statement of Organization of the
Incorporator filed as Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, is
expressly incorporated herein by this reference.
(4) Instruments defining the rights of security holders, including
indentures.
4(a) See the Seventh Article of Exhibit 3(a) and Articles I, IV,
V, VI and VII of Exhibit 3(b).
(10) Material Contracts.
10(a) Commercial Lease Agreement between Registrant and Colorful
Avenue, Ltd. as landlord, dated September 13, 2000, in connection
with a lease of the Registrant's corporate headquarters and
fulfillment center in Longmont, Colorado is filed herewith.
10(b) First Amendment dated November 2, 2000 to Commercial Lease
Agreement between Registrant and Colorful Avenue Ltd. as landlord
dated September 13, 2000 is filed herewith.
10(c) Limited Partnership Agreement of Colorful Avenue Ltd., a
Colorado Limited Partnership, is filed herewith.
10(d) 2001 Incentive Compensation Plan for officers of the
registrant is filed herewith.
10(e) 1992 Stock Option Plan was previously filed as Exhibit A to
registrant's definitive proxy statement dated June 29, 1993 for
the Annual Meeting of Shareholders held on July 30, 1993, and is
expressly incorporated herein by this reference.
10(f) 1992 Non-Employee Director Stock Option Plan was previously
filed as Exhibit B to the registrant's definitive proxy statement
dated June 29, 1993 for the Annual Meeting of Shareholders held on
July 30, 1993, and is expressly incorporated herein by this
reference.
10(g) First Amendment to the 1992 Stock Option Plan was previously
filed as Exhibit A to registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1998 and is expressly
incorporated herein by reference.
10(h) 1998 Non-Employee Directors Stock Option Plan was previously
filed as Exhibit A to the Company's Definitive Proxy Statement
dated March 10, 1998 for the Annual Meeting of Stockholders on
April 24, 1998 is expressly incorporated by reference.
(21) Subsidiaries of the Company
(23) Consent of Experts and Counsel.
23(a) The Consent of Ernst & Young LLP is filed herewith.
(27) Financial Data Schedule
27(a) The financial data schedule is included in the electronic
Edgar filing only.
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
CONCEPTS DIRECT, INC.
Date: March 30, 2001 By:/s/ J. Michael Wolfe
J. Michael Wolfe
Chief Executive Officer
Date: March 30, 2001 By:/s/ David H. Haddon
David H. Haddon
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: March 30, 2001 /s/ Virginia B. Bayless
Virginia B. Bayless, Director
Date: March 30, 2001 /s/ Robert L. Burrus, Jr.
Robert L. Burrus, Jr., Director
Date: March 30, 2001 /s/ Kenneth M. Gassman
Kenneth M. Gassman, Director
Date: March 30, 2001 /s/ Marshall S. Geller
Marshall S. Geller, Director
Date: March 30, 2001 /s/ Stephen R. Polk
Stephen R. Polk, Director
Date: March 30, 2001 /s/ Phillip A. Wiland
Phillip A. Wiland, Director
Date: March 30, 2001 /s/ J. Michael Wolfe
J. Michael Wolfe, Director