<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONCEPTS DIRECT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5961 52-1781893
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1351 SOUTH SUNSET STREET
LONGMONT, COLORADO 80501
(303) 772-9171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT L. BURRUS, JR.
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.
ONE JAMES CENTER
RICHMOND, VIRGINIA 23219
(804) 775-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
KENNETH R. LAMB
GIBSON, DUNN & CRUTCHER LLP
ONE MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 393-8200
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=================================================================================================
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING
SECURITIES TO AMOUNT TO BE PRICE PER PROPOSED MAXIMUM AMOUNT OF
BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
Concepts Direct, Inc.
Common Stock, par value
$.10 per share 1,840,000 $21.375 $39,330,000 $11,918.19
=================================================================================================
</TABLE>
(1) Includes 240,000 shares that the Underwriters will have the option to
purchase from the Company to cover overallotments, if any.
(2) Estimated solely for the purpose of determining the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
CONCEPTS DIRECT, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM
NUMBER AND CAPTION PROSPECTUS CAPTION
------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Forepart of Registration Statement;
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus.............................. of Prospectus
3. Summary Information, Risk Factors.......... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Dilution................................... Not Applicable
6. Selling Security Holders................... Principal and Selling Stockholders
7. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Principal and Selling Stockholders;
Underwriting
8. Description of Securities to be Outside Front Cover Page of Prospectus;
Registered................................. Dividend Policy; Description of Capital
Stock; Underwriting
9. Interests of Named Experts and Counsel..... Legal Matters; Experts
10. Information with Respect to Registrant..... Prospectus Summary; Risk Factors;
Capitalization; Dividend Policy; Price
Range of Common Stock; Selected Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Executive
Compensation; Principal and Selling
Stockholders; Financial Statements
11. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities................................
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 30, 1997
1,600,000 SHARES
CONCEPTS DIRECT, INC.
[LOGO]
COMMON STOCK
------------------------
Of the 1,600,000 shares of Common Stock, par value $.10 per share ("Common
Stock"), of Concepts Direct, Inc. (the "Company" or "Concepts Direct") offered
hereby, 471,404 shares are being sold by the Company and 1,128,596 shares are
being sold by certain stockholders of the Company ("Selling Stockholders"). See
"Principal and Selling Stockholders." The Company will not receive any of the
proceeds from the sale of the Common Stock offered by the Selling Stockholders.
On , 1997, the last sale price of the Company's Common Stock, as
reported on the Nasdaq SmallCap Market, was $ per share. The Company's
Common Stock is traded under the symbol "CDIR." The Company has applied to have
the Common Stock approved for quotation on the Nasdaq National Market under the
same symbol.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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==================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
THE PUBLIC COMMISSIONS(1) THE COMPANY(2) STOCKHOLDERS(3)
- --------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total......................... $ $ $ $
==================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters by the Company and the Selling Stockholders and other matters.
(2) Before deducting expenses estimated at $ payable on a pro-rata basis
by the Company and Selling Stockholders.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 shares of Common Stock at the Price to the Public less Underwriting
Discounts and Commissions, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be ,
, and , respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered hereby by the Underwriters
named herein, subject to prior sale, when, as and if issued by the Company and
delivered to and accepted by the Underwriters and subject to certain prior
conditions, including the right of the Underwriters to reject any order in whole
or in part. It is expected that delivery of the shares of Common Stock will be
made in New York, New York at the offices of EVEREN Clearing Corporation or
through the facilities of The Depository Trust Company on or about ,
1997.
EVEREN SECURITIES, INC. SCOTT & STRINGFELLOW, INC.
The date of this Prospectus is , 1997.
<PAGE> 4
[TEXT AND PHOTOS TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, NASDAQ NATIONAL
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING SHAREHOLDERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ SMALLCAP MARKET OR THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103
OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
[TEXT AND PHOTOS TO COME]
<PAGE> 6
[TEXT AND PHOTOS TO COME]
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and related notes thereto appearing elsewhere in this Prospectus. See "Risk
Factors" for a discussion of certain risks associated with an investment in the
Common Stock. Unless the context otherwise requires, the terms "Concepts Direct"
or the "Company" refer to Concepts Direct, Inc., a Delaware corporation, or,
prior to the 1992 spin-off, the Consumer Products Division of Wiland Services,
Inc. This Prospectus is being used by the Company and the Selling Stockholders
to offer, respectively, 471,404 shares and 1,128,596 shares of Common Stock (the
"Offering"). On February 25, 1997, the Company's Board of Directors declared a
2-for-1 split of the Common Stock. Stockholders of record at the close of
business on March 14, 1997 were entitled to participate in the stock-split,
which was effected in the form of a 100% stock dividend payable on March 31,
1997. All of the share and per share data in this Prospectus has been adjusted
to reflect such stock-split. The information set forth herein assumes an
offering price of $ per share for the Common Stock offered hereby and,
unless otherwise specified, no exercise of the Underwriters' over-allotment
option.
THE COMPANY
Concepts Direct, Inc. (the "Company") is a direct marketer of personalized
labels, paper products, collectibles, gift items, home decorative items and
casual apparel (primarily t-shirts and caps) that are selected and designed
based on the hobbies, interests and lifestyles of its target customers. The
Company markets its merchandise primarily through its three current catalogs,
Colorful Images(R), Linda Anderson(R) and Colorful Images Presents
Impressions(R) ("Impressions"), which are mailed to prospects derived from
rented and exchanged lists and names from its proprietary database. This
database includes customers, gift recipients and catalog requestors and had
grown to over 6,000,000 names at March 31, 1997, including approximately
1,800,000 customers who had purchased in the prior 12 months. The Company uses a
disciplined, analytical approach to marketing and merchandising to target
customers. The Company believes that this approach, together with its direct
marketing expertise, merchandising capabilities and popular consumable products,
have built brand identity and customer loyalty which will serve as a foundation
for future growth.
The Company mailed approximately 43.5 million catalogs in 1996 (excluding
catalogs inserted in product shipments). Colorful Images(R), the Company's
flagship catalog, offers over 900 different styles and themes of personalized
paper products, as well as t-shirts, collectible figurines and other products
that supplement its colorful line of paper products. The Linda Anderson(R)
catalog offers a variety of gifts, home decorative items, casual sweaters and
sweatshirts, typically at higher price points than Colorful Images(R).
Impressions, the Company's third catalog, is dedicated exclusively to
personalized gift items. A large segment of the Company's customers are women
between the ages of 35 and 54. The Company believes that one of the strengths of
its product line is its general appeal to many women.
The Company had record net income of $1.9 million and record net sales of
$51.1 million in 1996, an increase of 129.8% and 21.4% over 1995. This trend
continued in the three month period ended March 31, 1997, when the Company had
record first quarter net income of $673,000 and record first quarter net sales
of $16.0 million, an increase of 153.3% and 37.7% over the three month period
ended March 31, 1996. In addition, net cash provided by operating activities
grew to a record $3.6 million in 1996.
According to the U.S. Census Bureau, the $46 billion mail order industry
has experienced significant growth over the past decade. From 1986 to 1995, the
mail order industry surpassed all other retail sectors in growth with a compound
annual growth rate of 11.3%, compared to 5.5% growth for the total retail
market.
Business Strategy -- The Company's goal is to create, build and operate
multiple direct marketing concepts that profitably sell merchandise to a
targeted customer base. The principal components of its business strategy
include effective marketing to the Company's proprietary database and the use of
list testing and segment analysis to target mailings to prospective customers.
The Company also employs a disciplined approach to merchandise selection and new
product development to eliminate products that do not meet expectations and
replace them with more popular products. These strategies, together with the
Company's
3
<PAGE> 8
emphasis on creative presentation and customer satisfaction, are designed to
promote repeat purchases, including consumable reorders, increased spending and
gift giving.
Growth Strategy -- The Company's growth strategy consists of the following
principal components:
- INCREASE CATALOG CIRCULATION. Total catalogs mailed has increased from
approximately 14.5 million in 1993 to approximately 43.5 million in
1996 (excluding catalogs inserted in product shipments), a 44%
compound annual growth rate. The Company believes that its list
testing strategy, emphasis on evaluation of performance data and
recognition of the long-term value of a new customer have allowed it
to expand circulation, achieve acceptable response rates and enlarge
its proprietary database. As its catalog titles and proprietary
database expands, the Company plans to continue to increase catalog
circulation.
- EXPAND PAGE COUNT AND MERCHANDISE SELECTION. The Company plans to
increase catalog page and product count by introducing new merchandise
and adding products tailored to the tastes of its customers and
prospects. The Company believes this strategy will enhance the appeal
of each catalog and provide additional opportunity for contribution to
net sales.
- INTRODUCE COMPLEMENTARY NEW CATALOG TITLES. The Company believes that
its proprietary database and understanding of the product preferences
of its primary audience will enable it to introduce new catalogs
focused on historically popular product lines such as collectibles and
t-shirts.
- PROMOTE MERCHANDISE FEATURING POPULAR LICENSED CHARACTERS AND
BRANDS. The Company offers personalized labels, collectibles, t-shirts
and gift merchandise featuring popular licensed characters and brands,
including Snoopy(TM) and the other PEANUTS(R) characters,
Coca-Cola(R), Precious Moments(R), Dreamsicles(R) and others. The
Company has customers in its proprietary database who are interested
in licensed or branded merchandise and plans to seek additional
arrangements for such merchandise.
- EXPAND FACILITIES AND OPERATIONAL CAPABILITIES. The Company has broken
ground on a new facility designed to substantially increase its
current operational capacity to approximately 117,000 square feet,
providing space for growth and allowing more efficient operations and
fulfillment functions. The Company plans to continue enhancing its
software, manufacturing and fulfillment systems to support its growth
plans.
The Company believes its past investment in management, systems and its
proprietary database will support the growth of its existing catalogs and the
introduction of new catalogs. The Company currently plans to test at least two
(2) new catalog titles in 1997. These catalogs will feature historically popular
merchandise types and themes and are being designed to capitalize on the
Company's proprietary database. The Company has budgeted less than $1.5 million,
including inventory, to conduct the initial test of two new catalogs.
The Company is a Delaware corporation incorporated in 1992 and is the
continuing operation of the Consumer Products Division of Wiland Services, Inc.,
which merged with Neodata Corporation in September 1992. The Company's executive
offices are located at 1351 South Sunset Street, Longmont, Colorado 80501-6549,
and its telephone number is (303) 772-9171.
4
<PAGE> 9
THE OFFERING
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Common Stock Offered by the Company................................... 471,404 shares(1)
Common Stock Offered by the Selling Stockholders...................... 1,128,596 shares
Common Stock to be Outstanding After the Consummation of the
Offering............................................................ 4,722,286 shares(1)(2)
Use of Proceeds....................................................... Working Capital and
General Corporate
Purposes
Nasdaq SmallCap Market/Proposed Nasdaq National Market Symbol......... CDIR
Risk Factors.......................................................... The Common Stock offered
hereby involves certain
risks. See "Risk
Factors."
</TABLE>
- ---------------
(1) Excludes 240,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Excludes 19,334 shares of Common Stock subject to options exercisable as of
April 1, 1997.
------------------------
Colorful Images(R), Linda Anderson(R) and Colorful Images Presents
Impressions(R) are registered service marks of the Company. The Company plans to
apply for registration of its Linda Anderson's Collectibles(SM) service mark.
Tradenames and trademarks of other companies appearing in this Prospectus are
the property of their respective holders.
5
<PAGE> 10
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- -------------------
1992(1) 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
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STATEMENT OF OPERATIONS DATA:
Net sales.................................. $22,631 $15,936 $20,724 $42,147 $51,126 $11,584 $15,952
Gross profit............................... 8,851 5,876 9,318 19,861 24,292 5,643 7,993
Operating income (loss) from continuing
operations............................... (5,629) (2,543) 1,403 638 2,562 263 951
Income (loss) from continuing operations
before income taxes...................... (5,578) (2,509) 1,490 937 2,808 375 1,052
Income from discontinued operations........ 23,598 -- -- -- -- -- --
Net income (loss).......................... $20,028 $(2,252) $ 1,490 $ 843 $ 1,937 $ 266 $ 673
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share from continuing
operations............................... $ (0.99) $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15
Net earnings (loss) per share.............. $ 5.56 $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15
======= ======= ======= ======= ======= ======= =======
Weighted average number of common shares
and common share equivalents
outstanding.............................. 3,604 3,999 4,323 4,404 4,442 4,442 4,482
======= ======= ======= ======= ======= ======= =======
COMPANY OPERATING DATA:
(EXPRESSED AS PERCENTAGES)
Net sales growth (decline)................. (29.6)% 30.0% 103.3% 21.3% 37.7%
Gross profit growth (decline).............. (33.6) 58.6 113.1 22.3 41.6
Operating profit growth (decline).......... 54.8 155.2 (54.5) 301.6 261.9
Gross margin............................... 36.9 45.0 47.1 47.5 48.7% 50.1
Operating margin........................... (16.0) 6.8 1.5 5.0 2.3 6.0
Net income (loss) margin................... (14.1) 7.2 2.0 3.8 2.3 4.2
SELECTED OPERATING DATA:
Total active customers at period end(2).... 804 1,362 1,644 1,474 1,807
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
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BALANCE SHEET DATA:
Working capital........................................................................... $ 4,503 $
Total assets.............................................................................. 14,061
Long-term debt............................................................................ 0
Lease obligations......................................................................... 0
Total stockholders' equity................................................................ 7,653
</TABLE>
- ---------------
(1) On September 30, 1992, Wiland Services, Inc. ("Wiland") completed a merger
transaction with Neodata Corporation. Wiland had two business divisions:
Consumer Products and Direct Marketing Services. Concepts Direct, Inc.,
formerly the Consumer Products division of Wiland, was created in connection
with the merger and accounting conventions required that Concepts Direct be
treated as the continuing operation. For financial reporting purposes, the
operations of the Direct Marketing Services division of Wiland are treated
as discontinued operations of Concepts Direct, Inc.
(2) "Active customers" is defined as database records on customers who have
purchased merchandise from the Company one or more times within the 12
months preceding the end of the period indicated.
(3) Adjusted to reflect the sale by the Company of 471,404 shares of Common
Stock offered hereby at an assumed price of $ per share, less
estimated underwriting discounts and offering expenses payable on a pro-rata
basis by the Company and Selling Stockholders.
6
<PAGE> 11
RISK FACTORS
The following principal risk factors should be considered carefully in
addition to the other information contained in this Prospectus before purchasing
the Common Stock offered hereby. This Prospectus contains forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results could differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
sections entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Prospectus.
RELIANCE ON CATALOG OPERATIONS; COLORFUL IMAGES(R) CATALOG
The Company's net sales and net income depend on its catalog operations.
Response rates to the Company's mailings have fluctuated and can be affected by
many factors, including consumer preferences, economic conditions, the timing of
catalog mailings, the catalog's merchandise mix, mailing lists utilized and the
Company's ability to respond to and process orders in a timely manner, some of
which are outside the Company's control. Any inability of the Company to target
accurately the appropriate prospects and customers, to achieve adequate response
rates or to process orders effectively could result in lower sales, markdowns or
write-offs of inventory, increased merchandise returns and lower margins, and
thus could adversely affect the Company's net sales and net income. Catalog
mailings also entail substantial costs for postage, paper, and printing,
virtually all of which costs are incurred prior to the mailing of each catalog.
Costs to stock a portion of the merchandise inventory needed to fulfill orders
are also incurred before actual orders from a mailing are known. Thus, the
Company has limited ability to adjust the costs for a particular mailing to
reflect the performance of that mailing. If, for any reason, the Company were to
experience a significant shortfall in revenue from a particular mailing, the
Company's financial condition and results of operations would be adversely
affected.
The Company's first catalog, Colorful Images(R), is the only catalog among
the Company's offerings that has been successful over a sustained period of
time. It accounted for over 90% of Company sales in 1996. The newer Company
catalog titles, Linda Anderson(R) and Impressions, are at earlier stages of
development and, while the Company believes they show promise, there can be no
assurance that they or any planned catalogs or other marketing or distribution
strategies the Company may develop will be successful.
RISKS ASSOCIATED WITH GROWTH STRATEGY
The Company believes its growth to date has been attributable in part to
the Company's ability to expand its proprietary database. The Company's growth
strategy involves various risks, including a high degree of reliance on prospect
mailings, which typically have less favorable response rates than customer
mailings. In addition, there can be no assurance that the Company will be able
to continue to identify and offer new merchandise that appeals to its customer
base and prospects, or that the introduction of new marketing or distribution
strategies, such as new catalog titles or other offers, will achieve acceptance
in the marketplace. The failure of the Company to sustain the growth of catalog
sales, to increase its proprietary database, to maintain its customer or
prospect response rates or to successfully introduce new catalog titles and
merchandise lines could adversely affect the Company's financial condition and
results of operations.
The Company's ability to pursue its growth strategy also depends on its
ability to manage a larger business. Managing growth will require the Company to
continue to implement and improve its operations and financial and management
information systems and to continue to expand, motivate and effectively manage
its workforce. As the Company's sales increase, the Company will be required to
maintain higher inventories to provide satisfactory order fulfillment to its
customers. This increase in inventory levels may expose the Company to greater
risk of excess inventory.
The Company's ability to pursue its growth strategy depends on its ability
to successfully increase the size of its operation by relocating to a larger
facility. Any difficulty in such relocation could adversely affect the Company's
business. See "-- Relocation of Company's Operations; Risk of Disaster." In
addition, there can
7
<PAGE> 12
be no assurance that improvements or expansions in the Company's information
systems, telephone systems, order fulfillment functions or related facilities or
operations will increase the productivity of the Company or that such changes
will meet the future needs of the Company. Continued growth could strain the
Company's management, financial, merchandising, marketing, order fulfillment,
distribution and other resources. The Company may experience operating
difficulties, including difficulties in training and managing an increasing
number of employees (many of whom have historically been temporary or part
time), in sourcing and managing inventory, in obtaining sufficient materials and
manufacturing capacity to produce its merchandise and in upgrading its
management information systems. The Company may also experience difficulties
related to loss of business if it fails to respond to customer inquiries or
process customer orders in an efficient and timely manner, or experiences delays
in operations, production or shipment. Failure to manage growth effectively
could adversely affect the Company's financial condition and results of
operations. See "Reliance on Information Systems -- Potential Disruptions" and
"Business -- Growth Strategy."
DEPENDENCE ON PRIMARY PRODUCT LINES
The Company initially sold only personalized self-adhesive labels but has
added new product lines during the past several years, including other paper
products, such as note pads, calling cards, memo cubes and Christmas cards, and
a selection of non-paper merchandise, including collectibles, gift items, home
decorative items and casual apparel (primarily t-shirts and caps). While the
percentages of total sales derived from personalized paper products has declined
in 1994, 1995 and 1996 to 74%, 65% and 59%, paper products, of which labels
remain the principal sales contributor, continue to be the Company's primary
product line. Margins achieved by the Company on paper products, particularly
its labels, are typically substantially higher than the margins achieved on its
other products and overall margins may decline with changes in the merchandise
mix. While the Company believes it has been successful to date in introducing
supplemental product lines, there can be no assurance that it will continue to
be able to identify and offer new merchandise that appeals to its customers and
prospects. Any decrease in sales or margins on paper products, or the rate of
growth of such sales, may have a disproportionately adverse effect on the
Company's financial condition and results of operations.
ABILITY TO FURTHER DEVELOP PROPRIETARY CUSTOMER DATABASE
The Company mails catalogs to names from its proprietary database and to
prospects whose names are obtained from exchanged and rented lists.
Approximately half of the catalogs mailed by the Company in 1996 were sent to
names from exchanged or rented lists, and the Company anticipates continuing the
use of such lists, possibly in larger proportion to total mail volume than was
the case in 1996. Mailings to exchanged or rented lists usually generate lower
response rates than mailings to recent Company customers. The Company
anticipates that overall response rates may decline if it increases its use of
exchanged and rented lists relative to its use of names from its proprietary
database. The Company's growth strategy necessitates the expansion of its
proprietary database and is dependent on prospecting for new customers through
the use of exchanged and rented lists. If the Company is not successful in
prospecting, its response rates from mailings to names from its proprietary
database could decrease, which may have an adverse effect on the Company's
financial condition and results of operations. No assurances can be given that
the Company will continue to have access to rented and exchanged lists, or that
such lists will be available on terms that are acceptable to the Company.
POSTAGE, PAPER AND PRINTING COSTS ASSOCIATED WITH THE DISTRIBUTION OF CATALOGS
AND MERCHANDISE
Postage, paper and printing costs typically represent more than 75% of the
total cost of producing and distributing the Company's catalogs. In addition,
the Company ships its merchandise to customers via the United States Postal
Service and other carriers. Postage and carrier prices increase periodically and
can be expected to increase in the future. The last major U.S. postage rate
increase became effective January 1, 1995 and increased standard class postage
rates for mailing the Company's catalogs approximately 14%. Based on trade
reports, the Company believes that a standard class rate increase within the
next 12 to 18 months is likely. Any increase in postage or shipping rates may
adversely affect the Company's financial condition and
8
<PAGE> 13
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Paper costs associated with production of Company catalogs have fluctuated
significantly as market prices for such paper have been volatile, and the
Company has not always been able to predict future paper prices or negotiate
fixed rates for specified periods of time. In addition, the paper used to
produce the Company's paper products is obtained from several sources, and the
rates on this paper are also sometimes volatile. In some cases, the Company has
been able to avoid cost increases on this type of paper due to good vendor
relationships, but no long term price agreements exist. Printing costs on a unit
basis have been relatively stable recently but may increase in the future. Any
future increases in paper or printing costs for the Company's catalogs or paper
products may adversely affect the Company's financial condition and results of
operations.
Higher postage, paper or printing expenses would increase the Company's
cost of doing business. The Company may not be able to pass such increased costs
on to its customers through increased prices for its products. In addition, to
the extent that the Company attempts to offset such increases through reductions
in the circulation of one or more catalog titles either by reducing the number
of editions distributed per year or the number of pages, or both, or reducing
the number of catalogs mailed, the Company's growth strategy would be adversely
affected. See "Business -- Growth Strategy."
RELIANCE ON KEY VENDORS
The Company relies on a limited number of vendors to produce its label
stock and print its catalogs and paper products. The Company believes
alternative sources are available, but any significant cost increase or
inability to obtain raw materials or merchandise could adversely affect the
Company's financial condition and results of operations.
RELOCATION OF COMPANY'S OPERATIONS; RISK OF DISASTER
The Company's success depends, to a large degree, on efficient and
uninterrupted operation of its facilities. While the Company believes the
facilities it currently occupies are well maintained and in good operating
condition, the Company needs additional space to handle anticipated sales volume
increases. The Company is currently constructing a new, substantially larger
facility in Longmont, Colorado and plans to move all of its production,
administrative and operations functions into this facility by September 1997. If
the Company is not able to relocate by the end of August 1997, the Company will
need to either extend the lease of its existing headquarters and lease temporary
space or make alternative arrangements in order to accommodate anticipated
fourth quarter volume. The landlord of the current facility has verbally
indicated that it will cooperate if a suitable replacement tenant has not been
located and the Company needs to extend its current lease. The landlord, to
date, has not been willing to sign an extension option. If construction of the
new facility is late and the current landlord will not agree to a lease
extension, a significant dispute or business disruption may occur. Any such
event or decrease in the Company's efficiency, especially at a time of year when
it historically has received a significant portion of its orders and related
annual net sales, could adversely affect the Company's business. See
"Business -- Properties."
If a natural or other disaster were to destroy or significantly damage the
Company's one major facility, the Company would need to obtain alternative
facilities and additional inventory to conduct its operations, significantly
increasing costs and resulting in delays in the fulfillment of customer orders.
While the Company maintains business interruption insurance, such insurance may
not be adequate to cover damage to the Company, including lost goodwill with its
customers.
RELIANCE ON INFORMATION SYSTEMS; POTENTIAL DISRUPTIONS
The Company processes a large volume of relatively small orders. The
Company's business depends on the effective operation of its management
information and telecommunications systems. Any material disruption or slowdown
in the Company's order processing or fulfillment systems resulting from the
relocation of the Company's operations, strikes or labor disputes, telephone
down times, electrical outages, mechanical
9
<PAGE> 14
problems, human error or accidents, fire, natural disasters, adverse weather
conditions or other events could cause delays in the Company's ability to
receive and distribute orders and may cause orders to be lost or to be shipped
or delivered late. In the event the Company is unable to provide prompt,
accurate and complete service to its customers on a competitive basis, the
Company may lose repeat orders, and customers may cancel orders or return goods
which could result in a reduction of net sales and increased administrative and
shipping costs.
In August 1995, the Company installed a new, internally-developed software
system and began retraining most employees to operate the new system. This
retraining, in conjunction with certain problems with the new software, led to a
low telephone answer rate and other service problems during the third and fourth
quarters of 1995 which in turn negatively affected the Company's financial
performance. Difficulty in implementing the operations software systems resulted
in delayed shipments and correspondingly high backlog during the last half of
1995. During the fourth quarter of 1996, the new software met management's
expectations and processed actual sales which exceeded Company projections.
However, as a result of Company sales exceeding projections, the Company had a
shortage of personnel to process orders, leading temporarily to high backlogs.
There can be no assurance similar problems will not occur in the future. As the
Company's strategies depend in part on maintaining a reputation for good
customer service, any impairment of its customer service reputation could result
in lost orders and adversely affect the Company's business.
The Company attempts to deliver its catalogs to its customers at timely
intervals and in appropriate seasons and relies heavily on the United States
Postal Service and others to do so. Failure to deliver Company mailings at
scheduled times, whether due to postal delays, printing delays, disruptions in
the mailing of catalogs or other factors, could affect demand for the Company's
products and could adversely affect its business. See "Business -- Customer
Service."
COMPETITION
The markets for the Company's merchandise are highly competitive. The
opportunities in these markets have encouraged the entry of new competitors as
well as increased competition from established companies. The Company competes
with direct marketers, catalog retailers, direct mailers, retail stores and
others. Sales of apparel, gift items and home decorative items through home
television shopping networks or other electronic media, such as the Internet,
could provide additional sources of competition for the Company in the future.
Within each merchandise category the Company has significant competitors and may
face new competition from new entrants or existing competitors who focus on
market segments currently served by the Company. Many competitors are larger and
have significantly greater financial, marketing and other resources than the
Company. Increased catalog mailings by the Company's competitors may adversely
affect response rates to the Company's own catalog mailings. Because the Company
currently sources most of its paper products and other merchandise from
suppliers, distributors and manufacturers located in the United States, where
labor and production costs may be higher than in some foreign countries, there
can be no assurance that the Company's merchandise can be competitively priced
with merchandise offered by competitors whose sourcing is primarily from abroad.
There can be no assurance that the Company will be able to maintain or increase
its market share in the future. The failure of the Company to compete
successfully could adversely affect the Company's business. See
"Business -- Competition."
DEPENDENCE ON SIGNIFICANT LICENSE RIGHTS AND BRANDED MERCHANDISE
The Company has purchased or licensed rights to certain artwork used in its
products. In addition, the Company purchases brand name merchandise and has
licensed certain rights on a royalty basis from leading companies. Trademarked
merchandise currently appearing in the Company's catalogs include PEANUTS(R),
Boyd's Bears(R), Dreamsicles(R), Coca-Cola(R), Looney Tunes(R), Warner Bros(R)
and others. While the Company believes that these products will continue to be
available to the Company, there can be no such assurance. Licensed rights are
generally short-term, and the potential for renewals is beyond the Company's
control. Brand name merchandise may or may not continue to be available to the
Company. If the Company were unable to offer a significant portion of such
products and merchandise, the Company's business could be adversely affected.
10
<PAGE> 15
In the past, third parties have asserted that the Company has offered
products in violation of the intellectual property rights of others. In certain
instances, the Company ceased selling those products as a result of such
assertions. To date, the Company has not agreed to pay, nor been required to
pay, any damages as a result of such claims. The Company's procedures for
determining whether third parties have rights with respect to any particular
product are limited and may not always reveal all rights of others. No assurance
can be given that the Company will not be required to cease selling products
that have been profitable for the Company, or that the Company will not be
obligated to make payments to third parties as a result of the Company
infringing the rights of others.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is dependant, to a large extent, upon
the efforts and abilities of its key employees, particularly Phillip A. Wiland
(Chairman and Chief Executive Officer), J. Michael Wolfe (President and Chief
Operating Officer) and several other senior staff members of the Company. The
loss of one or more of its key employees could adversely affect the Company. The
Company's future success will also depend on its ability to employ additional
qualified senior management. In addition, the low unemployment rate in the area
where the Company is located may make it difficult to hire the employees
required to support the Company's further growth. There can be no assurance that
the Company will be successful in attracting or retaining additional qualified
personnel. See "Management" and "Business."
MERCHANDISE RETURNS AND REFUNDS
The Company emphasizes customer service and has a return policy intended to
assure customer satisfaction. The retail value of refunds and merchandise
replacements issued under the return policy in 1996 and 1995 was approximately
5.8% and 7.0% of net sales. The Company makes allowances in its financial
statements for anticipated merchandise returns and refunds based on historical
return rates. There can be no assurance that actual merchandise returns or
refunds will not exceed the Company's allowances. In addition, because the
Company's allowances are based on historical rates, there can be no assurance
that the introduction of new merchandise in existing catalogs or the
introduction of new catalogs, changes in the merchandise mix or other factors
will not cause actual returns or refunds to exceed return allowances. The
Company's growth strategy contemplates the introduction of new catalogs which
will offer primarily non-paper merchandise. The Company's historical return and
refund rates for apparel, gifts, collectibles and home furnishings products have
been higher than its return and refund rates for its personalized labels and
other paper products. Consequently, as the Company expands its merchandising
efforts, it anticipates that its overall return and refund rate may also
increase. Any significant increase in merchandise returns or merchandise refunds
that exceed the Company's historic allowances could adversely affect the
Company's business. See "Business -- Growth Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's results of operations have fluctuated and can be expected to
continue to fluctuate as a result of a number of factors including, among other
things, seasonal fluctuations in response rates, fluctuations in postage, paper,
printing and production costs, the timing of new merchandise and catalog
offerings, merchandise returns, adverse weather conditions that affect
distribution or shipping and shifts in the timing of certain holidays. In
addition, the Company recognizes costs of catalog development and production as
sales are realized (such recognition not to exceed twelve months with most costs
amortized in the first three months after a catalog is distributed).
Consequently, quarter to quarter revenue and expense comparisons will be
impacted by the timing of the mailing of the Company's catalogs. Catalog mailing
dates may occur in different quarters from year to year depending on the
performance of third party couriers, the date of certain holidays and the
Company's assessment of market opportunities. A portion of the revenue from any
catalog mailing is recognized in quarters after the quarter in which the catalog
was mailed and, depending on the exact time a particular catalog offering is
mailed in a given year, the revenue from such catalog offering may be recognized
in a quarter different from when revenue was recognized in the previous year
from an otherwise
11
<PAGE> 16
comparable catalog offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
The Company's business is seasonal. Historically, a substantial portion of
the Company's net sales and net income have been realized during its fourth
quarter. If, for any reason, the Company's net sales are substantially below
those normally expected during this quarter, the Company's annual results would
be adversely affected. In anticipation of increased sales activity during the
fourth quarter, the Company incurs significant additional expenses, including
costs associated with increasing inventory and the hiring of a substantial
number of employees to supplement its staff. If the Company underestimates or
overestimates orders, particularly in the fourth quarter, it may incur inventory
shortages or write-offs that are higher than historical rates. No assurances can
be given that an adequate supply of employees will be available to satisfy the
Company's seasonal needs, or that the Company will be able to accurately predict
its seasonal personnel needs. In the event the Company overestimates its
personnel needs, the Company would incur unnecessary costs and an erosion in its
net income. If for any reason the Company is unable to respond and process
orders, the Company could not only lose orders but could lose goodwill with
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CHANGING CONSUMER PREFERENCES; GENERAL ECONOMIC CONDITIONS
The Company's future success depends in part on its ability to anticipate
and respond to changes in consumer preferences. No assurance can be given that
the Company will respond in a timely or commercially appropriate manner to such
changes. Failure to anticipate and respond to changing consumer preferences
could lead to, among other things, lower sales of the Company's products,
significant markdowns or write-offs of inventory, increased merchandise returns,
and lower margins. The Company's business is sensitive to changes in customers'
spending and discretionary income patterns which, in turn, are controlled in
part by economic conditions. Adverse economic conditions in any area of the
United States could have a material adverse effect on the Company's financial
condition and results of operations.
LIMITED HISTORICAL TRADING VOLUME; POSSIBLE VOLATILITY
While the Common Stock has been publicly traded since the Company's
spin-off from Wiland Services, Inc., the Common Stock has experienced low
trading volumes due, in part, to the substantial holdings by executive officers,
members of the Board of Directors and greater than 5% stockholders who
collectively have held a significant portion of the outstanding shares.
Following the Offering, approximately 36.5% of the shares (34.7% assuming
exercise of the overallotment option) will be held by the Company's executive
officers and members of the Board of Directors. The spread between the bid and
asked prices for the Common Stock on the Nasdaq SmallCap Market has been quite
significant, generally greater than 10%. As of April 28, 1997, the bid was
$19.25 and the asked was $23.50. Although the Company anticipates that the
increased stockholder base resulting from the Offering will result in a smaller
spread between the bid and asked prices and a more active market, no assurance
can be given that an active trading market will develop or continue following
the Offering.
In addition, even if a more active trading market does develop, no
assurance can be given that the market price for the Company's Common Stock will
not be volatile. The market price for the Common Stock may be significantly
affected by a variety of factors, including a relatively high price to earnings
ratio, the Company's operating results, changes in any earnings estimates
publicly announced by the Company or by securities analysts, announcements of
new merchandise offerings by the Company or its competitors and seasonal effects
on sales. In addition, the Nasdaq Stock Market and the Common Stock have
historically experienced a high level of price and volume volatility. Wide price
fluctuations may not necessarily be related to the operating performance of the
Company. Future sales of Common Stock by the Company's existing stockholders
following the completion of the Offering and the expiration of the one year
lock-up period referred to in "Shares Eligible For Future Sales; Possible
Reduction of Stock Price" below could also have an adverse effect on the market
price of the Common Stock. For these and other reasons, there can be no
assurance the market price of the Common Stock will not decline below the public
offering price. See "Shares Eligible for Future Sale; Possible Reduction of
Stock Price" and "Underwriting."
12
<PAGE> 17
The market price of the Common Stock is currently at or near an all-time
high. Although the market price for the Common Stock has increased significantly
over the past few years, there can be no assurance the market price of the
Common Stock will continue to increase in the future. See "Price Range of Common
Stock."
COLLECTION OF STATE SALES TAXES
At present, the Company does not collect sales taxes or other similar taxes
with respect to shipments of goods into most states and believes that it is not
required to do so. However, various states have sought to impose on mail order
companies the burden of collecting state sales or use taxes on the sale of
merchandise shipped to that state's residents. The U.S. Supreme Court has held
that the states, absent Congressional legislation, may not impose tax collection
obligations on an out-of-state mail order company whose only contacts with the
taxing state are the distribution of catalogs and other advertisement materials,
and whose subsequent delivery of purchased goods is by mail or interstate common
carriers. While some cases have concluded that greater contact between
out-of-state mail order companies and a particular state support the required
collection of sales taxes, the Company believes that its only contact with
states where it does not currently collect sales tax is the distribution of
catalogs and advertising materials and shipment of orders to customers. If
Congress enacts legislation imposing an increased state sales tax burden on the
Company or if the Company otherwise becomes subject to collection of additional
sales or use tax, the imposition of additional tax collection obligations could
adversely affect the Company's business.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE REDUCTION OF STOCK PRICE
Assuming the Underwriters do not exercise the over-allotment option,
following the Offering the Company will have outstanding 4,722,286 shares of
Common Stock. Of such shares, the 1,600,000 shares of Common Stock offered
hereby will be freely tradeable. Of the 3,122,286 remaining shares, 1,729,094
will be held by Phillip A. Wiland (the Company's Chairman of the Board and Chief
Executive Officer), J. Michael Wolfe (the Company's President and Chief
Operating Officer) and certain other officers and members of the Company's Board
of Directors who, together with the Company, have agreed not to sell, contract
to sell, or otherwise dispose of any shares of Common Stock without the consent
of Underwriters for a period of one year after the date of this Prospectus. Upon
expiration of such agreements, all of such shares will be freely eligible for
sale in the public markets or eligible for sale in accordance with Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
Sales of substantial amounts of Common Stock in the public market following the
Offering (including shares issued upon the exercise of stock options) by current
holders of the Company's Common Stock and stock options, or the perception that
such sales might occur, could also adversely affect the market price of the
Common Stock. See "Description of Capital Stock," "Management" and
"Underwriting."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company expects to use the net proceeds it receives from the Offering
primarily for working capital and general corporate purposes. Since the Company
has no current specific plan for this portion of the proceeds of the Offering,
management will have broad discretion over the use of the proceeds.
CONTROL OF THE COMPANY
Upon completion of the Offering, 27.8% of the Company will be beneficially
owned by Phillip A. and Linda S. Wiland and 36.5% will be beneficially owned by
the directors and executive officers of the Company as a group (26.5% and 34.7%,
respectively, if the over-allotment option is exercised). By virtue of these
holdings, Mr. and Mrs. Wiland alone, as well as the directors and executive
officers as a group, will be able to exert substantial influence over actions
requiring consent of the Company's stockholders. If the directors and executive
officers were to act in concert, and if less than 73% of the total outstanding
shares of the Company were present in person or by proxy at an appropriate
stockholders' meeting, they would be able to elect all of the Company's
directors, effect certain other corporate transactions requiring stockholder
approval and generally direct the affairs of the Company (although not
transactions which would increase the Company's
13
<PAGE> 18
authorized capital stock, dissolve, merge or sell the assets of the Company, or
effect other fundamental corporate transactions). Such degree of control by
these individuals may discourage certain types of transactions involving an
actual or potential change of control of the Company, including transactions in
which the holders of Common Stock might receive a premium for their shares over
prevailing market prices.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 471,404 shares of
Common Stock offered hereby by the Company are expected to be approximately
$ ($ if the Underwriters' over-allotment option is exercised
in full), assuming a public offering price of $ per share and after
deducting estimated underwriting discounts, commissions and offering expenses
payable on a pro rata basis by the Company and Selling Stockholders.
The Company intends to use the net proceeds of the Offering primarily for
working capital and general corporate purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company will not receive any proceeds from the sale of
the Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders." Pending use of the proceeds, the Company intends to invest the
net proceeds from the Offering in short-term, interest-bearing, investment grade
securities.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) on an actual basis and (ii) on an as adjusted basis to
reflect the receipt and application of the net proceeds from the sale of 471,404
shares of the Common Stock offered by the Company hereby at an assumed public
offering price of $ per share. The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements, related notes and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................... $3,355 $
======= ========
Long-term debt.......................................................... $ -- $
Capitalized lease obligations........................................... --
Stockholders' equity
Common Stock, $.10 par value; authorized 6,000,000 shares; issued and
outstanding 4,250,882 and 4,722,286, actual and as adjusted........ 425
Additional paid-in capital............................................ 4,172
Retained earnings..................................................... 3,056
------- --------
Total stockholders' equity....................................... 7,653
------- --------
Total capitalization........................................ $7,653 $
======= ========
</TABLE>
15
<PAGE> 20
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its shares of
Common Stock because it intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other factors that the Company's Board
of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"CDIR." The Company has applied to have the Common Stock traded on the Nasdaq
National Market under the same symbol. On , 1997, the last sale
price of the Common Stock was $ per share. The following table sets
forth, for the periods indicated, the range of high and low bid and asked
quotations for the Company's Common Stock as reported by the National
Association of Securities Dealers, Inc. On , 1997, there were
approximately stockholders of record and beneficial holders of the
Common Stock.
The following prices reflect a 2-for-1 stock split in the form of a 100%
stock dividend paid on March 31, 1997 to stockholders of record on March 14,
1997. The quotations represent prices between dealers and do not include retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions. While the Common Stock has been publicly traded since the
Company's spin-off from Wiland Services, Inc., the Common Stock has experienced
low trading volumes due, in part, to the substantial holdings by executive
officers, members of the Board of Directors and greater than 5% stockholders who
collectively have held a significant portion of the outstanding shares. The
spread between the bid and asked prices for the Common Stock on the Nasdaq
SmallCap Market has been quite significant, generally greater than 10%. In
addition, even if a more active trading market does develop, no assurance can be
given that the market price for the Company's Common Stock will not be volatile.
See "Risk Factors -- Limited Historical Trading Volume; Possible Volatility."
<TABLE>
<CAPTION>
HIGH LOW
-------------------- --------------------
BID ASKED BID ASKED
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter............................................. $ 4 1/4 $ 5 $ 2 1/2 $ 3
Second Quarter............................................ 4 4 7/8 3 1/2 4 3/8
Third Quarter............................................. 4 7/8 5 3/4 4 4 7/8
Fourth Quarter............................................ 6 5/8 7 3/8 4 7/8 5 3/4
YEAR ENDED DECEMBER 31, 1996
First Quarter............................................. 10 1/4 10 7/8 6 3/8 7 3/8
Second Quarter............................................ 10 1/4 11 1/4 9 9 7/8
Third Quarter............................................. 9 1/2 10 1/4 8 9
Fourth Quarter............................................ 9 1/4 10 1/4 8 1/2 9 1/2
YEAR ENDING DECEMBER 31, 1997
First Quarter............................................. 17 1/2 20 1/2 9 1/4 10 1/4
Second Quarter (through April 28, 1997)................... 19 1/4 23 1/2 17 22
</TABLE>
16
<PAGE> 21
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
The following selected financial and operating data (except for "Company
Operating Data" and "Selected Operating Data") for the five years ended December
31, 1996 are derived from the financial statements of the Company which have
been audited by Ernst & Young LLP, independent auditors. The financial and
operating data for the three month periods ended March 31, 1997 and 1996 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting only of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the three
months ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1997. The data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements, related
notes, and other financial information included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- -----------------
1992(1) 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $22,631 $15,936 $20,724 $42,147 $51,126 $11,584 $15,952
Operating costs and expenses
Cost of product and delivery.................. 13,780 10,060 11,406 22,286 26,834 5,941 7,959
Selling, general and administrative........... 14,480 8,419 7,915 19,222 21,730 5,380 7,042
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) from continuing
operations.................................... (5,629) (2,543) 1,403 638 2,562 263 951
Other income, net............................... 50 34 87 298 246 112 101
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations before
income taxes.................................. (5,578) (2,509) 1,490 937 2,808 375 1,052
Provision (credit) for income taxes............. (2,008) (257) -- 94 871 109 379
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations........ (3,570) (2,252) 1,490 843 1,937 266 673
Income from discontinued operations............. 23,598 -- -- -- -- -- --
Net income (loss)............................... $20,028 $(2,252) $ 1,490 $ 843 $ 1,937 $ 266 $ 673
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share from continuing
operations.................................... $ (0.99) $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15
Earnings per share from discontinued
operations.................................... $ 6.55 -- -- -- -- -- --
Net earnings (loss) per share................... $ 5.56 $ (0.56) $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15
======== ======== ======== ======== ======== ======== ========
Weighted average number of common shares and
common share equivalents outstanding.......... 3,604 3,999 4,323 4,404 4,442 4,442 4,482
======== ======== ======== ======== ======== ======== ========
COMPANY OPERATING DATA:
Net sales growth (decline)...................... (29.6)% 30.0% 103.3% 21.3% 37.7%
Gross profit growth (decline)................... (33.6) 58.6 113.1 22.3 41.6
Operating profit growth (decline)............... 54.8 155.2 (54.5) 301.6 261.9
Gross margin.................................... 36.9 45.0 47.1 47.5 48.7% 50.1
Operating margin................................ (16.0) 6.8 1.5 5.0 2.3 6.0
Net income (loss) margin........................ (14.1) 7.2 2.0 3.8 2.3 4.2
SELECTED OPERATING DATA:
Total active customers at period end(2)......... 804 1,362 1,644 1,474 1,807
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
AT DECEMBER 31, -----------------------
---------------------------------------------------- AS
1992(1) 1993 1994 1995 1996 ACTUAL ADJUSTED(3)
------- ------ ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $3,550 $1,962 $3,211 $3,889 $ 5,925 $ 4,503 $
Total assets................................. 8,436 5,047 8,294 9,924 14,487 14,061
Long-term debt............................... -- -- -- -- -- --
Lease obligations............................ 207 155 160 67 -- --
Total stockholders' equity................... 4,064 2,681 4,172 5,024 6,969 7,653
</TABLE>
- ---------------
(1) On September 30, 1992, Wiland Services, Inc. ("Wiland") completed a merger
transaction with Neodata Corporation. Wiland had two business divisions:
Consumer Products and Direct Marketing Services. Concepts Direct, Inc.,
formerly the Consumer Products division of Wiland, was created in connection
with the merger and accounting conventions required that Concepts Direct be
treated as the continuing operation. For financial reporting purposes, the
operations of the Direct Marketing Services division of Wiland are treated
as discontinued operations of Concepts Direct, Inc.
(2) "Active customers" is defined as database records on customers who have
purchased merchandise from the Company within the 12 months preceding the
end of the period indicated.
(3) Adjusted to reflect the sale by the Company of 471,404 shares of Common
Stock offered hereby at an assumed price of $ per share, less
estimated underwriting discounts and offering expenses payable on a pro-rata
basis by the Company and Selling Stockholders.
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Through its three current catalogs, Colorful Images(R), Linda Anderson(R)
and Colorful Images Presents Impressions(R), the Company markets personalized
labels, paper products, collectibles, gifts, home decorative items and casual
apparel (primarily t-shirts and caps). The Company also markets its products, to
a much lesser extent, through other media such as newspaper free standing
inserts and co-op mailings. The Company uses a disciplined, analytical approach
to marketing and merchandising to target its customers. It believes that this
approach together with its direct marketing expertise, merchandising
capabilities and popular consumable products have built strong brand identity
and customer loyalty which will serve as a foundation for future growth.
The Company believes its net sales growth of 103% from 1994 to 1995, 21%
from 1995 to 1996, and 38% from the three month period ended March 31, 1996 to
the three month period ended March 31, 1997 is attributable to a variety of
factors. Between January 1, 1995 and December 31, 1996, the Company increased
its proprietary database of active customers from approximately 800,000 names to
approximately 1,600,000 names, a compound annual growth rate of 41.4%. The
Company believes its growth is attributable primarily to increases in the amount
of merchandise offered in its catalogs and to improvements in the Company's
merchandise selection, creative presentation, database management and list
segmenting techniques.
The Company's business is seasonal, with a disproportionate percentage of
its net sales generated in the fourth quarter. During the fourth quarter of
1995, net sales were adversely affected by the installation of new software.
Initially, the new software caused delays in order processing and the Company
missed orders. During the fourth quarter of 1996, the new software met
management's expectations and actual sales exceeded company projections. As a
result of Company sales exceeding projections, the Company had a shortage of
personnel to process orders. Consequently, some order shipments were delayed and
some potential phone orders were never received.
In January 1997, the Company purchased 139 acres of undeveloped land in
Longmont, Colorado, and a new facility which is substantially larger than its
current facility is currently being constructed on approximately 11 of the 139
acres. The Company intends to hold the remaining land for sale or expansion. The
new building is intended to house its production, administrative and warehouse
functions. The Company plans to move into this facility by September 1997.
Revenues from sales of products are recognized upon shipment. Deferred
advertising costs, which consist primarily of expenses incurred for printing and
distributing advertising materials, primarily catalogs, are included in selling,
general and administrative expenses. These expenses are deferred for financial
reporting purposes until the advertising materials are distributed, then
amortized over periods of time (not to exceed twelve months with most costs
amortized in the first three months after distribution) estimated to approximate
the periods during which related sales occur.
On February 25, 1997, the Board of Directors authorized the issuance of a
2-for-1 stock-split to be effected in the form of a 100% stock dividend payable
March 31, 1997 to stockholders of record on March 14, 1997. Additionally, in
1994 the Board of Directors authorized the issuance of a 2-for-1 stock-split to
be effected in the form of a 100% stock dividend payable December 15, 1994 to
stockholders of record on November 14, 1994. Historical share and per share data
have been adjusted to reflect the effect of these stock-splits.
18
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
income statement data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product and delivery..................... 55.0 52.9 52.5 51.3 49.9
----- ----- ----- ----- -----
Gross profit..................................... 45.0 47.1 47.5 48.7 50.1
Selling, general and administrative expense...... 38.2 45.6 42.5 46.4 44.1
----- ----- ----- ----- -----
Operating income................................. 6.8 1.5 5.0 2.3 6.0
Other income, net................................ 0.4 0.7 0.5 1.0 0.6
----- ----- ----- ----- -----
Income before income taxes....................... 7.2 2.2 5.5 3.3 6.6
----- ----- ----- ----- -----
Provision for income taxes....................... -- 0.2 1.7 1.0 2.4
Net income....................................... 7.2% 2.0% 3.8% 2.3% 4.2%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales increased by $4.4 million, or 37.7%, to $16.0 million for the
first quarter of 1997 from $11.6 million for the same period of 1996. This
increase resulted primarily from the distribution of a greater number of
catalogs and other advertising media, increased page count of the catalogs and
an increase in the number of products offered. Increased sales were also
attributable to improved catalog response rates.
Gross profit increased by $2.4 million, or 41.6%, to $8.0 million for the
first quarter of 1997 from $5.6 million for the same period of 1996. Gross
profit increased as a percentage of net sales to 50.1% for the first quarter of
1997 from 48.7% for the same period of 1996. The increase in gross profit as a
percentage of net sales occurred primarily because of improved efficiencies of
operations and higher sales over which to spread fixed costs associated with
production and delivery.
Selling, general and administrative expense increased $1.6 million, or
30.9%, to $7.0 million for the first quarter of 1997 from $5.4 million for the
same period of 1996. Selling, general and administrative expense decreased as a
percentage of net sales to 44.1% for the first quarter of 1997 from 46.4% for
the same period of 1996. The decrease resulted primarily from improved response
to Company advertising, lower paper costs related to catalog preparation and
distribution and increased sales over which to spread relatively fixed costs.
Operating income increased by $688,000, or 261.9%, to $951,000 for the
first quarter of 1997 from $263,000 for the same period of 1996. Operating
income increased as a percentage of net sales to 6.0% for the first quarter of
1997 from 2.3% for the same period of 1996. Other income, primarily interest
income and vendor payment discounts, was $101,000 for the first quarter of 1997
compared to $112,000 for the same period of 1996.
The provision for income taxes amount for the first quarter of 1997 was
$379,000 as compared to $109,000 in the first quarter of 1996. The income tax
rate was 36% in the first quarter of 1997 as compared to 29% in the same period
of 1996 because of the availability of research and development tax credits in
the first quarter of 1996.
Net income increased by $407,000, or 153.3%, to $673,000 for the first
quarter of 1997 from $266,000 for the same period of 1996. Net income increased
as a percentage of net sales to 4.2% in the first quarter of 1997 from 2.3% in
the same period of 1996. Earnings per share increased $0.09, or 150.0%, to $0.15
for the first quarter of 1997 from $0.06 for the same period of 1996.
19
<PAGE> 24
YEAR ENDED 1996 COMPARED TO YEAR ENDED 1995
Net sales increased by $9.0 million, or 21.3%, to $51.1 million in 1996
from $42.1 million in 1995. This increase resulted primarily from the
distribution of a greater number of catalogs and other advertising media,
increased page count of the catalogs and a greater number of products offered.
Increased sales are also attributable to improved response rates.
Gross profit increased by $4.4 million, or 22.1%, to $24.3 million in 1996
from $19.9 million in 1995. Gross profit increased as a percentage of net sales
to 47.5% in 1996 from 47.1% in 1995. The increase in gross profit as a
percentage of net sales occurred primarily because of improved efficiencies of
operations, increased sales of paper products (which generally have
substantially higher margins than other merchandise) and higher sales over which
to spread fixed costs.
Selling, general and administrative expense increased $2.5 million, or
13.0%, to $21.7 million in 1996 from $19.2 million in 1995. Selling, general and
administrative expense decreased as a percentage of net sales to 42.5% in 1996
from 45.6% in 1995. The decrease was primarily due to improved response rates to
Company catalogs, lower paper costs during the last few months of the year and
increased revenues to absorb relatively stable fixed costs.
Operating income increased by $1.9 million, or 297.8%, to $2.6 million in
1996 from $638,000 in 1995. Operating income increased as a percentage of net
sales to 5.0% in 1996 from 1.5% in 1995. Other income, consisting primarily of
interest income and vendor payment discounts, decreased from $298,000 in 1995 to
$246,000 for 1996.
Income tax expense increased $777,000 to $871,000 in 1996 from $94,000 in
1995. Income tax expense in 1996 was approximately 31%, which was lower than the
statutory rate, because of the availability of research and development credits.
Management currently anticipates its effective income tax rate for 1997 will be
approximately 36%.
Net income increased by $1.1 million, or 129.8%, to $1.9 million in 1996
from $843,000 in 1995. Net income increased as a percentage of net sales to 3.8%
in 1996 from 2.0% in 1995. Earnings per share increased $0.25 per share, or
131.6%, to $0.44 in 1996 from $0.19 in 1995.
YEAR ENDED 1995 COMPARED TO YEAR ENDED 1994
Net sales increased by $21.4 million, or 103.4%, to $42.1 million in 1995
from $20.7 million in 1994. This increase resulted primarily from the
distribution of a greater number of catalogs and other advertising media,
increased page count of the catalogs and a greater number of products offered.
Increased sales were also attributable to improved response rates.
Gross profit increased by $10.5 million, or 112.9%, to $19.9 million in
1995 from $9.3 million in 1994. Gross profit increased as a percentage of net
sales to 47.1% in 1995 from 45.0% in 1994. The increase in gross profit as a
percentage of net sales occurred primarily because of improved efficiencies of
operations, increased sales of paper products (which have substantially higher
margins than other merchandise) and higher sales over which to spread fixed
costs. The increase would have been larger had it not been for difficulties in
1995 related to the implementation of new software and systems to perform order
fulfillment, inventory control and related functions.
Selling, general and administrative expense increased $11.3 million, or
142.9%, to $19.2 million in 1995 from $7.9 million in 1994. Selling, general and
administrative expense increased as a percentage of net sales to 45.6% in 1995
from 38.2% in 1994. The increase resulted primarily from the distribution of a
greater number of catalogs and other advertising materials to prospects and
increased paper and postage costs related to catalog preparation and
distribution.
Operating income decreased by $765,000, or 54.6%, to $638,000 in 1995 from
$1.4 million in 1994. Operating income decreased as a percentage of net sales to
1.5% in 1995 from 6.8% in 1994. Other income, consisting primarily of interest
income and vendor payment discounts, increased from $87,000 in 1994 to $298,000
in 1995.
20
<PAGE> 25
Income tax expense increased $94,000 in 1995 from zero in 1994. Income tax
expense in 1995 was approximately 10%, which was lower than the statutory rate,
due to the availability for book purposes of valuation allowances for deferred
tax assets, all of which were utilized in 1995. No income tax expense was
recorded in 1994 due to the availability of net operating loss carry-forwards.
Net income decreased by $648,000, or 43.2%, to $843,000 in 1995 from $1.5
million in 1994. Net income decreased as a percentage of net sales to 2.0% in
1995 from 7.2% in 1994. Earnings per share decreased $0.15, or 44.1%, to $0.19
in 1995 from $0.34 in 1994.
QUARTERLY AND SEASONAL FLUCTUATIONS
Company sales have certain seasonal fluctuations that primarily relate to
the purchasing patterns of individual consumers and increased distribution of
catalogs. These patterns tend to concentrate sales in the fourth quarter. In
1994, 1995 and 1996, approximately 40%, 39% and 41% of net sales occurred in the
last three months of the year, respectively. Consequently, net income in the
first three quarters compared to the fourth quarter has historically been lower
as a percentage of net sales since administrative and certain operating expenses
remain relatively constant during the year. During the last three years, prices
for the Company's products have not increased significantly.
The following table contains selected unaudited quarterly financial data
for 1995 and 1996 and for the first three months of 1997. The unaudited
information has been prepared on the same basis as the audited financial
statements appearing elsewhere in this Prospectus and includes all normal
recurring adjustments necessary to present fairly, in all material respects, the
information set forth therein.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------------------- --------------------------------------------- ---------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... $8,100 $9,491 $ 8,307 $ 16,249 $11,584 $9,000 $ 9,800 $ 20,742 $15,952
Operating costs and
expenses Cost of
product and
delivery......... 4,151 4,530 4,460 9,145 5,941 4,907 5,119 10,867 7,959
Selling, general
and
administrative... 3,658 4,769 4,129 6,667 5,380 4,438 4,423 7,489 7,042
------ ------ ------ ------- ------- ------ ------ -------
Operating income
(loss)........... 291 192 (282) 437 263 (344) 258 2,386 951
Other income,
net.............. 61 80 71 86 112 35 51 48 101
------ ------ ------ ------- ------- ------ ------ -------
Income (loss)
before income
taxes............ 352 272 (211) 524 375 (310) 309 2,434 1,052
Provision (credit)
for income
taxes............ 123 95 (74) (50) 109 (90) 89 763 379
------ ------ ------ ------- ------- ------ ------ -------
Net income
(loss)........... $ 229 $ 177 $ (137) $ 574 $ 266 $ (220) $ 220 $ 1,671 $ 673
====== ====== ====== ======= ======= ====== ====== =======
Earnings (loss) per
share............ $ 0.05 $ 0.04 $ (0.03) $ 0.13 $ 0.06 $(0.05) $ 0.05 $ 0.38 $ 0.15
====== ====== ====== ======= ======= ====== ====== =======
Weighted average
number of common
shares and common
share equivalents
outstanding...... 4,386 4,391 4,412 4,428 4,442 4,441 4,437 4,446 4,482
====== ====== ====== ======= ======= ====== ====== =======
</TABLE>
21
<PAGE> 26
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------------
1995 1996 1997
--------------------------------------------- --------------------------------------------- ---------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- ---------
(PERCENTAGE OF TOTAL NET SALES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... 100.0% 100.0% 100.0% 100.0% 100.0 % 100.0% 100.0% 100.0% 100.0%
Operating costs and
expenses Cost of
product and
delivery......... 51.2 47.7 53.7 56.3 51.3 54.5 52.3 52.4 49.9
Selling, general
and
administrative... 45.2 50.3 49.7 41.0 46.4 49.3 45.1 36.1 44.1
------ ------ ------ ------- ------- ------ ------ -------
Operating income
(loss)........... 3.6 2.0 (3.4) 2.7 2.3 (3.8) 2.6 11.5 6.0
Other income,
net.............. 0.7 0.9 0.9 0.5 0.9 0.4 0.5 0.2 0.6
------ ------ ------ ------- ------- ------ ------ -------
Income (loss)
before income
taxes............ 4.3 2.9 (2.5) 3.2 3.2 (3.4) 3.1 11.7 6.6
Provision (credit)
for income
taxes............ 1.5 1.0 (0.9) (0.3) 0.9 (1.0) 0.9 3.7 2.4
------ ------ ------ ------- ------- ------ ------ -------
Net income
(loss)........... 2.8% 1.9% (1.6)% 3.5% 2.3 % (2.4)% 2.2% 8.0% 4.2%
====== ====== ====== ======= ======= ====== ====== =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since the Company was spun off from Wiland in 1992, the Company has funded
its growth primarily through funds generated from operations and has not
generally relied on external sources of financing.
Cash and cash equivalents decreased by $3.1 million in the first quarter of
1997, increased by $3.1 million in 1996, decreased by $13,000 in 1995 and
increased by $1.9 million in 1994. Activity in several significant areas had the
greatest impact on cash and cash equivalents as described below.
The increase in deferred advertising costs of $1.6 million in 1996
primarily related to the Company's incurring costs for significant portions of
January 1997 catalogs in 1996 and increased catalog circulation in January 1997
as compared to the same period in 1996. The increase in deferred advertising
costs of only $58,000 in 1995 primarily related to the distribution of January
1996 catalogs in early January as compared to distribution of January 1995
catalogs in late December of 1994. If the January 1996 Colorful Images(R)
catalog had been distributed in December 1995, management believes deferred
advertising costs and accounts payable in 1995 would have increased by
approximately $1.0 million. Increased distribution of catalogs over 1993 levels
was the primary reason for increased deferred advertising costs of $1.2 million
in 1994 and increased accounts payable of $1.3 million. The increases of
inventories of $1.6 million and $386,000 in 1995 and 1994, respectively,
primarily related to increased sales. The decrease in accounts payable of $1.6
million in the first quarter of 1997 resulted primarily from the payment in
early January 1997 for inventory and advertising cost purchased or incurred in
the fourth quarter of 1996. The increase in accounts payable of $2.2 million in
1996 primarily related to the incurring of significant advertising costs for
January 1997 mailings near the end of 1996 and timing of payments for inventory.
The large increase in sales in the fourth quarter of 1995 was the primary reason
for the $480,000 increase in customer liabilities (primarily unshipped customer
orders and a reserve for future customer warranty costs and product returns).
Net income of $673,000, $1.9 million, $843,000 and $1.5 million in the first
quarter of 1997, and in 1996, 1995 and 1994, respectively, contributed
significantly to increased cash in these periods.
Significant items of use of cash during 1996, 1995 and 1994 were purchases
of property and equipment of $377,000, $550,000 and $502,000, respectively.
These purchases primarily related to computer equipment, order fulfillment
equipment and furnishings acquisitions to accommodate the sales growth and
expansion.
The Company had $3.4 million of unencumbered cash and cash equivalents at
March 31, 1997 and $6.4 million at December 31, 1996. Management believes that
results of operations, continued operational planning review, funds from the
Offering plus current cash balances will produce funds necessary to meet its
anticipated working capital requirements for the current year. The Company is
currently constructing a new facility on the approximately 139 acres of
undeveloped land purchased in January 1997. The Company expects to use current
cash balances and outside sources to finance this construction on a portion of
the property, at a total building and development cost of approximately $8.5
million (excluding land). The Company intends to hold the remaining land for
sale or expansion.
22
<PAGE> 27
Significant items of investing activities during the first quarter of 1997
were purchases of property and equipment of $2.2 million and the use of $500,000
to collateralize a letter of credit. The purchases of property and equipment
primarily related to the purchase of undeveloped land and certain costs of the
new facility currently under construction on the property. The letter of credit
relates to certain obligations generally expected to be resolved within one
year, in connection with improvements to the building site.
SPECIAL NOTE REGARDING 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 without fear of litigation. Company statements that are not
historical facts, including statements about management's expectations, beliefs,
plans and objectives for 1997 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: reliance on catalog operations in general, and on
the Colorful Images(R) catalog in particular; potential inability to
cost-effectively implement its growth strategy; dependence on paper products as
a predominant product line; potential inability to effectively manage and
develop its proprietary database; changes in postal rates or the costs of paper
and printing; reliance on third parties for shipping; reliance on a limited
number of key vendors; the Company's ability to complete construction of and
transfer to the Company's new facilities by September 1997 at a time of the year
when it historically has received a significant portion of its orders and
related annual net sales; risk of disaster; potential disruptions in order
processing or fulfillment; increased competitive activity and other competitive
factors including name recognition and the Company's relative newness to the
mail order catalog business; dependence on significant license rights and
branded merchandise; dependence on key personnel; merchandise returns and
refunds; quarterly and seasonal fluctuations; changes in the general economic
conditions of the United States; changes in consumer spending generally or
specifically with reference to the types of merchandise that the Company offers
in its catalogs; and state tax issues relating to the taxation of out of state
mail order companies. See "Risk Factors."
23
<PAGE> 28
BUSINESS
OVERVIEW
Concepts Direct, Inc. (the "Company") is a direct marketer of personalized
labels, paper products, collectibles, gift items, home decorative items and
casual apparel (primarily t-shirts and caps) that are selected and designed
based on the hobbies, interests and lifestyles of its target customers. The
Company markets its merchandise primarily through its three current catalogs,
Colorful Images(R), Linda Anderson(R), and Colorful Images Presents
Impressions(R) ("Impressions"), which are mailed to prospects derived from
rented and exchanged lists and names from its proprietary database. This
database includes customers, gift recipients and catalog requestors and had
grown to over 6,000,000 names at March 31, 1997, including approximately
1,800,000 customers who had purchased in the prior 12 months. The Company uses a
disciplined, analytical approach to marketing and merchandising to target
customers. The Company believes that this approach, together with its direct
marketing expertise, merchandising capabilities and popular consumable products,
have built brand identity and customer loyalty which will serve as a foundation
for future growth.
From 1988 to September 30, 1992, Company operations were conducted in the
Consumer Products division of Wiland Services, Inc. ("Wiland"), a company that
provided a variety of database management, list processing and marketing
research services to the direct marketing industry. The Company's historical
roots in Wiland, where several of the Company's senior executives developed
their knowledge of the direct marketing industry, provided the foundation for
the Company's list, database and results analysis expertise. Headquartered in
Longmont, Colorado, the Company began independent operations under its name on
September 30, 1992, as a result of a spin-off from Wiland in connection with
Wiland's merger with Neodata Corporation.
INDUSTRY OVERVIEW
The direct marketing industry has experienced significant growth over the
past decade. According to the U.S. Census Bureau, the mail order industry
accounted for $46 billion of the total $2.3 trillion retail market in 1995, up
from $11 billion of the total $957 billion retail market in 1980. From 1986 to
1995, the total mail order sector surpassed other retail sectors in growth with
a compound annual growth rate of 11.3% compared to 5.5% growth for the total
retail trade market. The Company believes that this growth trend and relatively
small current proportion of catalog sales to total retail sales will allow the
catalog direct marketing industry opportunities to experience continued growth
in the future. According to the January 1997 edition of Target Marketing
magazine, each of the top ten largest North American consumer catalogs had a
twelve month buyers list consisting of at least 2,200,000 names. As of March 31,
1997, the Company's proprietary database included approximately 1,800,000 names
of customers who made purchases within the last twelve months.
BUSINESS STRATEGY
The Company's goal is to create, build and operate multiple direct
marketing concepts that profitably sell merchandise to a targeted customer base.
Its principal strategies for achieving this goal are set forth below.
Analytical Approach to Prospecting for New Customers. The Company's
analytical approach to prospecting for new customers emphasizes list testing
(for example, by mailing a catalog initially to only a small percentage of a
rented or exchanged list) and segment analysis, adherence to list performance
guidelines and recognition of the long-term value of a customer. A principal
operating strategy of the Company is to prospect, primarily through the use of
rented and exchanged lists, for new customers who can be added to its existing
proprietary database. When prospects buy as a result of Company mailings, they
are added to the proprietary database, increasing the number of customers
available for future mailings.
Effective Marketing to Proprietary Customer Database. The Company seeks to
maximize the effective use of its proprietary database of over 6,000,000 names.
In addition to the recency, frequency and monetary data typically used in
database direct marketing, the Company also maintains information concerning the
types and themes of merchandise purchased by its customers. This data provides
insight into customer hobbies, interests and lifestyles, not only for Company
mailings but also for list rental and exchange purposes. The use of this data,
in conjunction with purchase history data such as latest order date and order
size, helps
24
<PAGE> 29
the Company make niche selections from its database, offer products which are
suited to the styles and tastes of its customers and develop new catalogs.
Disciplined Approach to Merchandising. The Company employs a disciplined
approach to selecting merchandise likely to generate purchases by its customers
and prospects. The Company attempts to make merchandise selections that fit a
market niche and price point rather than simply selecting items of general
popularity in the retail market. Products offered are subject to "Ruthless
Elimination" based on square inch and incremental contribution analysis that
identifies products that do not achieve acceptable performance standards.
Merchandise Assortments Created for Targeted Audiences. The Company seeks
to create numerous product lines targeting the Company's primary audience of
adult women. It then makes customer contact through its catalogs. Colorful
Images(R) presents an assortment of mid to low price point merchandise primarily
for women who are interested in personalized paper products (labels, note pads,
cards, memo cubes, etc.), collectibles and gifts. Linda Anderson(R) typically
offers higher price point gifts, home decorative items and casual apparel. The
Impressions catalog presents personalized merchandise.
Promotion of Repeat Purchases, Including Consumable Reorders, Increased
Spending and Gift Giving. A strategy of the Company in creating Colorful
Images(R) was to develop a line of consumable products which customers would
subsequently re-order and supplement the consumables line with an assortment of
other merchandise. Labels and paper products, which are a major segment of the
Colorful Images(R) product line, are used at varying rates by different
consumers, but all are subject to consumption and potential reorder. The other
merchandise promotes gift giving and is intended to increase customer spending.
The Company encourages repeat business from its customers by offering products
which have met expectations in the past, testing new products and developing new
catalogs.
Excellent Catalog Shopping Experience. The Company attempts to provide a
catalog shopping experience that achieves customer satisfaction through
exclusive designs, popular licensed and branded merchandise, creative
presentation, product quality and good service. The Company strives to provide
friendly, knowledgeable telephone service, prompt fulfillment of orders and
courteous resolution of customer complaints, including a "Satisfaction
Guaranteed" exchange policy.
GROWTH STRATEGY
The Company's growth strategy consists of the following principal
components:
Increase Catalog Circulation. The Company plans to expand total circulation
of its catalogs within the parameters of its marketing strategy. The Company
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 historical success in expanding circulation,
achieving acceptable overall response rates and enlarging its proprietary
database. Total catalogs mailed has increased from approximately 14.5 million in
1993 to approximately 43.5 million in 1996 (excluding catalogs inserted in
product shipments), a 44% compound annual growth rate. This increase in
circulation has been a significant factor in the 47.5% compound annual net sales
growth rate achieved during the same period. As its catalog titles and
proprietary database expands, Concepts Direct plans to continue to increase
catalog circulation.
Expand Page Count and Merchandise Selection. As part of its growth
strategy, the Company plans to further expand its catalogs by increasing and
refining its merchandise selection. The Colorful Images(R) catalog, which began
as a flyer offering only a few styles of personalized labels, increased to 104
pages during the fall 1996 season. This substantial expansion was achieved by
adding more merchandise offerings, including many label styles, a variety of
other paper products and an assortment of collectible, gift, home decorative and
apparel items. This strategy has allowed the Company to assess the appeal of its
merchandise offerings and attempt to offer merchandise tailored to the tastes of
its customers and prospects. The Company plans to continue to expand the page
count and merchandise selection of its existing catalogs as long as it believes
results warrant.
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<PAGE> 30
Introduce Complementary New Catalog Titles. The Company intends to leverage
its proprietary database and understanding of product preferences of its primary
audience by introducing new complementary catalog titles. For example, Colorful
Images(R) and other Company catalogs have produced a database comprised in part
of customers who collect figurines. The Company believes this provides an
opportunity to launch a new catalog featuring a wide assortment of popular
collectibles. In addition, many Company customers have purchased t-shirts from
the Colorful Images(R) and other Company catalogs. Many of these shirts reflect
customer personalities or interests. The Company plans to use this database
segment as it develops a new catalog featuring primarily t-shirts and moderately
priced casual apparel.
Promote Merchandise Featuring Popular Licensed Characters and Brands. The
Company offers personalized labels, collectibles, t-shirts and gift merchandise
featuring popular licensed characters and brands. The Company has a license to
use the PEANUTS(R) characters, including Snoopy(TM), Charlie Brown(TM),
Woodstock(TM), Lucy(TM) and Linus(TM), on label products. It has also been
granted licenses to feature popular collectibles such as Boyds Bears(R) and
Dreamsicles(R) on its paper products. The Company also sells popular branded
merchandise bearing the trademarks Coca-Cola(R), Warner Bros(R) and others. The
Company has developed customer segments in its proprietary database who are
interested in licensed or branded merchandise and plans to seek additional
arrangements for such merchandise.
Expand Facilities and Operational Capabilities. The Company has broken
ground on a new facility designed to substantially increase the Company's
current operational capacity, providing space for growth and allowing more
efficient organization of operations and fulfillment functions. The Company
believes that its computer software systems supporting customer service, order
processing and other key activities are important to its direct marketing
success. The Company plans to continue enhancing its systems to support the
Company's growth plans. The Company is also seeking to improve its manufacturing
and order fulfillment processes.
CURRENT CATALOGS AND OTHER MARKETING CHANNELS
The Company currently markets its products primarily under three catalog
titles:
Colorful Images(R). Colorful Images(R) provides customers interesting means
to express their hobbies, interests and lifestyles in their choice of
personalized self-adhesive labels, paper products, collectibles, home decorative
items, gift merchandise and t-shirts. The Company believes it has assembled one
of the largest assortments of personalized labels available to consumers. A
consumer may choose a floral design, an angel theme, a country look, a Victorian
style, a Monet reproduction or a ballet dancing pig from among the more than 750
different labels offered. The Company also offers self-adhesive labels with
popular licensed characters such as Snoopy(TM) and the other PEANUTS(R)
characters, Boyds Bears(R) and Dreamsicles(R). The Company believes the depth
and diversity of the Colorful Images(R) product assortment and its creative
format have allowed it to establish a loyal segment of its customers who enjoy
the catalog and have adopted Company products as their personal trademark. Price
points in the Colorful Images(R) catalog generally range from $6.95 to $49.95,
excluding shipping and handling.
The Colorful Images(R) catalog is produced in separate versions for
customers and prospects. The prospect version generally contains fewer pages and
is typically limited to merchandise items which have been popular in past
mailings to prospects. The customer version contains merchandise which has been
popular in past mailings to customers, additional merchandise in existing
categories and new merchandise that the Company wishes to test. The Company
believes that creating separate catalogs with fewer pages for prospects than for
customers is an effective technique to improve performance of the Colorful
Images(R) catalog with both groups.
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<PAGE> 31
As the Company's proprietary database has grown, the number of editions of
its flagship catalog, Colorful Images(R), has increased from five (5) in 1994,
to six (6) and seven (7) in 1995 and 1996. In addition, the Company has made and
plans to continue making smaller mailings to niche segments of the proprietary
database. The Company has experienced a steady increase in performance of the
catalog based on mailings to the best 2 million customers with this group's
revenue increasing by approximately 47% over the past three years.
Colorful Images(R) Best 2,000,000 Customer Analysis
Consisting of the best performing customer segments during the past three years
Average Revenue Per Thousand Index*
<TABLE>
<CAPTION>
Year Average Revenue Per Thousand Index
---- ----------------------------------
<S> <C>
1994 Catalogs 1.0
1995 Catalogs 1.31
1996 Catalogs 1.47
</TABLE>
*Revenue per thousand catalogs mailed 1995 is based year index of 1.0
The Company believes that Colorful Images(R) sales have improved as a
result of a variety of factors, including its analytical approach to
prospecting, increases in page count per catalog, improvement in catalog
creative presentation, expansion of product lines and modifications in the
merchandise mix. The Company reevaluates these factors prior to each new catalog
edition, taking into account the most recent performance data available.
Information contained in the Company's proprietary database, particularly
product purchasing characteristics of its customers, is helpful in designing new
catalogs. The Company believes its ability to evaluate performance data has
contributed to improving response rates. The Company is exploring other methods
of contacting Colorful Images(R) customers, including preferred customer clubs,
seasonal catalog editions and special offers.
Linda Anderson(R). Linda Anderson(R) offers an assortment of gifts, home
decorative merchandise and casual apparel, generally at higher price points than
Colorful Images(R) (typically ranging from $10.95 to $249.95, excluding shipping
and handling).
The Company's goal is for its catalogs to develop their own personalities
and an affinity with customers who find the merchandise consistent with their
tastes. The Company is positioning and refining the Linda Anderson(R) catalog as
it accumulates new data from each mailing. Products for Linda Anderson(R) are
selected and the creative presentation is designed to make Linda Anderson(R)
attractive to the target audience.
The most responsive customers for Linda Anderson(R) in past mailings have
been recent previous buyers from the catalog. Certain Colorful Images(R)
customers have also performed well for Linda Anderson(R), reinforcing the
Company's belief that it can successfully launch new catalogs in part by using
its proprietary database. As Colorful Images(R) continues to grow, some of the
new customers it generates may also respond to the Linda Anderson(R) line of
products.
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<PAGE> 32
Linda Anderson(R) Catalog Results for Mailings To
Selected Segments
Fourth Quarter, 1995 vs. 1996
<TABLE>
<CAPTION>
1995 Quantity 1995 Average 1996 Quantity 1996 Average
Segment Mailed R.P.Th. Index* Mailed R.P.Th. Index*
------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Linda Anderson(R) 13,248 1.0 22,562 1.6
Existing Customers
Colorful Images(R) 211,539 1.0 495,205 1.13
Customers
Outside Prospect 435,580 1.0 862,733 1.45
Homes
Total 660,367 1.0 1,380,500 1.34
</TABLE>
*Revenue per thousand catalogs mailed. 1995 is base year index of 1.0
During the period from 1994 until the fall of 1996, the Company mailed
three (3) test editions of the Linda Anderson(R) catalog. The fall 1996 edition
produced a positive contribution to operating results. This result exceeded
Company expectations despite the fact that several prospect lists were being
used for Linda Anderson(R) for the first time. Based on this response, the
Company plans to mail the Linda Anderson(R) catalog four (4) times in 1997.
Colorful Images Presents Impressions(R). Impressions was introduced in the
second quarter of 1996, offering various products such as coffee mugs, mouse
pads, note pads, stationery and gift items, many of which were personalized
products. The Impressions catalog relies heavily on the Colorful Images(R)
customer base of merchandise buyers. The Company has now decided to offer only
personalized products in Impressions and is attempting to develop a popular
assortment of personalized merchandise which will not overlap with Colorful
Images(R). Impressions had developed a small base of more than 12,000 customers
at March 31, 1997 and, during the three-month period ended March 31, 1997, made
a small positive contribution to operating results as an insert with Colorful
Images(R) and Linda Anderson(R) product shipments. The Company plans to continue
using Impressions as a package insert, test other distribution channels and
conduct test mailings until a further rollout is justified.
The latest edition of Impressions contains only 24 pages and offers only
personalized merchandise. The Company expects page count to increase in future
editions. Prices charged for Impressions products typically range from $5.95 to
approximately $60.00, excluding shipping and handling. The Company plans at
least one (1) new edition of Impressions in 1997.
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<PAGE> 33
Other Marketing Channels. The Company also employs a variety of alternate
media to generate sales for its Colorful Images(R) products. Alternate media
includes primarily direct mail co-ops and advertisements in newspaper free
standing inserts. During the first half of 1996, the Company used such media
more extensively than in 1995. Results have been inconsistent and have varied by
media type. In 1997, the Company expects to use alternate media somewhat more
extensively than in 1996. The Company may gradually increase its circulation in
such media if results warrant, but expects alternate media to account for less
than 10% of net sales in 1997.
The Company's two small retail outlets are used for inventory liquidation
purposes and accounted for less than 1% of net sales in 1996. The Company has no
immediate plans to open additional retail stores.
NEW CONCEPTS
As part of its growth strategy, the Company continues to consider other
direct marketing concepts that may justify additional catalogs featuring
successful product lines from existing catalogs. The Company has identified
several product lines which meet this standard and currently plans to test at
least two (2) new catalogs during 1997. Specific timing for these catalogs will
depend on when the Company believes each is ready for launch from a marketing,
merchandise and operations standpoint.
Linda Anderson's Collectibles(sm). The initial edition of this new catalog
is scheduled for launch during the third quarter of 1997 and is expected to
include at least 35 lines of collectible merchandise with over 300 individual
items. The catalog will include information about collecting and may offer a
club membership for customers who regularly purchase from the catalog. The
Company has previously offered a more limited selection of collectibles lines in
existing catalogs and has been pleased with the performance of these products.
As a result, the Company's proprietary database contains a number of
collectibles buyers. Linda Anderson's Collectibles(sm) will present a selection
of collectibles from an assortment of recognized companies and established
artists. The Company believes this proposed catalog should be attractive not
only to collectors in the Company's proprietary database but also to collectors
obtained through rented and exchanged lists.
T-shirt Catalog. The Company has capitalized on the popularity of casual
apparel by offering t-shirts, sweatshirts and a limited selection of caps,
shorts and skirts in its Colorful Images(R), Linda Anderson(R) and Impressions
catalogs. T-shirts with a humorous theme or which reflect the hobbies, interests
and lifestyles of the consumer have been among the Company's best-selling
products. The Company's proprietary database now contains a segment of such
buyers. A new catalog will attempt to target this segment as well as prospects
from rented and exchanged lists. This new catalog is scheduled for launch during
the summer of 1997 and will contain over 250 different t-shirts, caps and other
colorful, casual apparel items.
Business-to-Business Catalog. The Company is evaluating the business/home
office market and developing a plan to launch a new catalog to serve this market
by offering a diverse line of paper and other business-oriented products. Such a
catalog should benefit from the Company's knowledge of paper products and their
distribution through Colorful Images(R), the Company's existing vendor
relationships, its existing paper products manufacturing expertise and its
ability to target this market using marketing techniques already in place. While
there is a significant established direct market for products similar to those
the Company is considering, the Company believes it can bring a fresh design
approach to products in this market. The Company also believes that this market
may be receptive to complementary, nonpaper merchandise lines. Planning is
proceeding but the Company has neither established a firm date to test this
concept nor made a final decision to go forward with a business and home office
catalog.
Investment in a New Catalog Launch. The cost of launching a new catalog
varies substantially depending on factors such as research and creative design,
size of the test catalog (in pages and in number of products offered), number of
test catalogs circulated and the amount of test inventory purchased. Risks are
associated with each test and a new catalog and tests may continue until the
catalog provides a positive contribution or the Company decides to discontinue
its efforts. Ultimately, the amount of investment in a new launch depends
primarily on the number and scale of tests conducted. The Company currently
plans to mail less than 2 million catalogs in the initial test of Linda
Anderson's Collectibles(sm) and the t-shirt catalog. The
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<PAGE> 34
Company has budgeted less than $1.5 million, including inventory, to conduct the
initial test of these two new catalogs.
DEVELOPMENT OF CUSTOMER BASE AND MARKETING
Proprietary Database. The Company's proprietary database stores information
on each customer. The information is derived primarily from customer
transactions and is updated as new transactions are recorded. The Company relies
on prospect mailings to rented and exchanged mailing lists obtained from mail
order companies, magazine publishers and other sources. New customers are also
obtained as a result of alternate media advertising such as newspaper inserts
and co-op mailings. The use of these sources has been and is expected to
continue to be a component of the Company's efforts to obtain new customers and
add them to the proprietary database. During 1996, the Company mailed over 43.5
million copies of three different catalog titles (excluding catalogs inserted in
product shipments), of which over half were mailed to prospective customers.
At March 31, 1997, the Company's proprietary database contained information
on over 6,000,000 customers, catalog requesters and gift recipients.
Approximately 1,600,000 customers placed orders with the Company during the 12
months ended December 31, 1996, compared to approximately 800,000 for the 12
months ended December 31, 1994, a compound annual growth rate of 41.4%. The
active customer count increased to approximately 1,800,000 at March 31, 1997.
According to the January 1997 edition of Target Marketing magazine, each of the
top ten largest North American consumer catalogs had a twelve month buyers list
consisting of at least 2,200,000 names.
ACTIVE CUSTOMERS IN PROPRIETARY DATABASE(1)
<TABLE>
<CAPTION>
DATE ACTIVE CUSTOMERS IN DATABASE
---- ----------------------------
<S> <C>
12/31/94 804,000
12/31/95 1,362,000
12/31/96 1,644,000
3/31/97 1,807,000
</TABLE>
(1) "Active customers" is defined as database records on customers who have
purchased merchandise from the Company one or more times within the 12
months preceding the end of the period indicated.
In recent years, the Company has not mailed a single offer to its entire
proprietary database. For each customer mailing the Company seeks to select
names it believes are likely to respond to the offer at an acceptable rate. The
Company's database system, selection methodologies and outside services help the
Company segment its proprietary database according to certain variables and
analyze each segment's performance. The Company believes that its ability to
analyze its database and select recipients for a particular direct marketing
campaign are critical components of its success. The Company utilizes various
indicators, such as frequency and size of order, date of last order, and style
and theme of products purchased to target its catalog mailings.
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<PAGE> 35
Marketing Objectives. The Company's marketing programs are designed to
attract new customers and generate additional sales from existing customers.
Attracting new customers is principally accomplished through prospecting using
mailings to individuals identified through rented and exchanged mailing lists.
Generating additional sales from existing customers requires expanding and
improving the merchandise mix, improving creative presentation, mailing based on
customers' past purchase histories and launching new offers which prove to be
popular with customers.
The Company's Customers. Information provided to the Company by independent
sources indicates that a large segment of the Company's customers are women
between the ages of 35 and 54. The Company believes that one of the strengths of
its product line is its general appeal to many women.
Prospecting for New Customers; Growth of Mailing List. The Company
exchanges lists with and rents lists from other direct marketers in order to
gain new customers. The Company also uses alternate media such as newspaper
inserts and co-op mail to prospect for new customers. Prospects receive a
catalog or other direct marketing offer tailored to what the Company believes to
be their merchandise tastes and preferences based on available data. Product and
media performance are analyzed based on profitability. Product continuation and
media utilization are determined based on these analyses.
To effectively use outside mailing lists, the Company evaluates list
profiles provided by list brokers and uses analytical tools. Multivariate
regression analysis, profile analysis, geographic analysis, predictive modeling
and cooperative databases are being used in a limited number of cases and are
expected to become more important in the Company's analysis of outside lists.
Customer Clubs and Other Programs. Beginning in 1996, the Company
introduced the Colorful Images(R) Preferred Customer Club. An initial one year
free membership was given to a segment of the proprietary database in a special
mailing which announced the club and described benefits. Orders produced by that
initial mailing were above expectations. The Company is now selling memberships
which provide discounts to club members. In addition, the Company may produce
special seasonal catalogs and "Thank You", "Welcome", "Mover" or other packages
to increase customer loyalty and average annual spending by current customers.
Encouraging Gift Giving. The Company offers a selection of low cost items
with the goal that its customers will purchase them as gifts. The Company
encourages gift giving by providing a gift section on certain order forms. Gift
recipients are added to the proprietary database and are sent offers from the
Company.
MERCHANDISING
Merchandise Mix. The Company initially offered only personalized labels,
but has steadily increased its breadth of paper products to over 900 different
styles and themes, including over 750 personalized label choices. This
assortment allows Colorful Images(R) to appeal to a diverse group of customers.
Other Colorful Images(R) products include t-shirts, collectible figurines and
other products. Linda Anderson(R) presents a variety of gift items, home
decorative items, casual sweaters and sweatshirts. Impressions presents a
collection of personalized gift items. The Company's planned new catalogs, Linda
Anderson's Collectibles(sm) and the t-shirt catalog, are being designed as more
specialized catalogs offering a wider selection for some of the Company's
popular product lines.
New Products. The Company believes that "new" sells. New merchandise
regularly incorporated into existing catalogs helps to keep catalogs interesting
to customers who see them frequently. "New" may also allow the Company to take
advantage of popular trends in consumer preferences. The Company attempts to add
new merchandise and believes that doing so in the past has been an important
part of improved response.
Exclusive Merchandise. Some of the paper products offered in Colorful
Images(R) are proprietary designs developed by the Company's in-house art
department and freelance artists. The Company is also in the early stages of
working with vendors to create other merchandise exclusive to the Company. The
Company believes its efforts to be a sole source supplier for certain products,
particularly consumables, offer it a competitive advantage and an increased
likelihood of repeat business.
Merchandise Sourcing and Vendor Relationships. The Company purchased its
merchandise from approximately 400 vendors in 1996. The Company's merchandise
acquisition strategy emphasizes relation-
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<PAGE> 36
ships with domestic vendors, including domestic representatives of foreign
manufacturers, to facilitate inventory management processes by providing
acceptable quality control and turnaround times for merchandise reorders. In
1996, over 99% of the Company's merchandise was either manufactured in the
United States or ordered from domestic representatives of foreign firms. The
Company believes that its vendor relationships are generally excellent. No
single vendor accounted for more than 15% of total merchandise purchases in
1996.
CUSTOMER SERVICE
The Company seeks to emphasize customer service from the initial contact
through ultimate order fulfillment and, if necessary, merchandise return or
exchange.
Call Center. The Company staffs a call center that can be contacted through
its toll-free telephone numbers 24 hours a day, seven days a week to place
orders, request a catalog or inquire concerning order status. During 1996,
approximately 40% of the Company's orders were received by telephone with the
remaining 60% of its orders received by mail or facsimile.
Order Entry. The Company uses a system that allows its staff to accomplish
on-line entry of telephone, mail or facsimile orders. This transaction
processing system supports mail and telephone orders, credit authorization,
order processing, distribution and shipment. Company personnel process orders
directly into the on-line system which provides, among other things, customer
history information, merchandise availability information and merchandise
specifications. The Company attempts to have telephone agents who are
knowledgeable in key merchandise features and have access to samples, which
enable them to answer inquiries from customers. On average, the Company
completes typical telephone orders in two to four minutes. Customers must pay
telephone and facsimile orders with a major credit card. Credit cards, checks or
money orders are accepted with mail orders. All credit charges are preauthorized
prior to shipment.
Order Fulfillment. After a customer's order is entered in the system,
orders are processed, picked, packed and shipped (or, in a small percentage of
cases, forwarded to a drop shipper). Merchandise, quantity and ship date are
entered into the proprietary database. In-stock items typically are shipped
within one to ten days of order entry depending on the items ordered and
workload.
The Company attempts to adjust the number of employees to meet variable
demand levels, particularly during the peak fourth quarter selling season. The
Company's ability to fulfill orders on a timely basis, especially during the
fourth quarter holiday season, is important to the Company's operations. This
ability depends in part on the availability of employees who have adequate
training and the efficiency of the Company's telephone call center. In 1996, the
Company shipped approximately 2.4 million packages, approximately 60% of which
were sent by standard class mail through the U.S. Postal Service and the balance
by other carriers. Priority or express service is available for an extra charge.
The Company's order backlog was approximately $468,000 as of December 31,
1995 and $422,000 as of December 31, 1996. Orders represented by this backlog
are normally shipped within approximately ten days. Difficulty in implementing
software systems to perform order fulfillment and related functions resulted in
delayed shipments and correspondingly high backlog during the last half of 1995.
During the fourth quarter of 1996, the new software met management's
expectations and processed actual sales which exceeded Company projections.
However, as a result of Company sales exceeding projections, the Company had a
shortage of personnel to process orders, leading temporarily to high backlogs.
Employee Training. The Company has established an employee training program
conducted by a full time trainer. To date, training programs have been primarily
associated with the call center, order entry and customer service functions. The
Company intends to provide for two classrooms in its new facility currently
under construction and plans to increase the scope and depth of its training
programs.
Return Policy. The Company has a return policy intended to assure customer
satisfaction and to encourage first time and repeat orders. The retail value of
refunds and merchandise replacements issued under the returns policy in 1996 was
approximately 5.8% of net sales. If returned merchandise cannot be restocked it
is returned to the manufacturer, held for disposal in inventory liquidation
processes or discarded. Product and order problem inquiries are directed to
customer service personnel who are trained to resolve customer issues.
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<PAGE> 37
INFORMATION SYSTEMS AND TECHNOLOGY
The Company currently uses an internally developed order processing system.
This system is used for order entry and fulfillment tasks, the recording of
orders, credit authorization, order processing, shipment, inventory control,
management information and related functions.
All of the Company's order fulfillment systems are located at its Longmont,
Colorado facility. The Company's main hardware platforms are manufactured by
Xerox Corporation and Data General Corporation. The Company expects to change
and add computer hardware prior to the time it moves to its new facility and
anticipates that these additions should accommodate the Company's near-term
growth strategy.
Prior to installation of the new software in August 1995, the Company had
used various licensed computer software packages to perform order fulfillment,
inventory control and related functions. The new software uses Oracle as the
primary software platform. Certain difficulties were experienced with the fall
1995 software implementation. These difficulties delayed customer shipments and
related sales recognition in 1995. The Company believes that those software
problems have been substantially corrected, and the software met management's
expectations in 1996. Company personnel are working on further improvements to
the software.
MATERIALS AND INVENTORY
In 1996 the Company purchased over 95% of its materials and product
inventory from domestic manufacturers, importers and domestic representatives of
foreign manufacturers. Purchase arrangements with suppliers are generally for a
specified product, price and quantity of product. While the Company purchases
its base paper stock for most of its personalized labels from one primary
vendor, management believes alternative vendors are available, if needed. The
material used in the production of the Company's catalogs is available from many
different sources.
The Company spends significant amounts on paper used in the production of
its catalogs and paper products. The cost of paper fluctuates. In the first half
of 1996, the cost of paper the Company used to produce its catalogs was higher
than in previous periods. Accordingly, the Company's cost of doing business
increased. Unit cost of such paper declined during the latter part of 1996,
which was reflected in lower costs as a percentage of net sales.
Except for a few specialized items which are drop shipped directly from
suppliers, the Company maintains an inventory of products it sells. Based on
analysis of past catalog mailings, evaluation of probable customer buying
patterns and projections for new products, the Company believes it has been able
to plan its inventory needs without the necessity of committing an excessive
amount of working capital. Furthermore, the Company believes its gross margins
on paper products have tended to minimize the inventory required for a given
dollar sales volume. If the Company's merchandise mix changes, additional
capital may be required for larger inventories. The Company's collectibles,
gift, home decorative and apparel inventory liquidation processes include
product exchange agreements with vendors, sale of products through its small
retail outlets and discarding of some items.
COMPETITION
Direct marketing is highly competitive. Thousands of companies offer
products via catalog, direct mail, newspaper inserts, television and other
media. The Company competes on the basis of the quality, diversity and price of
merchandise offered and customer service.
Management believes that, although many companies offer personalized
labels, there are only a few companies that offer a broad variety of
personalized labels comparable to that sold by the Company, which the Company
believes is a competitive advantage. The Company's other merchandise product
lines face even greater competition in the marketplace than the Company's paper
products. A substantial number of competitors distribute catalogs that offer the
merchandise categories contained in the Company's catalogs. In addition, certain
of the merchandise sold in the Company's catalogs is available through retail
stores and other sources.
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Certain of the Company's current and potential competitors have
significantly greater development, order fulfillment, marketing and capital
resources and name recognition than the Company. See "Risk Factors --
Competition."
EMPLOYEES
As of December 31, 1996, the Company had approximately 479 employees, 265
of whom were part-time. Of the 214 full-time employees, 14 supported information
technology, 11 supported creative and marketing functions, 170 supported
operations and 19 supported other functions. None of the employees are covered
by collective bargaining agreements. The Company considers its relationship with
its employees to be generally good.
PROPERTIES
The Company's corporate headquarters, administrative offices and operations
are located in Longmont, Colorado, approximately 40 miles from downtown Denver.
While the Company believes that the facilities it occupies are well maintained
and in good operating condition, the Company is crowded in the current facility.
In January 1997, the Company purchased 139 acres of undeveloped land in
Longmont, Colorado, and a new facility which is substantially larger than its
current facility is currently being constructed on approximately 11 of the 139
acres. The Company intends to hold the remaining land for sale or expansion. The
new building is intended to house production, administrative and warehouse
functions. The Company plans to move into this facility by September 1997. If
the Company is not able to relocate by the end of August 1997, the Company will
need to either extend the lease of its existing headquarters and lease temporary
space or make alternative arrangements in order to accommodate anticipated
fourth quarter volume. The landlord of the current facility has verbally
indicated that it will cooperate if a suitable replacement tenant has not been
located and the Company needs to extend its current lease. The landlord, to
date, has not been willing to sign an extension option. If construction of the
new facility is late and the current landlord will not agree to a lease
extension, a significant dispute or business disruption may occur. In addition,
the Company also leases temporary warehouse space from time to time.
The following table sets forth the primary real property which the Company
owns and leases.
<TABLE>
<CAPTION>
LEASE 1997
LOCATION FUNCTION EXPIRATION RENT SQUARE FEET
- ----------------- -------------------- --------------- -------- -----------
<S> <C> <C> <C> <C>
Longmont, CO New Headquarters Owned Owned 117,000(1)
Longmont, CO(2) Current Headquarters August 31, 1997 $306,000(3) 58,064
Longmont, CO Retail Outlet August 30, 1997 $ 15,600 1,700
Cheyenne, WY Retail Outlet October 1, 1997 $ 9,200 1,100
Longmont, CO(2) Warehouse Space August 31, 1997 $ 30,000(3) 10,000
</TABLE>
- ---------------
(1) Currently under construction
(2) To be vacated on completion of the move to the new facility currently under
construction
(3) January 1, 1997 -- August 31, 1997
LICENSING AND SERVICE MARKS
The Company has federally registered the service marks used for each of its
three existing catalogs. The Company anticipates that it will seek registration
of the service marks used for catalogs that it develops in the future.
The Company 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 five years.
Certain rights are also licensed on a royalty basis, including PEANUTS(R), The
Boyds Collection Ltd.(R), Dreamsicles(R) and others.
From time to time, the Company sells brand name products supplied by
vendors who license rights to the trade names and trademarks associated with the
products. The Company generally relies on representations
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<PAGE> 39
and assurances from vendors regarding these rights. In the past, third parties
have asserted that the Company has offered products in violation of the
intellectual property rights of others. In certain instances, the Company ceased
selling those products as a result of such assertions. To date, the Company has
not agreed to pay, or been required to pay, any damages as a result of such
claims. The Company's procedures for determining whether third parties have
rights with respect to any particular product are limited and may not always
reveal all rights of others.
GOVERNMENT REGULATIONS; STATE SALES TAXES
The Company must comply with Federal, state and local laws that affect its
business. In particular, the Company is subject to Federal Trade Commission
regulations governing the Company's advertising and trade practices, including
the merchandise Mail Order Rule and related regulations, which require that mail
order merchants ship goods within the time promised or within a reasonable time,
or else offer the consumer a refund.
The Company 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 firm 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 legislation supporting the states' taxing
authority, it could have a negative impact on the financial condition and
results of operations of the Company. 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 on the Company's
business.
LEGAL PROCEEDINGS
The Company is engaged in claims and litigation that arise in the ordinary
course of business, none of which management believes to be material.
35
<PAGE> 40
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES
The following table sets forth certain information concerning each of the
directors, executive officers and certain key employees of the Company as of
March 31, 1997.
<TABLE>
<CAPTION>
YEARS WITH
DIRECTORS AND EXECUTIVE OFFICERS AGE COMPANY(1) POSITION
- -------------------------------- --- ---------- ----------------------------------------------
<S> <C> <C> <C>
Phillip A. Wiland 50 25 Chairman of the Board and Chief Executive
Officer
J. Michael Wolfe 38 15 President and Chief Operating Officer
H. Franklin Marcus, Jr. 51 20 Secretary, Treasurer and Chief Financial
Officer
Michael T. Buoncristiano 55 17 Director
Robert L. Burrus, Jr. 62 12 Director
Stephen R. Polk 41 9 Director
Phillip D. White, Ph.D. 50 9 Director
</TABLE>
<TABLE>
<CAPTION>
CERTAIN KEY EMPLOYEES
- --------------------------------
<S> <C> <C> <C>
Julie G. Andresen 40 7 Vice President, Creative Design
Thomas P. Murray 35 10 Vice President, Marketing
R.C. Lloyd 52 1 Vice President, Operations
Phillip A. Tobias 43 22 Vice President, Information Technology
Vickie J. Slade 39 10 Vice President, Merchandise
David H. Haddon 38 12 Controller
</TABLE>
- ---------------
(1) Includes years at Concepts Direct, Inc. and its predecessor, Wiland
Services, Inc., either as an employee or as a director. Wiland Services,
Inc. was acquired by Neodata Corporation in 1992.
DIRECTORS AND EXECUTIVE OFFICERS
Phillip A. Wiland has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since December 18, 1992. Mr. Wiland was
President of the Company from September 30, 1992 until December 18, 1992. Mr.
Wiland was President and Chief Executive Officer of Wiland Services, Inc. from
1971 to September 30, 1992.
J. Michael Wolfe has served as President and Chief Operating Officer of the
Company since December 18, 1992. Mr. Wolfe was Vice President of Wiland
Services, Inc. from 1989 to 1992 and served as Vice President, Product Marketing
of Wiland Services, Inc. from 1987 to 1989. Mr. Wolfe held other positions at
Wiland Services, Inc. from 1981 to 1987.
H. Franklin Marcus, Jr. has served as Secretary-Treasurer and Chief
Financial Officer of the Company since September 30, 1992. Mr. Marcus served as
Secretary-Treasurer of Wiland Services, Inc. from 1978 to 1992 and as Chief
Financial Officer from 1989 to 1992.
Michael T. Buoncristiano has served as a Director of the Company since
1992. Mr. Buoncristiano has been the President of AVANTI! Direct Marketing
Services, Inc. since 1990. Mr. Buoncristiano served as Executive Vice President,
Marketing of Wiland Services, Inc. from 1985 to 1990 and Vice President, Sales
from 1979 to 1984.
Robert L. Burrus, Jr. has served as a Director of the Company since 1992
and served as a Director of Wiland Services, Inc. from 1984 to 1992. He has
served as Chairman of the law firm of McGuire, Woods, Battle & Boothe, L.L.P.
since 1990. Mr. Burrus is also a Director of CSX Corporation, Heilig-Meyers
Company, O'Sullivan Corporation, S&K Famous Brands, Inc. and Smithfield Foods,
Inc.
36
<PAGE> 41
Stephen R. Polk has served as a Director of the Company since 1992 and
served as a Director of Wiland Services, Inc. from 1987 to 1992. He has served
as the Chairman of the Board and Chief Executive Officer of R.L. Polk & Co.
since 1994. From 1990 to 1994, Mr. Polk served as the President of R.L. Polk &
Co.
Phillip D. White, Ph.D. has served as a Director of the Company since 1992
and served as a Director of Wiland Services, Inc. from 1987 to 1992. Dr. White
is an Associate Professor and past Chairman of Marketing, College of Business
and Administration, University of Colorado at Boulder (currently on leave). Dr.
White has written and lectured extensively on marketing and, since 1996, has
been the President of Phillip D. White & Associates, Inc.
CERTAIN KEY EMPLOYEES
Julie G. Andresen has served as Vice President, Creative Design of the
Company since 1993. Ms. Andresen served as Director, Creative Design from 1992
to 1993 and as Manager Creative Design of Wiland Services, Inc. from 1989 to
1992. Ms. Andresen was Project Coordinator with Knudsen Printing from 1988 to
1989 and Associate Manager of Graphic Design for Communications Art, Inc. from
1984 to 1985.
Thomas P. Murray has served as Vice President, Marketing of the Company
since 1995. He served as Product Manager with Neodata Corporation from 1994 to
1995 and Account Director with Neodata Corporation from 1992 to 1994. Mr. Murray
served as Account Executive with Wiland Services, Inc. from 1989 to 1992 and
held other positions at Wiland Services, Inc. from 1984 to 1989.
R. C. Lloyd has served as Vice President, Operations of the Company since
1996. Mr. Lloyd was a Product Management Consultant during 1995 and served as
General Manager of Neodata Corporation from 1992 to 1995. Mr. Lloyd was General
Manager of Presort, Inc. from 1991 to 1992, Circulation Manager with Group
Publishing from 1990 to 1991 and Manager of Administration with Ball Aerospace
from 1984 to 1989.
Phillip A. Tobias has served as Vice President, Information Technology of
the Company since 1995. He was an Information Systems Architect with Neodata
Corporation from 1992 to 1995. Mr. Tobias served as Vice President, Special
Projects with Wiland Services, Inc. from 1989 to 1992 and held other positions
at Wiland Services, Inc. from 1972 to 1989.
Vickie J. Slade has served as Vice President, Merchandise of the Company
since April 1997. Ms. Slade was Merchandise Manager from 1992 to April 1997. Ms.
Slade was the Executive Assistant to the President with Wiland Services, Inc.
from 1990 to 1992 and held other positions at Wiland Services, Inc. from 1986 to
1990.
David H. Haddon has served as Controller of the Company since 1995. Mr.
Haddon served as Senior Accounting Manager with the Company from 1992 to 1995,
Senior Accounting Manager with Wiland Services, Inc. from 1990 to 1992 and
Accounting Manager with Wiland Services, Inc. from 1984 to 1990. Mr. Haddon was
formerly a Certified Public Accountant with Ernst & Young LLP.
COMMITTEES OF THE BOARD
The standing committees of the Board of Directors include an Audit
Committee and a Compensation and Nominations Committee.
Messrs. Polk, White and Buoncristiano are the members of the Audit
Committee, which met four times in 1996. The principal function of the Audit
Committee is to oversee the performance of the Company's independent
accountants. In this capacity, the Audit Committee recommends the firm to be
engaged by the Company for independent auditing and reviews the overall scope
and results of the annual audit. It also reviews, among other things, the
functions and performance of the Company's internal accounting controls, the
performance of nonaudit services, and changes in accounting policies.
Messrs. Burrus, Polk, White and Buoncristiano are the members of the
Compensation and Nominations Committee, which met two times in 1996. The
principal functions of the Compensation and Nominations Committee are to review
and set the direct and indirect compensation of the directors and officers of
the Company, to administer the Company's incentive compensation and stock option
plans and consider
37
<PAGE> 42
nominations for director made by stockholders of the Company. The Committee
reviews the salaries and bonuses for all officers and certain other executives,
recommends special benefits and perquisites for management, and consults with
management regarding employee benefits and general personnel policies and
recommends persons to be considered for election to the Board of Directors,
membership on committees of the Board of Directors, and positions as executive
officers of the Company.
COMPENSATION OF DIRECTORS
The Company pays to each director who is not a Company employee an annual
retainer of $4,000 and $500 for each meeting of the Board of Directors or any
committee meeting of the Board of Directors attended. All directors are
reimbursed for travel expenses incurred as a result of service on the Board of
Directors.
Directors who are not employees of the Company also receive awards under
the 1992 Non-Employee Directors Stock Option Plan (the "1992 Plan"). Stock
option grants under the 1992 Plan are automatic. Each eligible director of the
Company on the effective date of the 1992 Plan, December 18, 1992, automatically
received an option to purchase 6,000 shares of Common Stock (split adjusted).
Each eligible director newly elected by the Company's stockholders on and after
the effective date of the 1992 Plan automatically receives an option to purchase
6,000 shares on the date the director is elected by the stockholders. In
addition, on the second anniversary of the date on which an eligible director
receives his or her initial grant of an option, and biannually thereafter, each
then eligible director will automatically receive an option to acquire an
additional 4,000 shares of Common Stock (split adjusted). The number of shares
of Common Stock currently reserved for issuance under the 1992 Plan is 80,000
(split adjusted). The exercise price of the options granted under the 1992 Plan
is the fair market value of the Common Stock on the date of the option grant.
Option grants under the 1992 Plan are exercisable in annual increments of 33.3%
commencing one year following the date of grant.
On December 18, 1996, the fourth anniversary date on which each eligible
director received his initial grant of options, four non-employee members of the
Board of Directors were automatically granted an aggregate of 16,000 stock
options in accordance with the 1992 Plan, at an option price of $9.75 per share,
the fair market value on the date of the grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Burrus, a member of the Compensation and Nominations Committee, is
Chairman and partner of the law firm of McGuire, Woods, Battle & Boothe, L.L.P.,
which has served as general counsel to the Company since 1992 and previously
served as general counsel to Wiland Services, Inc.
38
<PAGE> 43
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the years ended December 31, 1994, 1995
and 1996, certain compensation awarded to, earned by, or paid to the Company's
Chief Executive Officer and to the Company's other executive officers whose
annual compensation exceeded $100,000 for the year ended December 31, 1996.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
- ------------------------------------------------------------------------- UNDERLYING ALL OTHER
SALARY BONUS OTHER ANNUAL OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION (#) ($)(1)
- --------------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Phillip A. Wiland,............... 1996 167,390 57,025 (2) 0 3,939
Chairman and Chief 1995 133,424 31,860 (2) 0 3,403
Executive Officer 1994 107,804 36,389 (2) 16,000 2,283
J. Michael Wolfe,................ 1996 150,690 51,054 (2) 0 2,709
President and 1995 131,597 30,654 (2) 0 1,427
Chief Operating Officer 1994 100,323 35,543 (2) 16,000 1,454
H. Franklin Marcus, Jr........... 1996 86,010 29,316 (2) 0 2,173
Chief Financial Officer and 1995 78,689 18,314 (2) 0 2,147
Secretary, Treasurer 1994 61,680 22,346 (2) 8,000 1,554
</TABLE>
- ---------------
(1) These amounts were paid by the Company as matching contributions under the
Company's Retirement Savings Plan.
(2) None of the named executive officers received Other Annual Compensation in
excess of the lesser of $50,000 or 10% of combined salary and bonus for
1994, 1995 or 1996.
1992 EMPLOYEE STOCK OPTION PLAN
The Company's 1992 Employee Stock Option Plan (the "Stock Option Plan") was
adopted by the Board of Directors on December 18, 1992 and approved by the
stockholders on July 30, 1993. Under the Stock Option Plan, 280,000 shares of
Common Stock (split adjusted) have been authorized for issuance pursuant to
incentive awards. Such incentive awards may be in the form of stock options,
stock appreciation rights, restricted stock or incentive stock. All present and
future employees of the Company who hold positions with management
responsibilities are eligible to receive incentive awards under the Stock Option
Plan, if specifically recommended by the Compensation and Nominations Committee
of the Board of Directors and approved by the full Board. The Stock Option Plan
is administered by the Compensation and Nominations Committee of the Board of
Directors. As of March 31, 1997, options to purchase 268,666 shares were
outstanding, of which options to purchase 19,334 shares were presently
exercisable.
INCENTIVE COMPENSATION PLAN
Since 1992, the Board of Directors of the Company has adopted an Incentive
Compensation Plan each year to encourage certain employees to increase Company
earnings steadily and significantly. Under these Incentive Compensation Plans,
certain employees of the Company receive annual or quarterly incentive bonuses
if the Company reaches certain earnings per share ("EPS") or return on average
equity ("ROAE") thresholds. Depending upon the level of EPS and ROAE on
quarter-to-quarter and year-to-date bases, eligible employees may receive cash
bonuses equal to certain percentages of their base salary. To participate in an
Incentive Compensation Plan, eligible employees must be an employee on the first
business day and last calendar day of the period covered. These Incentive
Compensation Plans are administered by the Compensation and Nominations
Committee of the Board of Directors. The Company's 1997 Incentive Compensation
Plan was adopted by the Board of Directors on December 7, 1996 and covers 16
employees.
39
<PAGE> 44
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information concerning each exercise of
stock options and SARs during the year ended December 31, 1996, and the year-end
value of unexercised options and SARs, for each of the executive officers named
in the Summary Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND YEAR END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE 12/31/96(#) 12/31/96(1)($)
ACQUIRED ON REALIZED ----------------------------- -----------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Phillip A. Wiland......... 0 0 2,000 30,000 $18,345 $ 254,775
J. Michael Wolfe.......... 0 0 4,000 44,000 36,690 383,810
H. Franklin Marcus, Jr.... 0 0 2,000 22,000 18,345 191,905
</TABLE>
- ---------------
(1) The value calculation is based on the market value of the underlying stock
at year end, minus the exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 20, 1993, Mr. Wolfe, an executive officer of the Company, purchased
160,000 shares of Common Stock from the Company at the price of $.5625 per
share. Mr. Wolfe made a down payment of $27,000 on the purchase and financed the
remaining $63,000 by delivering to the Company a non-recourse installment note
accruing interest at a rate of 5.5% per annum. The note provided that payment of
interest must be made on a quarterly basis and that the principal be paid in
four annual installments, each equal to 10% of the principal amount, commencing
on May 1, 1994, with a balloon payment of the remaining balance on May 1, 1998.
Mr. Wolfe pledged the entire 160,000 shares of Common Stock to the Company as
collateral for the loan. Mr. Wolfe paid off the loan in full in 1996.
40
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the Company's
Common Stock beneficially owned as of February 18, 1997 by (i) each person known
by the Company to be the beneficial owner of more than 5% of the shares of
Common Stock, (ii) each selling stockholder, (iii) each director individually,
(iv) each executive officer individually and (v) all executive officers and
directors as a group. All shares have been adjusted to reflect the 2-for-1 stock
split on March 31, 1997.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) AFTER OFFERING
--------------------- NUMBER ---------------------
NUMBER OF SHARES NUMBER
NAME OF SHARES PERCENT TO BE SOLD OF SHARES PERCENT
- ---------------------------------------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Phillip A. Wiland....................... 1,515,468(2) 35.49% 197,468 1,318,000 27.80%
1351 S. Sunset
Longmont, CO 80501
Michael T. Buoncristiano................ 77,898(3) 1.83 32,500 43,898 *
450 7th Street, Suite LL8
Hoboken, NJ 07030
Robert L. Burrus, Jr.................... 8,668 * 0 8,668 *
One James Center
Richmond, VA 23219
H. Franklin Marcus, Jr.................. 85,196 2.00 6,000 79,196 1.67
1351 S. Sunset
Longmont, CO 80501
Phillip D. White, Ph.D.................. 128,666(4) 3.01 34,000 94,666 2.00
200 Camden Place
Boulder, CO 80302
J. Michael Wolfe........................ 188,528 4.41 12,528 176,000 3.71
1351 S. Sunset
Longmont, CO 80501
Stephen R. Polk......................... 8,666(7) * 0 8,666 *
1155 Brewery Park Blvd.
Detroit, MI 48207
All Directors and....................... 2,013,090 47.13 282,496 1,729,094 36.47
Executive Officers as a Group (7
Persons)
Patricia Buoncristiano.................. 1,000 * 1,000 0 *
450 7th Street, Suite LL8
Hoboken, NJ 07030
Louise A. Buoncristiano................. -- * 1,500(5) 0 *
450 7th Street, Suite LL8
Hoboken, NJ 07030
5% OWNERS
Laifer Capital.......................... 746,000(6) 17.47 0 746,000 15.73
Management, Inc.
114 West 47th Street
New York, NY 10036
R.L. Polk & Co. ........................ 843,600(7) 19.76 843,600 0 *
1155 Brewery Park Blvd.
Detroit, MI 48207
</TABLE>
- ---------------
* Does not exceed 1% of the outstanding shares of the Company
(1) Except as described in footnotes (2), (3), (4), (5), (6) and (7) below, each
individual has sole voting power and sole investment power with respect to
the Common Stock set forth opposite his name. Includes, as to Mr. White
4,666 shares, as to Messrs. Buoncristiano and Burrus 1,334 shares, as to
Messrs. Marcus and Wiland 2,000 shares, and as to Mr. Wolfe 4,000 shares of
Common Stock, that could be acquired through exercise of stock options that
are currently exercisable or will become exercisable within 60 days of the
date of this Prospectus.
41
<PAGE> 46
(2) Includes 1,497,968 shares owned in joint tenancy by Mr. Wiland and his wife,
who share voting and investment power as to the shares, 12,900 shares held
by Mr. Wiland as custodian for his minor children under the Uniform Gifts to
Minors Act and for which Mr. Wiland has sole voting and investment power and
4,600 shares owned by Mr. Wiland's daughter and for which Mr. Wiland shares
voting and investment power.
(3) Includes 71,564 shares owned by Mr. Buoncristiano, 4,000 shares held in an
IRA in the name of Mr. Buoncristiano for which Mr. Buoncristiano has sole
voting and investment power, and 1,000 shares held by Mr. Buoncristiano as
custodian for his minor child under the Uniform Transfer to Minors Act and
for which Mr. Buoncristiano has sole voting and investment power.
(4) Includes 8,000 shares owned by Dr. White and 106,000 shares held in an IRA
in the name of Dr. White for which Dr. White has sole voting and investment
power and 10,000 shares held by the Phillip D. White Family Limited
Partnership for which Dr. White's wife has sole voting and investment power.
(5) Represents shares to be transferred from Michael T. Buoncristiano prior to
the Offering.
(6) Ownership information is based on the Schedule 13D filed on January 27,
1997. According to this Schedule 13D, Laifer Capital Management, Inc. holds
522,200 shares with sole voting and dispositive power and 223,800 shares
with shared dispositive power.
(7) Stephen R. Polk, a Director of the Company, is Chairman of the Board and
Chief Executive Officer of R.L. Polk & Co., and may by virtue of these
positions be deemed to share voting and investment power over shares owned
by R.L. Polk & Co. Mr. Polk disclaims any such shared control of shares
owned by R.L. Polk & Co.
42
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock is subject in all
respects to the General Corporation Law of the State of Delaware ("Delaware
GCL") and to the provisions of the Company's Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation") and Bylaws, which are exhibits to
the Registration Statement.
GENERAL
The Company's Certificate of Incorporation currently provides that the
Company is authorized to issue 6,000,000 shares of Common Stock, par value $.10
per share. As of April 1, 1997, the Company had 4,250,882 shares of Common Stock
outstanding. Upon completion of this Offering, there will be 4,722,286 shares of
Common Stock outstanding. In addition, an aggregate of 330,666 shares of Common
Stock are reserved for issuance under the 1992 Stock Option Plan and the 1992
Non-Employee Directors Stock Option Plan.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of the liquidation,
dissolution or winding up of the Company, the holders of Common Stock will be
entitled to share ratably in all assets remaining after payment of liabilities.
The Company's Common Stock has no preemptive, subscription or conversion rights
and there are no redemption or sinking fund provisions in the Company's
Certificate of Incorporation. The issued and outstanding shares of Common Stock
are fully paid and nonassessable.
Stockholders are entitled to one vote for each share of Common Stock held
of record on all matters on which stockholders are entitled or permitted to
vote. The Common Stock does not have cumulative voting rights. As a result, the
holders of more than 50% of the shares of Common Stock voting for the election
of directors can elect all the directors if they choose to do so, and in such
event, the holders of the remaining shares of Common Stock will not be able to
elect any other person or persons to the Board of Directors of the Company.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware GCL. In general,
Section 203 prevents an "interested stockholder" (defined generally as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging in
a "business combination" (as defined) with a Delaware corporation for three
years following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation, and shares held by certain employee stock ownership plans);
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
LIMITATION ON LIABILITY AND BYLAW PROVISIONS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware GCL, a director of the Company shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. Under the Delaware GCL, liability of a director
may not be limited (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or
43
<PAGE> 48
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or repurchases, and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of this provision of
the Company's Certificate of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Bylaws provide that it shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by the Delaware
GCL.
The Company's Bylaws provide that the number of directors will be fixed
from time to time by the Board of Directors. The number of directors is
currently fixed at five.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota, 55075.
44
<PAGE> 49
UNDERWRITING
Subject to the terms and certain conditions of the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom EVEREN Securities, Inc. and Scott & Stringfellow, Inc.
are acting as representatives (the "Representatives"), have severally agreed to
purchase an aggregate of 1,600,000 shares of Common Stock from the Company and
the Selling Stockholders. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
EVEREN Securities, Inc.......................................
Scott & Stringfellow, Inc....................................
---------
Total.............................................. 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters who are parties thereunder are subject to certain conditions. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than the
shares of Common Stock covered by the over-allotment option described below)
must be so purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not to exceed $ per share. The Underwriters may
allow, and such dealers may re-allow, discounts not to exceed $ per share to
certain other dealers. After the initial public offering of the shares of Common
Stock, the public offering price and the other selling terms may be changed by
the Representatives.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 240,000 additional shares of Common Stock at the price to the
public set forth on the cover page of this Prospectus, less underwriting
discounts and commissions, solely to cover over-allotments, if any. Such option
may be exercised at any time until 30 days after the date of this Prospectus. To
the extent that the Underwriters exercise such option, each of the Underwriters
will be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Act,
or to contribute to payments that the Underwriters may be required to make in
respect thereof.
The public offering price for the Common Stock set forth on the cover page
of this Prospectus was determined by negotiations among the Company and the
Representatives. The factors considered in determining the public offering price
include the information set forth in this Prospectus and otherwise available to
the Representatives, the trading history of the Common Stock on the Nasdaq
SmallCap Market, the history of and prospects for the industry in which the
Company competes, the ability of the Company's management, the past and present
operations of the Company, the historical results of the operations of the
Company, the prospects for future earnings of the Company, the general condition
of the securities market at the time of this offering and the recent market
prices of securities of generally comparable companies. Prior to this offering,
trading in the Company's Common Stock has been quite limited. There can be no
assurance as to the liquidity of any market that may develop for the Common
Stock or the ability of holders to sell their Common Stock, nor can there be any
assurance that the price at which holders are able to sell their Common Stock
will not be lower than the price at which the Common Stock is sold to the public
by the Underwriters. See "Risk Factors -- Limited Historical Trading Volume;
Possible Volatility."
45
<PAGE> 50
The Company, Phillip A. Wiland (the Company's Chairman of the Board and
Chief Executive Officer), J. Michael Wolfe (the Company's President and Chief
Operating Officer), H. Franklin Marcus, Jr. (the Company's Chief Financial
Officer) and each of the Company's other directors (Mr. Wiland, Mr. Wolfe, Mr.
Marcus and such other directors will beneficially own an aggregate of 1,729,094
shares of Common Stock after this offering) have agreed with the Underwriters
not to (other than in connection with this offering and in connection with
certain transfers of Common Stock to entities organized for the exclusive
benefit of family members of such persons), directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, any shares of Common Stock of the
Company or issue any securities convertible into or exercisable or exchangeable
(except pursuant to the terms of the Company's employee or non-employee director
stock plans) for Common Stock, or enter into any swap or other agreement to do
any of the foregoing, for a period of 12 months after the date of this
Prospectus without the written consent of EVEREN Securities, Inc. (the "Lock-Up
Agreement"). The other Selling Stockholders have also agreed to such
restrictions. These "lock-up" restrictions do not apply to the estate of any
person described above in the event such person dies during the 12-month
"lock-up" period and do not prohibit any person from exercising options (but
would prohibit the sale during the restricted period of any shares of Common
Stock purchased upon exercise of such options). As part of the Lock-Up
Agreement, the Company has also agreed with the Underwriters that it will not,
without the written consent of EVEREN Securities, Inc., file a registration
statement relating to shares of capital stock (including the Common Stock), or
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, capital stock, during such 12-month
period, with the exception of the filing of Registration Statements on Form S-8
with respect to the Company's employee stock plans.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with the Securities Exchange Act of 1934 pursuant to which such persons may bid
for or purchase Common Stock for the purpose of stabilizing its market price.
The Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such shares of Common
Stock or may exercise the Underwriters' over-allotment option referred to above.
In addition, the Representative, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering), for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph are required, and,
if they are undertaken, they may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of Concepts Direct, Inc. offered hereby will be
passed upon for the Company and the Selling Stockholders by McGuire, Woods,
Battle & Boothe, L.L.P., Richmond, Virginia. Certain legal matters relating to
the Offering will be passed upon for the Underwriters by Gibson, Dunn & Crutcher
LLP, San Francisco, California. Lawyers of McGuire, Woods, Battle & Boothe,
L.L.P. own approximately shares of the Common Stock.
EXPERTS
The financial statements of Concepts Direct, Inc. at December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing
46
<PAGE> 51
elsewhere herein, are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, of which this Prospectus is a part, as well as such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
located at 7 World Trade Center, New York, New York 10048 and Northwest Atrium,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a Worldwide Web site (address: http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The Common
Stock is traded on the Nasdaq SmallCap Market and the Company has applied to
have the Common Stock traded on the Nasdaq National Market. Reports and other
information concerning the Company may also be inspected at the offices of the
Nasdaq Stock Market, 1725 K Street, N.W., Washington, D.C. 20006.
As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement on
Form S-1 (the "Registration Statement") of which this Prospectus is a part. For
such information, reference is made to the Registration Statement and the
exhibits thereto. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete; with respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement or incorporated by reference herein, reference is made to
such contract, agreement or other document for a more complete description of
the matter involved, and each such statement is qualified in its entirety by
such reference.
47
<PAGE> 52
CONCEPTS DIRECT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)....... F-3
Income Statements for the years ended December 31, 1994, 1995 and 1996 and the
three-month periods ended March 31, 1996 and 1997 (unaudited)...................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and
1996 and the three-month period ended March 31, 1997 (unaudited)................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the
three-month periods ended March 31, 1996 and 1997 (unaudited)...................... F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 53
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, 1996 and 1995, and the related income statements, statements of
stockholders' equity, and statements of cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
January 31, 1997
except for Note 7 as to which the date is
February 25, 1997
F-2
<PAGE> 54
CONCEPTS DIRECT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $3,324,838 $ 6,425,137 $ 3,354,506
Restricted cash.................................... 0 0 500,000
Accounts receivable, less allowances............... 108,102 165,833 154,836
Deferred advertising costs......................... 2,207,244 3,818,827 3,927,976
Inventories, less allowances....................... 2,798,878 2,783,999 2,755,697
Prepaid expenses and other......................... 283,254 248,920 218,364
---------- ---------- -----------
Total current assets....................... 8,722,316 13,442,716 10,911,379
Property and equipment, net.......................... 994,744 792,199 2,913,204
Other assets......................................... 206,768 252,068 236,813
---------- ---------- -----------
$9,923,828 $14,486,983 $14,061,396
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................... $3,107,174 $ 5,323,278 $ 3,751,333
Current maturities of lease obligations............ 87,275 59,457 34,804
Accrued employee compensation...................... 638,943 584,868 663,141
Customer liabilities............................... 908,264 762,491 962,269
Current and deferred income taxes payable.......... 90,925 787,643 996,643
---------- ---------- -----------
Total current liabilities.................. 4,832,581 7,517,737 6,408,190
Lease obligations.................................... 67,493 -- --
Commitments and contingencies
Stockholders' equity
Common Stock, $.10 par value, authorized 6,000,000
shares; issued and outstanding 4,242,216 and
4,232,882 in 1996 and 1995, respectively,
4,250,882 shares at March 31, 1997.............. 211,644 212,111 425,088
Additional paid-in capital......................... 4,366,633 4,374,455 4,172,274
Retained earnings.................................. 445,477 2,382,680 3,055,844
---------- ---------- -----------
Total stockholders' equity................. 5,023,754 6,969,246 7,653,206
---------- ---------- -----------
$9,923,828 $14,486,983 $14,061,396
========== ========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 55
CONCEPTS DIRECT, INC.
INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales....................... $20,723,829 $42,146,997 $51,125,844 $11,583,964 $15,952,360
Operating costs and expenses
Cost of product and
delivery................... 11,406,063 22,286,173 26,833,956 5,941,346 7,959,421
Selling, general and
administrative............. 7,914,501 19,222,425 21,729,621 5,379,896 7,042,032
----------- ----------- ----------- ----------- -----------
Total operating costs and
expenses...................... 19,320,564 41,508,598 48,563,577 11,321,242 15,001,453
----------- ----------- ----------- ----------- -----------
Operating income................ 1,403,265 638,399 2,562,267 262,722 950,907
Other income, net............... 87,195 298,266 245,936 112,047 101,257
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 1,490,460 936,665 2,808,203 374,769 1,052,164
Provision for income taxes...... -- 94,000 871,000 109,000 379,000
----------- ----------- ----------- ----------- -----------
Net income...................... $ 1,490,460 $ 842,665 $ 1,937,203 $ 265,769 $ 673,164
=========== =========== =========== =========== ===========
Earnings per share.............. $ 0.34 $ 0.19 $ 0.44 $ 0.06 $ 0.15
=========== =========== =========== =========== ===========
Weighted average number of
common shares and common share
equivalents outstanding....... 4,323,096 4,404,332 4,441,664 4,442,132 4,482,159
</TABLE>
See notes to financial statements.
F-4
<PAGE> 56
CONCEPTS DIRECT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF ADDITIONAL RETAINED TOTAL
COMMON COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) EQUITY
--------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.......... 1,055,387 $105,539 $4,463,295 ($1,887,648) $ 2,681,186
Net income.......................... -- -- -- 1,490,460 1,490,460
Stock split......................... 1,055,387 105,538 (105,538) -- --
--------- -------- ---------- ----------- ----------
Balance at December 31, 1994.......... 2,110,774 211,077 4,357,757 (397,188) 4,171,646
Net income.......................... -- -- -- 842,665 842,665
Exercise of stock options........... 5,667 567 8,876 -- 9,443
--------- -------- ---------- ----------- ----------
Balance at December 31, 1995.......... 2,116,441 211,644 4,366,633 445,477 5,023,754
Net income.......................... -- -- -- 1,937,203 1,937,203
Exercise of stock options........... 4,667 467 7,822 -- 8,289
--------- -------- ---------- ----------- ----------
Balance at December 31, 1996.......... 2,121,108 212,111 4,374,455 2,382,680 6,969,246
Net income (Unaudited).............. -- -- -- 673,164 673,164
Exercise of stock options
(Unaudited)...................... 4,333 433 10,363 -- 10,796
Stock split (Unaudited)............. 2,125,441 212,544 (212,544) -- --
--------- -------- ---------- ----------- ----------
Balance at March 31, 1997
(Unaudited)......................... 4,250,882 $425,088 $4,172,274 $ 3,055,844 $ 7,653,206
========= ======== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 57
CONCEPTS DIRECT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
--------------------------------------- MARCH 31,
1994 1995 1996 ------------------------
----------- ----------- ----------- 1996 1997
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 1,490,460 $ 842,665 $ 1,937,203 $ 265,769 $ 673,164
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for (recovery of) losses on (18,870) (3,130) 23,000 7,000 --
accounts receivable................
Provision (credit) for losses in 247,364 32,602 41,721 (41,538) 60,657
inventory values...................
Depreciation and amortization........ 376,537 507,689 520,698 121,512 74,603
Increase in current and deferred -- 90,925 696,718 29,000 209,000
income taxes payable...............
Loss on disposals of property and 1,779 -- 59,013 -- --
equipment..........................
Changes in operating assets and
liabilities:
Accounts receivable.................. 174,152 119,339 (80,731) (78,808) 10,997
Deferred advertising costs........... (1,163,440) (57,560) (1,611,583) (326,592) (109,149)
Inventories.......................... (385,961) (1,639,514) (26,842) 544,719 (32,355)
Prepaid expenses and other........... 80,368 (13,681) 34,334 38,847 30,556
Accounts payable..................... 1,312,468 94,078 2,216,104 (679,892) (1,571,945)
Accrued employee compensation........ 230,699 191,755 (54,075) (242,806) 78,273
Customer liabilities................. 182,274 480,173 (145,773) (481,738) 199,778
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING 2,527,830 645,341 3,609,787 (844,527) (376,421)
ACTIVITIES..............................
INVESTING ACTIVITIES
Cash restricted as collateral........... -- -- -- -- (500,000)
Purchases of property and equipment..... (502,186) (550,328) (377,426) (71,157) (2,195,608)
Sales of property, equipment and 900 -- 260 -- --
investments..........................
Other investing activities, net......... (31,796) (38,135) (45,300) (47,229) 15,255
----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES..... (533,082) (588,463) (422,466) (118,386) (2,680,353)
FINANCING ACTIVITIES
Principal payment of lease (61,530) (79,498) (95,311) (24,851) (24,653)
obligations..........................
Sale of Common Stock and exercise of -- 9,443 8,289 7,134 10,796
stock options........................
----------- ----------- ----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES..... (61,530) (70,055) (87,022) (17,717) (13,857)
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH 1,933,218 (13,177) 3,100,299 (980,630) (3,070,631)
EQUIVALENTS..........................
Cash and cash equivalents at beginning 1,404,797 3,338,015 3,324,838 3,324,838 6,425,137
of year..............................
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of $ 3,338,015 $ 3,324,838 $ 6,425,137 $2,344,208 $ 3,354,506
period...............................
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 58
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Organization: Concepts Direct, Inc. markets various products directly to
individual consumers, including a line of personal labels, stationery, desk
accessories and other merchandise under various catalog titles. The Company's
corporate and operations facilities are located in Longmont, Colorado. The
Company sells its products nationwide and in Canada.
Interim Financial Statements: The Company, in its opinion, has included all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of its financial position at March 31, 1997 and the results of its
operations for the three months ended March 31, 1997 and 1996. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results for a full year.
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.
The Company's sales are attributable entirely to United States operations.
Export sales to Canada were approximately 4.6%, 2.5% and 1.9% of total sales in
1994, 1995 and 1996, respectively, and 2.1% and 1.3% for the three months ended
March 31, 1996 and 1997, respectively. Export sales excluding Canada, were
insignificant in all periods reported.
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.
Marketable securities are carried at cost which approximates market value
and consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------- ----------
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
U.S. Government Obligations.......... $ 986,600 $4,555,206 $1,230,471
Commercial Certificates of Deposit... 720,000 360,000 784,000
---------- ---------- ----------
Total Marketable Securities.......... $1,706,600 $4,915,206 $2,014,471
========== ========== ==========
</TABLE>
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 principle factors used
in estimating the amortization rate. Other advertising and promotional costs are
expensed as incurred. Advertising costs were $6,142,000, $16,477,000 and
$18,373,000 in 1994, 1995 and 1996, respectively, and $4,626,000 and $6,075,000
for the three months ended March 31, 1996 and 1997, respectively.
Inventories: Inventories of products, net of valuation allowances of $692,000
and $400,000 at December 31, 1995 and 1996, respectively, and $447,000 at March
31, 1997, are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment: Such assets are stated on the basis of cost. Purchased
and leased computer software is depreciated using the straight-line method. All
other property and equipment is depreciated using accelerated methods.
F-7
<PAGE> 59
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 is recorded by
applying the rate change to the cumulative temporary differences.
Earnings Per Common Share: Earnings per common share computations are based on
the weighted average number of common shares and common stock equivalents (stock
options determined under the treasury stock method) outstanding during the
period. Primary and fully diluted earnings per share are the same.
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.
NOTE 2. STATEMENTS OF CASH FLOWS
Following is supplemental information to the statements of cash flows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Non-cash investing and financing activities:
Lease obligation incurred in connection
with acquisition of data processing
equipment.............................. $92,619 $ -- $ -- $ -- $ --
Cash - flow data:
Cash paid during the year for:
Interest............................... $17,081 $19,197 $ 12,801 $ 4,887 $ 1,425
Income taxes........................... $ -- $ 3,075 $174,282 $80,000 $ 170,000
</TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
Following is a summary of property and equipment at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, PRINCIPAL
------------------------- ----------- ESTIMATED
1995 1996 1997 USEFUL LIVES
----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Data processing equipment.................... $ 1,091,440 $ 1,071,792 $ 1,105,575 5-7 years
Purchased and leased computer software....... 609,406 389,269 389,269 5 years
Furniture and equipment...................... 743,008 761,350 761,350 1-5 years
Leasehold improvements....................... 368,233 368,233 368,233 5 years
Building under construction.................. -- -- 698,615
Land......................................... -- 182,676 1,641,625
----------- ----------- -----------
2,812,087 2,773,320 4,964,667
Less accumulated depreciation and
amortization............................... (1,817,343) (1,981,121) (2,051,463)
----------- ----------- -----------
$ 994,744 $ 792,199 $ 2,913,204
=========== =========== ===========
</TABLE>
F-8
<PAGE> 60
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 3. PROPERTY AND EQUIPMENT (CONTINUED)
In January, 1997, the Company purchased approximately 139 acres of
undeveloped land near the Company's offices for approximately $1,400,000. 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 Company anticipates completing a new building, costing approximately
$8,500,000, during the summer of 1997. The lease on the Company's current
facility in Longmont, Colorado expires August 31, 1997. The Company also
anticipates significant additions to furniture and equipment during 1997.
On March 25, 1997, an irrevocable standby letter of credit for $500,000 was
issued by a regional bank. The letter relates to certain obligations anticipated
to be resolved within one year, in connection with improvements to the building
site. The letter of credit is collateralized by $500,000 of cash held on deposit
in an interest bearing account at the issuing bank.
NOTE 4. LEASE OBLIGATIONS
Future minimum lease payments due for all non-cancelable leases are as
follows at:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
-------------------- ------------------------
OPERATING CAPITAL OPERATING CAPITAL
---------- ------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
1997............................................ $1,085,000 $61,871 $ -- $ --
1998............................................ 687,000 -- 956,000 35,802
1999............................................ 671,000 -- 697,000 --
2000............................................ 471,000 -- 653,000 --
2001............................................ 234,000 -- 396,000 --
2002............................................ -- -- 160,000
Thereafter........................................ -- -- -- --
----------- ------- ----------- -------
Total future minimum lease payment................ $3,148,000 61,871 $2,862,000 35,802
=========== ===========
Less imputed interest........................ (2,414) (998)
------- -------
Present value of capital lease obligations... $59,457 $34,804
======= =======
</TABLE>
The Company leases various buildings and equipment used in operations under
agreements which expire at various dates through November 2000, excluding
various renewal options available, some of which are subject to annual
adjustments for cost escalation. Total rental expense for all continuing
operations operating leases amounted to $834,000, $1,072,000 and $1,269,000 for
the years ended December 31, 1994, 1995 and 1996, respectively, and $299,000 and
$281,000 for the three months ended March 31, 1996 and 1997, respectively.
Capital lease are classified with data processing equipment and purchased
and leased computer software. Unamortized values were $137,261 and $60,865 at
December 31, 1995 and 1996, respectively, and $49,650 at March 31, 1997.
F-9
<PAGE> 61
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 5. OTHER INCOME, NET
Following is a summary of the Company's other income (deductions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income........................... $ 79,050 $144,718 $161,430 $ 50,397 $ 61,883
Interest expense.......................... (17,081) (19,197) (12,801) (4,487) (1,425)
Vendor payment discounts.................. 27,135 134,771 121,149 31,095 40,755
Other, net................................ (1,909) 37,974 (23,842) 35,042 44
-------- -------- -------- -------- --------
$ 87,195 $298,266 $245,936 $ 112,047 $ 101,257
======== ======== ======== ======== ========
</TABLE>
NOTE 6. INCOME TAXES
The differences between federal statutory income tax rates and the
Company's effective tax rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
--------------------------------- MARCH 31,
1994 1995 1996 -------------------------
--------- --------- --------- 1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal tax expense (benefit) at
statutory rate....................... $ 507,000 $ 318,000 $ 955,000 $ 127,000 $ 358,000
Effect of permanent differences........ 3,000 3,000 3,000 1,000 1,000
State income tax less federal tax
benefits............................. 6,000 7,000 17,000 2,000 21,000
Utilization of net operating loss
carryforwards........................ (516,000) -- -- -- --
Research and experimentation tax
credits.............................. -- -- (104,000) (21,000) (1,000)
Valuation allowance for deferred tax
assets............................... -- (234,000) -- -- --
--------- --------- --------- -------- --------
$ -- $ 94,000 $ 871,000 $ 109,000 $ 379,000
========= ========= ========= ======== ========
</TABLE>
The income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------- ------------------------- -------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- -------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal... $ -- $ -- $54,000 $ 37,000 $141,000 $702,000 $ 104,000 $ 3,000 $ 311,000 $47,000
State..... -- -- 2,000 1,000 7,000 21,000 1,000 1,000 19,000 2,000
------- ------- ------- ------- -------- -------- -------- ------ -------- -------
$ -- $ -- $56,000 $ 38,000 $148,000 $723,000 $ 105,000 $ 4,000 $ 330,000 $49,000
======= ======= ======= ======= ======== ======== ======== ====== ======== =======
</TABLE>
F-10
<PAGE> 62
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 6. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- --------- ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred tax liabilities:
Deferred advertising costs........ ($752,000) ($773,000) $(1,337,000) ($887,000) ($1,414,000)
Deferred tax assets:
Allowance for doubtful accounts... 7,000 6,000 14,000 9,000 15,000
Inventory differences............. 646,000 376,000 236,000 469,000 261,000
Property and equipment............ 156,000 142,000 160,000 156,000 167,000
Other nondeductible accruals...... 120,000 211,000 166,000 211,000 161,000
Net operating loss
carryforwards.................. 57,000 -- -- -- --
--------- --------- ----------- --------- -----------
Total deferred tax assets......... 986,000 735,000 576,000 845,000 604,000
Valuation allowance for deferred
tax assets..................... (234,000) -- -- -- --
--------- --------- ----------- --------- -----------
Net deferred tax assets............. 752,000 735,000 576,000 845,000 604,000
--------- --------- ----------- --------- -----------
Net deferred tax liabilities........ $ -- ($ 38,000) ($ 761,000) ($ 42,000) ($ 810,000)
========= ========= =========== ========= ===========
</TABLE>
At December 31, 1996 and March 31, 1997 the Company has no tax
carryforwards available.
NOTE 7. STOCKHOLDERS' EQUITY
On February 25, 1997, the Board of Directors approved a two-for-one stock
split, effected in the form of a stock dividend payable March 31, 1997 to
shareholders of record on March 14, 1997. Accordingly, March 31, 1997 balances
reflect the split with an increase in Common Stock and a reduction in additional
paid-in capital of $212,544. Number of shares outstanding, stock option and per
share data have been retroactively adjusted to reflect the split.
On October 29, 1994, the Board of Directors approved a two-for-one stock
split, effected in the form of a stock dividend, payable December 15, 1994 to
shareholders of record on November 14, 1994. Accordingly, December 31, 1994
balances reflect the split with an increase in Common Stock and a reduction in
additional paid-in capital of $105,538. Number of shares outstanding, stock
option and per share data have been retroactively adjusted to reflect the split.
During 1993, the Company issued and sold 584,000 shares of Common Stock to
officers and directors at market value. 80,000 shares sold to an officer were
financed in part by a $63,000 note receivable, collateralized by the Common
Stock financed. The note receivable was due in annual installments through 1998
with interest, payable quarterly, at 5.5%. The outstanding loan balance was
$50,400 as of December 31, 1995. The note receivable was paid in full during
1996.
Under the terms of the Concepts Direct, Inc. 1992 Employee Stock Option
Plan, certain key employees were 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
F-11
<PAGE> 63
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
280,000, 278,000 and 278,000 shares of Common Stock reserved for issuance under
the plan as of December 31, 1995, December 31, 1996 and March 31, 1997,
respectively.
Under the terms of the Concepts Direct, Inc. 1992 Non-Employee Directors
Stock Option Plan, the outside directors were 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 68,666, 61,332 and 52,666 shares of Common
Stock reserved for issuance under the plan as of December 31, 1995, December 31,
1996 and March 31, 1997, respectively.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its stock options because, as discussed below,
the alternative fair value accounting provided for by 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:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Risk-free interest rate................................ 5.5% 5.5%
Dividend yields........................................ 0.0% 0.0%
Volatility factors of the expected market price of the
Company's common stock............................... 0.587 0.587
Weighted-average expected life of the employee stock
options.............................................. 5.5 years 5.5 years
Weighted-average expected life of the non-employee
stock options........................................ 2 years 2 years
</TABLE>
The weighted-average fair value of options granted were as follows:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
1992 Employee Plan........................................... $2.14 $5.20
1992 Non-Employee Plan....................................... -- $3.38
</TABLE>
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.
F-12
<PAGE> 64
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------------------------
1995 1996 1996 1997
-------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net income........ $827,705 $1,907,467 $ 259,730 $ 653,637
Pro forma earnings per
share..................... $ 0.19 $ 0.43 $ 0.06 $ 0.15
</TABLE>
Because Statement No. 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
2001.
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
1992 EMPLOYEE PLAN 1992 NON-EMPLOYEE PLAN
-------------------- ----------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993.................. 156,000 $ 0.54 24,000 $ 0.58
Granted at market price......................... 64,000 $ 1.51 16,000 $ 2.75
Canceled........................................ (44,000) $ 0.60 -- $ --
------- ----- ------- -----
Outstanding at December 31, 1994.................. 176,000 $ 0.88 40,000 $ 1.45
Granted at market price......................... 49,000 $ 3.77 -- $ 0.00
Exercised....................................... -- -- (11,334) $ 0.83
------- ----- ------- -----
Outstanding at December 31, 1995.................. 225,000 $ 1.51 28,666 $ 1.69
Granted at market price......................... 25,000 $ 9.12 16,000 $ 9.75
Exercised....................................... (2,000) $ 0.58 (7,334) $ 0.97
Canceled........................................ (8,000) $ 0.88 -- --
------- ----- ------- -----
Outstanding at December 31, 1996.................. 240,000 $ 2.33 37,332 $ 5.28
Exercised (unaudited)........................... -- $ -- (8,666) $ 1.24
------- ----- ------- -----
Outstanding at March 31, 1997 (unaudited)......... 240,000 $ 2.33 28,666 $ 6.51
======= ===== ======= =====
</TABLE>
F-13
<PAGE> 65
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of outstanding options, by year they become exercisable, follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31,
---------------------------------------- -------------------------------------------
(UNAUDITED)
1992 NON- EMPLOYEE 1992 NON-EMPLOYEE
1992 EMPLOYEE PLAN PLAN 1992 EMPLOYEE PLAN PLAN
------------------ ----------------- --------------------- -----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------ -------- ------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996........ 12,000 $ 0.58 16,004 $ 1.66 -- $ -- -- $ --
1997........ 30,000 $ 0.54 10,664 $ 6.25 12,000 $0.58 7,334 $ 2.16
1998........ 42,000 $ 0.88 5,336 $ 9.75 30,000 $0.54 10,668 $ 6.25
1999........ 54,250 $ 1.53 5,328 $ 9.75 48,000 $1.14 5,336 $ 9.75
2000........ 46,500 $ 2.84 -- $ -- 54,250 $1.53 5,328 $ 9.75
2001........ 30,500 $ 4.06 -- $ -- 46,500 $2.84 -- $ --
2002........ 18,500 $ 5.58 -- $ -- 30,500 $4.06 -- $ --
2003........ 6,250 $ 9.13 -- $ -- 12,500 $6.81 -- $ --
2004........ -- $ -- -- $ -- 6,250 $9.13 -- $ --
------- ----- ------ ----- ------- ----- ------ -----
Outstanding...... 240,000 $ 2.33 37,332 $ 5.28 240,000 $2.33 28,666 $ 6.51
======= ===== ====== ===== ======= ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Exercise price range of options outstanding:
1992 Employee Plan.......................... $0.50-$9.13 $ 0.50-$9.13
1992 Non-Employee Plan...................... $0.58-$9.75 $ 0.58-$9.75
Weighted-average remaining contractual life of
options outstanding:
1992 Employee Plan.......................... 7.3 years 7.1 years
1992 Non-Employee Plan...................... 2.8 years 3.7 years
</TABLE>
NOTE 8. EMPLOYEE RETIREMENT SAVINGS PLAN
In May 1985, the Company adopted a Retirement Savings Plan under Section
401(k) of the Internal Revenue Code. Participation in the Plan is available to
any employee of the Company who has completed one year of service and is age
twenty-one or older. The Company contributes $10 monthly for each eligible
employee, plus up to $0.50 for each dollar contributed by each participant on
the first 4% 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 Concepts Direct, Inc. were $27,000,
$33,000 and $55,000 in 1994, 1995 and 1996, respectively, and $16,000 and
$11,000 for the three months ended March 31, 1996 and 1997, respectively.
F-14
<PAGE> 66
CONCEPTS DIRECT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION APPLICABLE TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
NOTE 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
INCOME NET EARNINGS (LOSS)
NET (LOSS) FROM INCOME PER COMMON
SALES OPERATIONS (LOSS) SHARE
------- ----------- ------ ---------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994:
First....................... $ 3,652 $ 148 $ 161 $ 0.04
Second...................... 4,107 129 151 0.04
Third....................... 4,669 350 372 0.09
Fourth...................... 8,296 776 806 0.18
1995:
First....................... $ 8,100 $ 291 $ 229 $ 0.05
Second...................... 9,491 192 177 0.04
Third....................... 8,307 (282) (137) (0.03)
Fourth...................... 16,249 437 574 0.13(a)
1996:
First....................... $11,584 $ 263 $ 266 $ 0.06
Second...................... 9,000 (344) (220) (0.05)
Third....................... 9,800 258 220 0.05
Fourth...................... 20,742 2,386 1,671 0.38
1997:
First....................... $15,952 $ 951 $ 673 $ 0.15
</TABLE>
(a) The 1995 fourth quarter was favorably impacted by the reversal of a $234,000
deferred tax asset valuation allowance which reversal resulted from the
Company having taxable temporary differences greater than deductible
temporary differences and loss carryforwards at December 31, 1995.
F-15
<PAGE> 67
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR ANY OF
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
Use of Proceeds.......................
Capitalization........................
Dividend Policy.......................
Price Range of Common Stock...........
Selected Financial and Operating
Data................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
Business..............................
Management............................
Executive Compensation................
Principal and Selling Stockholders....
Description of Capital Stock..........
Underwriting..........................
Legal Matters.........................
Experts...............................
Additional Information................
Index to Financial Statements.........
</TABLE>
======================================================
======================================================
1,600,000 SHARES
CONCEPTS DIRECT, INC.
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
EVEREN SECURITIES, INC.
SCOTT & STRINGFELLOW, INC.
, 1997
======================================================
<PAGE> 68
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the SEC registration fee, the NASD filing fee and the Nasdaq National Market
application fee.
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 11,918
NASD filing fee......................................................... 3,920
Nasdaq National Market application fee.................................. 28,611
Blue Sky fees and expenses.............................................. *
Printing and engraving expenses......................................... *
Legal fees and expenses................................................. *
Accounting fees and expenses............................................ *
Transfer Agent and Registrar fees....................................... *
Miscellaneous........................................................... *
--------
Total......................................................... $ *
========
</TABLE>
- ---------------
* To be filed by pre-effective amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware GCL permits a corporation to indemnify its
directors and officers against expenses (including attorney's fees), judgments,
fines and amounts paid in settlements actually and reasonably incurred by them
in connection with any action, suit or proceeding brought by third parties, if
such directors or officers acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reason to believe
their conduct was unlawful. In a derivative action, i.e., one by or in the right
of the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors and officers in connection with the defense or
settlement of an action or suit, and only with respect to a matter as to which
they shall have acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interest of the corporation, except that no
indemnification shall be made if such person shall have been adjudged liable to
the corporation, unless and only to the extent that the court in which the
action or suit was brought shall determine upon application that the defendant
officers or directors are reasonably entitled to indemnity for such expenses
despite such adjudication of liability. The Company's Bylaws provide that it
shall indemnify its directors, officers, employees and agents to the fullest
extent permitted by the Delaware GCL.
In addition, the Company's Certificate of Incorporation provides that to
the fullest extent permitted by the Delaware GCL, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. Under the Delaware GCL, liability of a
director may not be limited (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases, and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of this provision in the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situation described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholders to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care.
II-1
<PAGE> 69
Pursuant to Section 145 of the Delaware GCL, the Company maintains
directors and officers' liability insurance coverage.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
+ 1.1 Form of Underwriting Agreement.
3.1 Registrant's Amended and Restated Certificate of Incorporation filed as Exhibit 3(a)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1992, is expressly incorporated herein by this reference.
3.2 Registrant's Bylaws and Statement of Organization of the Incorporator filed as
Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, is expressly incorporated herein by this reference.
+ 5.1 Opinion and consent of McGuire, Woods, Battle & Boothe, L.L.P.
10.1 Lease dated March 17, 1992 between Registrant and Pratt Partnership filed as Exhibit
2 to Wiland Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992 (File No. 0-12967), is expressly incorporated herein by this
reference.
10.2 Amendment dated May 16, 1996 to Lease dated March 17, 1992 between Registrant and
Pratt Partnership filed as Exhibit 2 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, is expressly incorporated herein by this
reference.
10.3 Real Estate Contract and Purchase and Sale Agreement dated March 20, 1996 between
Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996, is expressly incorporated herein
by this reference.
10.4 First amendment dated May 10, 1996 to Purchase and Sale Agreement dated March 20,
1996 between Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is expressly
incorporated herein by this reference.
10.5 Second amendment dated November 26, 1996 to Purchase and Sale Agreement dated March
20, 1996 between Registrant and Richard B. Norton filed as Exhibit 10(e) to
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
is expressly incorporated herein by this reference.
10.6 Contract between Registrant and Intergroup, Inc. as Architect for the Provision of
Architectural Services, dated September 4, 1996, in connection with the design of a
new facility for Registrant in Longmont, Colorado filed as Exhibit 10(h) to
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
is expressly incorporated herein by this reference.
10.7 Registrant's amended Profit Sharing Plan, reflecting an amendment under Section
401(k) of the Internal Revenue Code dated May 31, 1985 filed as Exhibit 10(1) to
Wiland Services, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1985 (File No. 0-12967), is expressly incorporated herein by this
reference.
10.8 Registrant's 1997 Incentive Compensation Plan for officers of the Registrant filed
as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is expressly incorporated herein by this reference.
10.9 Registrant's 1992 Stock Option Plan 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, is expressly incorporated herein by this reference.
</TABLE>
II-2
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.10 Registrant's 1992 Non-Employee Directors Stock Option Plan 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, is expressly incorporated herein by this
reference.
10.11 Letter of Intent between Registrant and Saunders Construction, Inc. dated January
21, 1997 to enter into an agreement for the construction of a new facility for
Registrant in Longmont, Colorado and authorizing Saunders Construction, Inc. to
proceed with certain earthwork activities filed as Exhibit 10(f) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, is expressly
incorporated herein by this reference.
10.12 Letter of Intent between Registrant and Saunders Construction, Inc. dated February
20, 1997 to enter into an agreement for the construction of a new facility for
Registrant in Longmont, Colorado and authorizing Saunders Construction, Inc. to
proceed with certain material pre-orders and structural work filed as Exhibit 10(g)
to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, is expressly incorporated herein by this reference.
*23.1 Consent of Ernst & Young, LLP.
+23.2 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in Exhibit 5.1).
*24.1 Powers of Attorney (see signature page).
</TABLE>
- ---------------
+ To be filed by amendment.
* Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Longmont, State of Colorado, on April 29, 1997.
CONCEPTS DIRECT, INC.
By: /s/ PHILLIP. A. WILAND
------------------------------------
Phillip A. Wiland
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS that each individual whose
signature appears below constitutes and appoints Phillip A. Wiland and H.
Franklin Marcus, Jr., and each of them, such individual's true and lawful
attorneys-in-fact and agents with full power of substitution, for such
individual and in his or her name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
registration statement and any registration statement related to the offering
contemplated by this registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on April 19, 1997 by the following
persons in the respective capacities indicated opposite their names.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- --------------------------------------------
<S> <C>
/s/ PHILLIP A. WILAND Chief Executive Officer and Chairman of the
- ----------------------------------------------- Board Principal Executive Officer
Phillip A. Wiland
/s/ MICHAEL T. BUONCRISTIANO Director
- -----------------------------------------------
Michael T. Buoncristiano
/s/ ROBERT L. BURRUS, JR. Director
- -----------------------------------------------
Robert L. Burrus, Jr.
/s/ STEPHEN R. POLK Director
- -----------------------------------------------
Stephen R. Polk
/s/ PHILLIP D. WHITE Director
- -----------------------------------------------
Phillip D. White
/s/ H. FRANKLIN MARCUS, JR. Secretary/Treasurer
- ----------------------------------------------- Chief Financial Officer
H. Franklin Marcus, Jr. Principal Financial and Accounting Officer
</TABLE>
II-4
<PAGE> 72
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
+ 1.1 Form of Underwriting Agreement.
3.1 Registrant's Amended and Restated Certificate of Incorporation filed as Exhibit
3(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, is expressly incorporated herein by this reference.
3.2 Registrant's Bylaws and Statement of Organization of the Incorporator filed as
Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, is expressly incorporated herein by this reference.
+ 5.1 Opinion and consent of McGuire, Woods, Battle & Boothe, L.L.P.
10.1 Lease dated March 17, 1992 between Registrant and Pratt Partnership filed as
Exhibit 2 to Wiland Services, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 0-12967), is expressly incorporated
herein by this reference.
10.2 Amendment dated May 16, 1996 to Lease dated March 17, 1992 between Registrant
and Pratt Partnership filed as Exhibit 2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, is expressly incorporated herein
by this reference.
10.3 Real Estate Contract and Purchase and Sale Agreement dated March 20, 1996
between Registrant and Richard B. Norton filed as Exhibit 1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, is expressly
incorporated herein by this reference.
10.4 First amendment dated May 10, 1996 to Purchase and Sale Agreement dated March
20, 1996 between Registrant and Richard B. Norton filed as Exhibit 1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
is expressly incorporated herein by this reference.
10.5 Second amendment dated November 26, 1996 to Purchase and Sale Agreement dated
March 20, 1996 between Registrant and Richard B. Norton filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, is expressly incorporated herein by this reference.
10.6 Contract between Registrant and Intergroup, Inc. as Architect for the Provision
of Architectural Services, dated September 4, 1996, in connection with the
design of a new facility for Registrant in Longmont, Colorado filed as Exhibit
10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is expressly incorporated herein by this reference.
10.7 Registrant's amended Profit Sharing Plan, reflecting an amendment under Section
401(k) of the Internal Revenue Code dated May 31, 1985 filed as Exhibit 10(1) to
Wiland Services, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1985 (File No. 0-12967), is expressly incorporated herein by this
reference.
10.8 Registrant's 1997 Incentive Compensation Plan for officers of the Registrant
filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, is expressly incorporated herein by this
reference.
10.9 Registrant's 1992 Stock Option Plan 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, is expressly incorporated herein by this
reference.
10.10 Registrant's 1992 Non-Employee Directors Stock Option Plan 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, is expressly incorporated herein
by this reference.
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
10.11 Letter of Intent between Registrant and Saunders Construction, Inc. dated
January 21, 1997 to enter into an agreement for the construction of a new
facility for Registrant in Longmont, Colorado and authorizing Saunders
Construction, Inc. to proceed with certain earthwork activities filed as Exhibit
10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, is expressly incorporated herein by this reference.
10.12 Letter of Intent between Registrant and Saunders Construction, Inc. dated
February 20, 1997 to enter into an agreement for the construction of a new
facility for Registrant in Longmont, Colorado and authorizing Saunders
Construction, Inc. to proceed with certain material pre-orders and structural
work filed as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, is expressly incorporated herein by this
reference.
*23.1 Consent of Ernst & Young, LLP.
+23.2 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in Exhibit 5.1).
*24.1 Powers of Attorney (see signature page).
</TABLE>
- ---------------
+ To be filed by amendment.
* Filed herewith.
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
and Operating Data" and "Experts" and to the use of our report dated January
31, 1997 (except for note 7 as to which the date is February 25, 1997) in the
Registration Statement on Form S-1 and related Prospectus of Concepts Direct,
Inc. dated April 30, 1997.
/s/ ERNST & YOUNG LLP
Denver, Colorado
April 30, 1997
