-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CpvOFTCWSqePfPLh/2lpDrpOt1qaAX/2wmzTXjIfKoBwv+st5yHy8z2RXKh93z0h UlckNdLj/EWP6BuBB2JcQA== 0000891035-98-000006.txt : 19980807 0000891035-98-000006.hdr.sgml : 19980807 ACCESSION NUMBER: 0000891035-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980806 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONCEPTS DIRECT INC CENTRAL INDEX KEY: 0000891035 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 521781893 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20680 FILM NUMBER: 98678515 BUSINESS ADDRESS: STREET 1: 2950 COLORFUL AVENUE STREET 2: FILING2 CITY: LONGMONT STATE: CO ZIP: 80504 BUSINESS PHONE: 303-772-9171 MAIL ADDRESS: STREET 1: 2950 COLORFUL AVENUE CITY: LONGMONT STATE: CO ZIP: 80504 10-Q 1 FORM 10-Q, 06/30/1998 FORM 10-Q SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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 (I.R.S. employer of incorporation or organization) identification No.) 2950 Colorful Avenue, Longmont, CO 80504 (Address of principal executive offices, Zip Code) (303) 772-9171 (Registrant's telephone number, including area code) 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 As of July 22, 1998, 4,957,286 shares of Common Stock, $.10 par value, were outstanding. CONCEPTS DIRECT, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheets as of June 30, 1998 and December 31, 1997 Statements of Operations for the three and six months ended June 30, 1997 and June 30, 1998 Statements of Cash Flows for the six months ended June 30, 1998 and June 30, 1997 Notes to Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and reports on Form 8-K Item 1. CONCEPTS DIRECT, INC. Balance Sheets June 30, December 31, 1998 1997 ASSETS (Unaudited) Current assets Cash and cash equivalents $5,003,485 $13,773,815 Restricted cash 0 128,403 Accounts receivable, less allowances 275,562 259,219 Deferred advertising costs 8,332,628 7,616,138 Inventories, less allowances 6,789,110 5,167,729 Income taxes recoverable 373,000 373,000 Prepaid expenses and other 194,149 904,281 Total current assets 20,967,934 28,222,585 Property and equipment, net 11,606,282 11,860,954 Other assets 440,675 294,263 TOTAL ASSETS $33,014,891 $40,377,802 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $5,030,657 $9,837,028 Current maturities of debt and lease obligations 849,955 594,971 Accrued employee compensation 862,225 1,101,972 Customer liabilities 780,462 1,715,775 Interest payable 0 20,980 Current and deferred income taxes payable 1,317,693 1,808,056 Total current liabilities 8,840,992 15,078,782 Debt obligations 6,178,456 6,486,384 Commitments and contingencies Stockholders' equity Common Stock, $.10 par value, authorized 6,000,000 shares, issued and outstanding 4,957,286 shares 495,729 495,729 Additional paid-in capital 14,319,338 14,319,338 Retained earnings 3,180,376 3,997,569 Total stockholders' equity 17,995,443 18,812,636 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,014,891 $40,377,802 See notes to financial statements. CONCEPTS DIRECT, INC. Statements of Operations (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Net sales $15,855,323 $14,766,280 $31,335,642 $30,718,640 Operating costs and expenses: Cost of product and delivery 8,934,815 7,814,393 17,664,829 15,773,814 Selling, general and administrative 7,206,882 6,505,509 15,001,789 13,547,541 Total operating costs and expenses 16,141,697 14,319,902 32,666,618 29,321,355 Operating income (loss) (286,374) 446,378 (1,330,976) 1,397,285 Other income (loss), net (10,765) 122,607 73,783 223,864 Income (loss) before income taxes (297,139) 568,985 (1,257,193) 1,621,149 Provision (benefit) for income taxes (104,000) 201,000 (440,000) 580,000 Net income (loss) $(193,139) $367,985 $(817,193) $1,041,149 Basic earnings (loss) per share $(0.04) $0.09 $(0.16) $0.25 Diluted earnings (loss) per share $(0.04) $0.08 $(0.16) $0.23 Weighted average number of common shares 4,957,286 4,251,882 4,957,286 4,248,841 Weighted average number of common shares and dilutive stock options 4,957,286 4,481,803 4,957,286 4,475,982 See notes to financial statements. CONCEPTS DIRECT, INC. Statements of Cash Flows (Unaudited) Six Months Ended June 30, 1998 1997 OPERATING ACTIVITIES Net income (loss) $(817,193) $1,041,149 Adjustments to reconcile net income (loss) to net cash used in operating activities: Provision for losses on accounts receivable 3,000 1,000 Provision for losses in inventory values 238,576 90,701 Depreciation and amortization 478,406 164,194 Current and deferred income taxes (490,363) 360,000 Changes in operating assets and liabilities: Accounts receivable (19,343) (53,140) Deferred advertising costs (716,490) (3,747,607) Inventories (1,859,957) (781,692) Prepaid expenses and other 710,132 (290,952) Accounts payable (4,806,371) 2,696,351 Accrued employee compensation (239,747) (104,866) Customer liabilities (935,313) 500,748 Interest payable (20,980) 0 NET CASH USED IN OPERATING ACTIVITIES (8,475,643) (124,114) INVESTING ACTIVITIES Cash restricted as collateral 0 (500,000) Release of cash restricted as collateral 128,403 0 Purchases of property and equipment (223,734) (5,650,083) Other investing activities, net (146,412) (115,830) NET CASH USED IN INVESTING ACTIVITIES (241,743) (6,265,913) FINANCING ACTIVITIES Principal payments on debt and lease obligations (155,639) (47,061) Issuance of debt obligations 102,695 0 Exercise of common stock options 0 11,951 NET CASH USED IN FINANCING ACTIVITIES (52,944) (35,110) DECREASE IN CASH AND CASH EQUIVALENTS (8,770,330) (6,425,137) Cash and cash equivalents at beginning of year 13,773,815 6,425,137 Cash and cash equivalents at end of period $5,003,485 $0 See notes to financial statements. CONCEPTS DIRECT, INC. Notes to Financial Statements (Unaudited) 1. Accounting Policies The unaudited interim financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial reporting and the regulations of the Securities and Exchange Commission in regard to quarterly reporting. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, the statements include all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. Operating results for the six month periods ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. Seasonal fluctuations in sales of the Company's products result primarily from the purchasing patterns of the individual consumer during the Christmas holiday season. These patterns tend to moderately concentrate sales in the latter half of the year, particularly in the fourth quarter. For further information refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. In 1997, the Financial Accounting Standards Board issued Statement of Financial Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information," which is required to be adopted on December 31, 1998. The Company has not completed its analysis of whether the reporting requirements of Statement No. 131 apply to the Company's operations. The Company does not expect any significant additional disclosures to be necessary when the statement is adopted. In March 1998, the AICPA issued SOP 98-1, "Accounting For the Costs of Computer Software Developed For or Obtained For Internal-Use." The SOP requires the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal-use. The Company previously expensed such costs as incurred. The Company adopted SOP 98-1 effective January 1, 1998. The effect of the adoption of SOP 98- 1 was immaterial to the results of operations of the Company for the three and six month periods ended June 30, 1998. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company's net sales increased by $.6 million, or 2%, to $31.3 million for the six month period ended June 30, 1998 from $30.7 million in the same period in 1997 and increased by $1.1 million, or 7%, to $15.9 million for the second quarter of 1998 from $14.8 million in the same period in 1997. These increases resulted primarily from higher response rates to some catalogs distributed and an increase in the number of products offered. Personalized paper product sales decreased by approximately $3.7 million, or 23%, for the six month period ended June 30th and decreased by $1.7 million, or 23%, for the quarter period ended June 30, 1998. Personalized paper product sales decreased as a percentage of total sales for the six month period ended June 30th to 39% in 1998 from 51% in 1997 and decreased for the second quarter to 35% in 1998 from 48% in 1997. These decreases occurred primarily because of reduced emphasis on the Colorful Images catalog which is the main marketing media of personalized paper products and more aggressive development of our other catalogs which are comprised primarily of gift and merchandise items. Cost of product and delivery for the six month period ended June 30th increased as a percentage of net sales to 56% in 1998 from 51% in 1997 and increased to 56% in the second quarter of 1998 from 53% for the second quarter of 1997. Gross profit decreased by $1.2 million, or 9%, to $13.7 million for the six months ended June 30, 1998 from $14.9 million for the same period in 1997. Gross profit was $6.9 million and $7.0 million for the second quarter of 1998 and 1997, respectively. The decrease in gross profit as a percentage of net sales occurred primarily because of increased sales of gift and merchandise items which generally have higher product costs as a percentage of sales than personalized paper products and higher fixed costs of operations. Selling, general and administrative expense increased $1.5 million, or 11%, to $15.0 million for the first six months of 1998 from $13.5 million for the same period of 1997 and increased $.7 million, or 11%, to $7.2 million for the second quarter of 1998 from $6.5 million for the same quarter in 1997. Selling, general and administrative costs as a percentage of net sales increased to 48% for the first six months of 1998 from 44% for the same period in 1997 and increased to 45% for the second quarter of 1998 from 44% for the same quarter in 1997. These increases primarily related to increased paper costs for catalog preparation and distribution and higher fixed general and administrative costs. The Company had an operating loss of $1.3 million for the six month period ended June 30, 1998 as compared to operating income of $1.4 million for the same period in 1997. The Company had an operating loss of $286,000 for the second quarter of 1998 as compared to operating income of $446,000 for the same quarter of 1997. Other income (loss), primarily vendor payment discounts, interest income and interest expense, was $74,000 for the six month period ended June 30, 1998 as compared to $224,000 for the same period in 1997. Other income (loss) for the second quarter of 1998 was a loss of $11,000 as compared to income of $123,000 for the same period in 1997. Interest expense was $259,000 for the six-month period ended June 30, 1998 as compared to $2,000 for the same period in 1997 and was $160,000 for the quarter ended June 30, 1998 as compared to $1,000 for the same period in 1997. The increase in interest expense primarily relates to financing on the Company's new facilities in late 1997. The Company had an income tax benefit of $440,000 for the six month period ended June 30, 1998 as compared to a provision for income taxes of $580,000 for the same period in 1997. The Company had an income tax benefit of $104,000 for the quarter ended June 30, 1998 as compared to a provision for income taxes of $201,000 for the same quarter in 1997. The provision for income taxes for 1998 reflects the 35% income tax rate that management anticipates for the year. The Company had a net loss of $817,000 for the six month period ended June 30, 1998 as compared to net income of $1,041,000 for the same period in 1997. The Company had a net loss of $193,000 for the quarter ended June 30, 1998 as compared to net income of $368,000 for the same period in 1997. The Company had a diluted loss of $0.16 per share for the six month period ended June 30, 1998 as compared to diluted earnings per share of $0.23 for the same period in 1997. The Company had a net loss of $0.04 per share for the quarter ended June 30,1998 as compared to diluted earnings per share of $.08 for the same period in 1997. LIQUIDITY AND CAPITAL RESOURCES During the six month period ended June 30, 1998, cash and cash equivalents decreased by $8,770,000. Activity in several significant areas had the greatest impact on cash and cash equivalents as described below. The forward buying of approximately $1.2 million of paper for catalogs in addition to the December 31, 1997 paper inventory balance was the primary factor in an increase of deferred advertising by $716,000. The increase in sales primarily of gift and merchandise items led to the increase in inventories of $1,860,000. The decrease in accounts payable during the six month period ended June 30, 1998 of $4,806,000 resulted primarily from the payment in the first quarter of 1998 of inventory and advertising costs purchased or incurred in the fourth quarter of 1997. During the first six months of 1998 customer liabilities (primarily unshipped customer orders and a reserve for future customer warranty costs and product returns) has decreased by $935,000 primarily as a result of inventory backorder reductions and improvement in certain fulfillment function efficiencies. The Company has available with Bank One, Colorado, N.A. a revolving line of credit for $2,000,000 for general purposes. No balance was outstanding on the line of credit at June 30, 1998. The line of credit expires in May 1999. The Company had $5,003,000 of unencumbered cash and cash equivalents at June 30, 1998. Management believes that results of operations, continued operational planning review, line of credit availability plus current cash balances will produce funds necessary to meet its anticipated working capital requirements for the current year. Special Note Regarding Forward-Looking Statements The discussion above contains certain forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995. Company statements that are not historical facts, including statements about management's expectations, beliefs, plans and objectives for 1998 and beyond, are forward-looking statements and involve various risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's estimates and expectations include, but are not limited to, the following: changes in postal rates or the costs of paper; changes in economic and market conditions; changes in the Company's merchandise product mix or changes in the Company's customer response to advertising offers; lack of effective performance by third party suppliers with respect to production and distribution of catalogs; lack of effective performance of customer service and the Company's order fulfillment system; and changes in strategy and timing relating to the testing and rollout of new catalogs. Additional discussion of factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in the Company's SEC filings, including the Company's report on Form 10-K for the year ended December 31, 1997. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual meeting of the Company's shareholders was held on April 24, 1998. (b) At such annual meeting, the stockholders of the Company elected Virginia B. Bayless, Robert L. Burrus, Jr., Michael T. Buoncristiano, Stephen R. Polk, Phillip D. White and Phillip A. Wiland as directors for one-year terms. The elections were approved by the following votes: Directors For Withheld Virginia B. Bayless 4,667,318 2,208 Robert L. Burrus, Jr. 4,667,318 2,208 Michael T. Buoncristiano 4,667,318 2,208 Stephen R. Polk 4,667,318 2,208 Phillip D. White 4,667,318 2,208 Phillip A. Wiland 4,667,118 2,408 (c) At such annual meeting, the stockholders of the Company ratified the election of Ernst & Young LLP as the independent public accountants for the Company for the fiscal year ended December 31, 1998. The ratification of Ernst & Young LLP was approved by the following votes: For 4,664,080 Against 7,040 Abstain 5,840 Broker Non-Votes 0 (d) At such annual meeting, the stockholders of the Company approved the amendment to the Company's 1992 Stock Option Plan by the following votes: For 3,878,485 Against 790,887 Abstain 7,588 Broker Non-Votes 0 (e) At such annual meeting, the stockholders of the Company approved the adoption of the Company's 1998 Non-Employee Directors Stock Option Plan by the following votes: For 3,876,485 Against 792,587 Abstain 7,888 Broker Non-Votes 0 Item 5. Other Information The SEC has adopted Rule 14a-4(c), effective June 29, 1998, which determines how proxies designated by public corporations may use discretionary voting authority on stockholder proposals made at annual meetings. The Company will have unrestricted use of discretionary voting authority if it does not receive prior written notice of an intent to submit a proposal at the meeting. For the Company's 1999 annual meeting of shareholders, this notice must be received by January 24, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Documents filed as part of this report: Exhibit 10: Material Contracts (a) First Amendment to Registrant's 1992 Stock Option Plan is filed herewith. (b) Registrant's 1998 Non-Employee Directors Stock Option Plan filed as Exhibit A to the Company's Definitive Proxy Statement dated March 10, 1998 for the Annual Meeting of Stockholders dated April 24, 1998 is expressly incorporated by reference. Exhibit 27: Financial Data Schedule (Edgar filing only.) Registrant hereby agrees to furnish the Commission, upon request, with instruments defining the rights of holders of long-term debt of the registrant. (b) Reports on Form 8-K There were no reports on Form 8-K for the fiscal quarter ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONCEPTS DIRECT, INC. (registrant) Date: August 6, 1998 By: /s/ Phillip A. Wiland Phillip A. Wiland Chief Executive Officer Date: August 6, 1998 By: /s/ H. Franklin Marcus, Jr. H. Franklin Marcus, Jr. Chief Financial and Accounting Officer EX-10 2 FIRST AMENDMENT TO THE 1992 STOCK OPTION PLAN CONCEPTS DIRECT, INC. The 1992 Stock Option Plan (the "Plan") of Concepts Direct, Inc. (the "Company") is hereby amended as follows: 1. Definitions: Terms, which are not specifically defined herein, shall have the meanings given to them in the Plan. 2. Stock: Effective April 24, 1998, Article 4 of the Plan is hereby amended as follows: (a) The first sentence is amended by replacing "70,000" with "380,000"; and (b) A new sentence is added at the end to read as follows: "No more than 50,000 shares may be allocated to the Incentive Awards that are granted to any individual Participant during any single fiscal year of the Company." IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed this 30th day of June, 1998. Concepts Direct, Inc. By: /s/H. Franklin Marcus, Jr. H. Franklin Marcus, Jr. Title: Chief Financial Officer EX-27 3
5 0000891035 FINANCIAL DATA SCHEDULE, CONCEPTS DIRECT INC. 6/30/98 10-Q US DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 5,003,485 0 275,562 0 6,789,110 20,967,934 11,606,282 0 33,014,891 8,840,992 0 0 0 495,729 17,499,714 33,014,891 31,335,642 31,335,642 17,664,829 32,666,618 0 0 0 (1,257,193) (440,000) (817,193) 0 0 0 (817,193) (0.16) (0.16)
-----END PRIVACY-ENHANCED MESSAGE-----