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, 1996
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.)
1351 South Sunset Street, Longmont, CO 80501
(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 15, 1996, 2,120,108 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, 1996 and December 31, 1995
Statements of Operations for the three and six months ended
June 30, 1996 and June 30, 1995
Statements of Cash Flows for the six months ended June 30, 1996
and June 30, 1995
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 6. Exhibits and reports on Form 8-K
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
CONCEPTS DIRECT, INC.
Balance Sheets
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
------ ------
Current assets
Cash and cash equivalents $ 3,288,594 $ 3,324,838
Accounts receivable, less allowances 133,963 108,102
Deferred advertising costs 2,183,305 2,207,244
Inventories, less allowances 2,072,516 2,798,878
Prepaid expenses and other 375,686 283,254
Income taxes receivable 10,958 ---
----------- ------------
Total current assets 8,065,022 8,722,316
Property and equipment, net 928,467 994,744
Other assets 274,342 206,768
----------- -----------
TOTAL ASSETS $ 9,267,831 $ 9,923,828
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,905,626 $ 3,107,174
Current maturities of lease obligations 89,035 87,275
Accrued employee compensation 470,655 638,943
Customer liabilities 707,623 908,264
Current and deferred income taxes payable --- 90,925
----------- -----------
Total current liabilities 4,172,939 4,832,581
Lease obligations 17,978 67,493
Stockholders' equity
Common Stock, $.10 par value, authorized
6,000,000 shares, issued and outstanding
2,120,108 and 2,116,441 shares, respectively 212,011 211,644
Additional paid-in capital 4,373,400 4,366,633
Retained earnings 491,503 445,477
----------- -----------
Total stockholders' equity 5,076,914 5,023,754
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,267,831 $9,923,828
=========== ===========
See notes to financial statements.
CONCEPTS DIRECT, INC.
Statements of Operations
(Unaudited) Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
Net sales $9,000,393 $9,491,387 $20,584,357 $17,591,459
Operating costs and expenses:
Cost of product and
delivery 4,907,287 4,529,711 10,848,633 8,680,747
Selling, general and
administrative 4,437,440 4,769,606 9,817,336 8,427,451
---------- ---------- ----------- -----------
Total operating costs
and expenses 9,344,727 9,299,317 20,665,969 17,108,198
---------- ---------- ----------- -----------
Income (loss) from
operations (344,334) 192,070 (81,612) 483,261
Other income, net 34,591 79,882 146,638 140,368
---------- ---------- ----------- -----------
Income (loss) before
income taxes (309,743) 271,952 65,026 623,629
Provision (credit) for
income taxes (90,000 95,000 19,000 218,000
---------- ---------- ----------- -----------
Net income (loss) $(219,743) $176,952 $46,026 $405,629
========== ========== =========== ===========
Net earnings (loss) per
common share $(0.10) $0.08 $0.02 $0.18
========== ========== =========== ===========
Weighted average number of
common shares and common
share equivalents
outstanding 2,220,726 2,195,519 2,220,896 2,194,190
See notes to financial statements.
CONCEPTS DIRECT, INC. Six Months Ended
Statements of Cash Flows June 30,
(Unaudited) 1996 1995
------ ------
OPERATING ACTIVITIES
Net Imcome $ 46,026 $ 405,629
Adjustments to reconcile net income to net
cash provided from (used in) operations:
Provision (credit) for losses on
accounts receivable 13,000 (6,130)
Provision (credit) for losses in
inventory values (37,446) 210,655
Depreciation and amortization 248,595 208,532
Current and deferred income taxes (101,883) 204,925
Changes in operating assets and
liabilities:
Accounts receivable (38,861) 148,257
Deferred advertising costs 23,939 (1,478,861)
Inventories 763,808 (621,905)
Prepaid expenses and other (92,432) (77,423)
Accounts payable (201,548) (162,351)
Accrued employee compensation (168,288) (1,492)
Customer liabilities (200,641) 185,267
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 254,269 (984,897)
INVESTING ACTIVITIES
Purchases of property and equipment (182,318) (183,108)
Other investing activities (67,574) 27,159
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (249,892) (155,949)
FINANCING ACTIVITIES
Principal payments of lease obligations (47,755) (41,259)
Issuance of common stock 7,134 2,310
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (40,621) (38,949)
DECREASE IN CASH AND CASH EQUIVALENTS (36,244) (1,179,795)
---------- ----------
Cash and cash equivalents at beginning of period 3,324,838 3,338,015
Cash and cash equivalents at end of period $3,288,594 $2,158,220
========== ==========
See notes to financial statements.
CONCEPTS DIRECT, INC.
Notes to Financial Statements
(Unaudited)
Note 1. Accounting Policies
The Company's 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 period ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31,
1996. 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,
1995.
Note 2. Commitments
On March 20, 1996, the Company entered into a purchase agreement to buy
approximately 133 acres of undeveloped land near the Company's offices
for approximately $1,100,000. The agreement is subject to a number of
contingencies which allow the Company to terminate the agreement. If
the purchase is finalized, the Company intends to use a portion of this
land for a new facility, hold some of the land for expansion and attempt
to sell most of the remaining acreage to other parties.
The lease of the Company's current facility at 1351 South Sunset Street,
Longmont, Colorado expires on August 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's sales increased 17% for the six month period ended June
30, 1996 as compared to the same period in 1995 and decreased 5% for the
second quarter of 1996 as compared to the same period in 1995. The
increase in sales for the six month period resulted primarily from the
distribution of a greater number of catalogs and other advertising
media, increased page count of the catalogs and number of products
offered primarily in the first quarter of 1996 as compared to the same
period of 1995. The decrease on a quarterly basis primarily related to
the distribution of smaller number of catalogs and other advertising
media and lower than anticipated advertising response rates in the
second quarter of 1996 as compared to the same period in 1995. Fewer
catalogs were mailed because of increased costs of mailing, primarily
paper costs which were up in excess of 25% in the second quarter of 1996
as compared to the second quarter of 1995. Increased costs also led to
a decrease in the number of names that could be mailed on a cost
effective basis. Cost of product and delivery for the six month period
ended June 30th increased as a percentage of sales from 49% in 1995 to
53% in 1996 and increased from 48% in the second quarter of 1995 to 55%
for the second quarter of 1996. These increases occurred primarily
because of increased sales of gift and general merchandise products
which have lower margins and lower sales over which to spread fixed
costs. Selling, general and administrative costs as a percentage of
sales were 48% for the first six months of 1995 and 1996, respectively,
and decreased from 50% for the second quarter of 1995 to 49% for the
same period in 1996. The slight decrease in the second quarter
primarily resulted from the decrease in the number of advertising pieces
distributed as compared to the same quarter of 1995. The Company had a
loss from operations of $82,000 for the six month period ended June 30,
1996 as compared to income from operations of $483,000 for the same
period in 1995. The Company had a loss from operations of $344,000 for
the second quarter of 1996 as compared to income from operations of
$192,000 for the same period of 1995. Other income was $147,000 for the
six month period ended June 30, 1996 as compared to $140,000 for the
same period in 1995. Other income for the second quarter of 1996 was
$35,000 as compared to $80,000 for the same period in 1995. Other
income in the second quarter of 1995 primarily related to a reduction in
reserve for expenses of the merger transaction with Neodata Corporation
in September 1992. The provision for income taxes was $19,000 and
$218,000 for the six month periods ended June 30, 1996 and 1995,
respectively. The Company had a credit for income taxes of $90,000 for
the quarter ended June 30, 1996 and had a provision for income taxes of
$95,000 for the same period in 1995. The provision and credit for
income taxes for 1996 reflects the 29% income tax rate that management
anticipates for the year. The Company had net income of $46,000 or $0.02
per share for the first six months of 1996 as compared to $406,000 or
$0.18 per share for the same period in 1995. The Company had a loss of
$220,000 or $0.10 per share for the second quarter of 1996 as compared
to net income of $177,000 or $0.08 per share for the same period in
1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended June 30, 1996, cash and cash
equivalents decreased by $36,000. Activity in several significant areas
had the greatest impact on cash and cash equivalents as described below.
Decreased sales of products and the issuance of a smaller number of
catalogs and other advertising media particularly during the second
quarter of 1996 were the primary reasons for the decrease of
inventories of $764,000, decrease of accounts payable of $202,000 and
decrease of customer liabilities ( primarily unshipped customer orders
and anticipated future customer warranty costs and product returns) by
$201,000. The Company also purchased $182,000 of property and
equipment primarily related to production of the increased sales. The
Company had $3,289,000 of unencumbered cash and cash equivalents at June
30, 1996. Management believes that results of operations, continued
operational planning review plus current cash balances will produce
funds necessary to meet its anticipated working capital requirements for
the current year.
Certain statements included in this discussion are not based on
historical facts, but are forward-looking statements that are based upon
a number of assumptions concerning future conditions that may
ultimately prove to be inaccurate. Actual events and results may
materially differ from anticipated results described in such statements.
The Company's ability to achieve such results is subject to certain
risks and uncertainties, including, but not limited to, changes in paper
costs, product mix offered for sale, effective performance of customer
service and order fulfillment software, adverse changes in the Company's
customers response to advertising offers, competitive factors, continued
availability of product and capital, and economic and other factors
affecting the Company's business beyond the Company's control.
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 18, 1996.
(b) At such annual meeting, the shareholders of the Company
elected Phillip A. Wiland, Michael T. Buoncristiano, Robert L.
Burrus, Jr., Stephen R. Polk and Phillip D. White as directors for
one-year terms. The elections were approved by the following votes:
Directors For Withheld
Phillip A. Wiland 2,019,602 5,400
Michael T. Buoncristiano 2,022,452 2,550
Robert L. Burrus, Jr. 2,022,452 2,550
Stephen R. Polk 2,022,452 2,550
Phillip D. White 2,022,452 2,550
(c) At such annual meeting, the shareholders 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,
1996. The ratification of Ernst & Young LLP was approved by the
following votes:
For 2,022,202
Against 200
Abstain 2,600
Broker Non-Votes 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Documents filed as part of this report:
1. First amendment to Purchase and Sale Agreement dated March 20,
1996 between registrant and Richard B. Norton. The original Purchase
and Sale Agreement was previously filed as Exhibit 1 to Concepts
Direct, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
2. Amendment dated May 16, 1996 to Lease dated March 17, 1992
between registrant and Pratt Partnership. This lease was previously
filed as Exhibit 2 to Wiland Services, Inc.'s Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1992. (Wiland Services,
Inc.'s Reporting Number is 0-12967.)
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, 1996.
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 12, 1996 By: Phillip A. Wiland
Chief Executive Officer
Date: August 12, 1996 By: H. Franklin Marcus, Jr.
Chief Financial and
Accounting Officer
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO THE REAL ESTATE CONTRACT AND PURCHASE AND SALE
AGREEMENT (hereinafter the "Agreement") is made as of the day of May
1996, by and between RICHARD B. NORTON ("Seller") and CONCEPTS DIRECT,
INC., a Delaware corporation, its assignees, designees or nominees
("Purchaser"). RECITALS
A. Seller and Purchaser entered into a Real Estate Contract and Purchase
and Sale Agreement as of the 20th day of March 1996 (the "Agreement")
regarding the sale of Seller's Property to Purchaser.
B. Said Agreement is a valid, binding legal agreement between the Seller
and Purchaser and neither party to said Agreement is in default under
any terms of the Agreement.
C. Purchaser and Seller have agreed on Purchaser's right to rezone the
Property and both parties have determined that additional time may be
necessary for the proposed rezoning.
D. Seller and Purchaser desire to enter into this First Amendment to
permit a further extension of the Closing date to permit the intended
rezoning of the Property and necessary agency approvals and to
memorialize their agreement on the proposed zoning of the Property.
AGREEMENT
In consideration of the Deposit, the premises, and the mutual benefits
to be derived by Seller and Purchaser under the terms of the Agreement,
as herein amended, the parties hereto agree as follows:
1. Paragraph 10.16 (Rezoning Period) of the Agreement provides that
Purchaser and Seller shall agree within ten (10) days of the effective
date of the Agreement as to what zoning category and what alternative
uses Seller desires that Purchaser include in the proposed rezoning.
Seller and Purchaser agreed on March 26, 1996 that Purchaser had
Seller's consent to rezone the Property from its current agricultural
zoning district to a zoning district that permits the development of
commercial, office, retail and/or industrial uses or any combination
thereof and with such uses as may be selected by Purchaser in
Purchaser's sole and absolute discretion.
Seller further acknowledges and agrees that Purchaser shall have full
and complete authority and discretion to file a rezoning request and to
enter into any agreements, including, but not limited to, an annexation
agreement that Purchaser deems necessary with the City of Longmont,
Colorado in order to permit Purchaser to develop the Property as desired
by Purchaser, provided, however, Seller shall not incur any expense or
liability in connection therewith. Purchaser agrees to include the
approximately 6.7+ acres to be retained by Seller in Purchaser's zoning
and/or annexation requests at no cost to Seller, with zoning for said
6.7 acres as is approved in writing by Seller. Purchaser agrees to hold
Seller harmless and indemnify Seller from any costs, claims, damages,
including, but not limited to, any of Seller's reasonable attorney's
fees incurred in defending any such costs, claims or damages incurred by
Seller caused by any such rezoning, annexation agreements or other
agreements made by Purchaser with the City of Longmont, Colorado that
impact the Property, or in enforcing the hold harmless and
indemnification agreement.
Notwithstanding the above hold harmless and indemnification agreement
made by Purchaser to Seller, Purchaser further agrees that it shall not
agree or consent to the recording by the City of Longmont, Colorado of
the final zoning approval or the annexation agreement among the land
records without the advance written consent of Seller, or until after
Settlement and Closing on the Property has occurred, the intent being
that no zoning or annexation shall be finalized until Closing occurs
unless Seller agrees in advance in writing. Seller's signing of the
request for annexation and Seller's signing of the request for rezoning
shall not be deemed to be Seller' s advance written approval of said
request being finalized prior to Closing. If for any reason this
transaction does not close, zoning and annexation shall only be
finalized if Seller agrees thereto in writing after termination of this
contract.
Seller agrees to promptly sign, without cost or charge to Purchaser, any
such rezoning requests, annexation requests or other agreements or
requests to the City of Longmont upon written request of Purchaser,
provided, however, Seller shall not incur any expense or liability in
connection therewith.
2. The Closing date, as provided for in paragraph 6.1 of the Agreement
shall be extended up to a maximum of ninety (90) days to December 1,
1996, only in the event of the Purchasers' inability to secure necessary
governmental entity or agency approvals, such as zoning, or other
relevant approvals required for development of the land by September 1,
1996. In such event, Purchaser shall increase the Deposit by an
additional $25,000 on or before September 1, 1996. Said sum shall be
nonrefundable and immediately useable by Seller. In addition, the
provisions of paragraph 2.1 regarding increases in the Purchase Price
for each day the Closing is delayed past June 1, 1996 shall continue to
apply in the event of such extension.
3. Purchaser agrees to take no action, or omit to take any action which
would have the affect of isolating Seller's 6.7+ acres from utility
access, easements or service abutting such 6.7+ property
4. Seller and Purchaser agree that said Real Estate Contract and
Purchaser and Sale Agreement, as amended herein, is a valid and legally
binding contract between Seller and Purchaser and neither party is in
default under the terms of said Agreement and furthermore, if either
party is in technical default, the other party hereby irrevocably waives
such default and the Agreement, as amended, is and remains valid and in
full force and effect.
5. All other words, provisions and requirements of the Agreement shall
remain as originally written unless modified herein. Notwithstanding
the above, the terms, provisions and intent of this First Amendment
shall prevail in the event of any conflict of terms or intent as
expressed in this First Amendment when compared to the terms of the
original Agreement.
SELLER:
BY: Richard B. Norton (Seal)
PURCHASER:
CONCEPTS DIRECT, INC., a Delaware Corporation
BY: Phillip A. Wiland, Chairman (Seal)
ADDENDUM TO LEASE AGREEMENT
This Addendum is made this 16th day of May, 1996, by and between Pratt
Management Company, LLC, a Colorado limited liability company,
(hereinafter referred to as "Landlord") and Concepts Direct, Inc., a
Delaware corporation, (hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, the parties hereto entered into that certain Lease Agreement
(hereinafter referred to as "Lease") dated the 17th day of March, 1992,
for property commonly known as: 1351 S. Sunset, Longmont, CO.
NOW THEREFORE, in consideration of good and valuable consideration,
including the mutual covenants hereinafter set forth, the parties hereto
agree to amend the above-described Lease as follows:
1. Extension of Term. The term of the Lease Agreement is hereby extended
from the 1st day of May, 1997 to the 31st day of August, 1997.
2. Adjustment of Base Rent. Pursuant to Paragraph 5.B of the Lease, the
Base Rent of $37,559.12 per month shall be increased by any increase in
the C.P.I., effective May 1, 1997.
3. Confirmation of Lease Agreement. Except as amended herein, the Lease
shall remain in full force and effect as originally executed.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
this date first written above.
LANDLORD:
PRATT MANAGEMENT CO., LLC
BY: Martin W. McElwain, Manager
TENANT:
CONCEPTS DIRECT, INC.
BY: H. Franklin Marcus, Jr., Secretary-Treasurer
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