FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-20680
CONCEPTS DIRECT, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1781893
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1351 South Sunset Street, Longmont, Colorado 80501
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (303) 772-9171
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 18, 1997 was approximately $8,575,000. This
figure was calculated as follows: The number of shares beneficially owned
by executive officers and directors of the registrant as a group and by
persons known to the registrant to be beneficial owners of more than 5% of
the outstanding common stock of the registrant was subtracted from the total
number of shares outstanding. The resulting figure was then multiplied by
the average of the bid and asked prices of the registrant's stock in the
over-the-counter market on February 18, 1997. The foregoing calculation
should not be deemed an admission that any of the officers and directors of
the registrant or any holder of more than 5% of the outstanding common stock
of the registrant is an "affiliate."
The number of shares outstanding of the registrant's common stock as of
February 18, 1997 was 2,125,441.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its annual meeting of
shareholders scheduled for April 19, 1997 are incorporated by reference into
Part III.
PART 1
ITEM 1. BUSINESS
GENERAL
Concepts Direct, Inc. (the "Company" or "Concepts Direct") is a direct
marketing company, headquartered in Longmont, Colorado. From 1988 to 1992,
Company operations were conducted in the Consumer Products division of
Wiland Services, Inc. ("Wiland"), which provided a variety of database
management, list processing and marketing research services to direct
marketing companies. The Company was organized as a Delaware corporation in
May 1992 and began operations under its name on September 30, 1992, as a
result of a spin-off from Wiland in connection with Wiland's merger with
Neodata Corporation. As part of the spin-off, assets and liabilities of the
Consumer Products division of Wiland were transferred to the Company and
common stock of the Company was issued to shareholders of Wiland.
Two primary strengths of the Company are its proprietary database
(consisting of approximately 5.6 million customers, catalog requesters and
gift recipients) and its direct marketing expertise. The Company currently
has three direct marketing vehicles, the "Colorful Images," "Linda Anderson"
and "Colorful Images Presents Impressions" catalogs. The Company also uses
other direct marketing media, such as newspaper inserts and direct mail
inserts, to prospect for customers. Through these media, the Company
currently sells personalized paper products and a diverse line of
merchandise, including gift items, home decorative items and apparel. The
Company's long-term strategy is to utilize its direct marketing expertise
and its database to produce multiple independent revenue streams.
STRATEGIC FOCUS
The strategic focus of Concepts Direct is reflected in the Company name.
The first basic strategy is a focus on direct marketing, which is the
Company's fundamental expertise. For more than 20 years before the spin-off
of the Company, the Company's predecessor, Wiland, whose management included
a number of the Company's senior executives, provided database management,
list processing and marketing research services to mail order companies,
publishers, financial institutions and other direct marketers. Collectively,
the Company's key employees have substantial experience in direct marketing,
database development and management and the disciplines crucial to the
direct marketing process. The Company strives to capitalize on its direct
marketing expertise and avoid pursuing lines of business that do not
incorporate these disciplines.
The second basic strategy involves the development of multiple revenue
streams. Serving a diverse direct marketing clientele at Wiland helped the
Company's management develop a strong understanding of how to effectively
employ direct marketing techniques for a wide variety of businesses. A key
strategy at Concepts Direct is to build on this understanding and gradually
implement multiple business concepts, with each concept producing an
independent revenue stream. To date, this strategy has been carried out
through the development of the "Colorful Images" concept and the continued
testing of the "Linda Anderson" and "Impressions" concepts.
CUSTOMER DATABASE
The Company's proprietary database contained at the end of 1996
approximately 5.6 million customers, catalog requesters and gift recipients,
approximately 1.6 million of whom placed orders with the Company during the
last fiscal year. The Company's database has grown substantially during the
past three years, increasing from 3.3 million at the end of 1994 to 5.6
million at the end of 1996. Information contained in the customer database
assists in determining which offers customers are to receive and the
frequency of those offers.
The Company selects from its database the individuals it believes are most
likely to respond to a particular merchandise offer, thus maximizing sales
while managing cost as a percent of sales. The Company believes that its
ability to analyze its database and its ability to select recipients for a
particular direct marketing campaign are significant factors in its growth.
The Company utilizes various indicators, including frequency and size of
order, date of last order, and types of products purchased to target its
catalog mailings to those most likely to purchase its merchandise. The
Company updates its customer database in a real time environment.
MARKETING AND PRODUCT LINES
The Company not only markets to its customer database but also exchanges
lists with and rents lists from other direct marketers in order to gain new
customers. Prospects receive a catalog or other direct marketing offer
tailored to what the Company believes to be their historic merchandise
tastes and preferences based on historical results. The Company currently
markets its products primarily under three trade names:
1. Colorful Images
Colorful Images is the trade name under which the Company markets its line
of personalized labels, notepads, various personalized products and general
merchandise such as T-shirts and collectibles. Under this trade name, the
Company creates its own designs, purchases styles and designs from outside
sources and licenses certain images on a royalty basis.
The Company's line of personalized self-adhesive labels, which is the
Company's largest product line, is one of the largest assortments of such
products available from any company. There are label choices appropriate to
popular interests as well as most regions of the country, many hobbies,
professions and lifestyles. The Company now offers over 800 different
styles of labels.
The primary marketing vehicle used to sell Colorful Images products is a
digest-sized catalog (measuring approximately 5" x 7 1/2"). Price points in
the Colorful Images catalog typically range from $6.95 to $49.95, excluding
shipping and handling. The catalog, which is bright and colorful, features
photographs of labels and other products. Since mid-1996, the Colorful
Images catalog has been produced in two versions, one for customers and one
for prospects. The customer version is developed specifically for the
Colorful Images customer base while the prospect version is developed for
the prospect list mix typically used by Colorful Images. Merchandise
offered in each version is selected specifically for that audience. The
Company believes that creating separate catalogs for customers and prospects
has improved performance of the Colorful Images catalog in both markets. The
prospect version of the catalog contains almost exclusively proven
merchandise while the customer version contains both proven merchandise and
new merchandise that the Company believes will prove popular with customers.
Going forward, the Company will attempt to further improve results from both
groups by continuing to present them with merchandise tailored to their
historic tastes and preferences, and by continuing to refine list and other
media.
The Company mailed the Colorful Images catalog to customers five times in
1994, six times in 1995 and seven times in 1996. The Colorful Images
catalog is currently scheduled to be mailed to customers nine times in 1997.
There will also be smaller mailings to niche segments of the customer
database. The Company has experienced a steady increase in the performance
of the catalog to the best performing two million customer names.
Performance of the catalog has increased by approximately 47% over the past
three years. Management believes this performance increase occurred,
despite increased contact frequency, because of page count expansion and
improvement in merchandise mix and creative presentation.
This past success has led the company to explore additional methods of
contacting customers more frequently. Among the ideas that are currently in
various phases of testing and development are preferred customer clubs,
seasonal catalog editions and special offers.
The Company also employs a variety of alternate media to generate sales for
its Colorful Images products. The primary alternate media utilized include
advertisements in newspaper free standing inserts, direct mail co-ops and
endorsed offers. These programs are a valuable means of acquiring new
customers. In the first half of 1996, the Company renewed testing efforts
with these media, with somewhat inconsistent results. In 1997, the Company
expects to test the most promising alternate media more extensively than in
1996. This will involve both increased circulation and increased attention
to development of special offers geared for these media. The Company plans
to gradually increase its circulation in these media if results warrant.
2. Linda Anderson
Linda Anderson is the trade name under which the Company markets mid-priced
gifts, home decorative merchandise and casual apparel. This merchandise is
offered through the Linda Anderson catalog, which the Company presents in a
style similar to the Colorful Images catalogs. Price points in the Linda
Anderson catalog typically range from $10.95 to $149.95, excluding shipping
and handling.
Prior to the Fall of 1996, the Company had mailed three test editions of the
Linda Anderson catalog, with steadily improving results. The Linda Anderson
catalog which was mailed in the Fall of 1996 produced a positive
contribution to profits. This result, which exceeded Company expectations,
occurred despite the fact that over half the Linda Anderson mail volume in
Fall 1996 was sent to prospects from lists being used for Linda Anderson for
the first time.
The best performing list for the Fall 1996 Linda Anderson catalog was
previous buyers of Linda Anderson merchandise. Certain segments of the
Colorful Images customer database also performed well for Linda Anderson.
This demonstrates the Company's basic strategy of building successful new
product lines in part by capitalizing on the customer database already
established. As Colorful Images continues to grow, the new customers it
generates should benefit Linda Anderson.
Several rented and exchanged prospect lists also performed well in the Fall
1996 Linda Anderson mailing, suggesting that the merchandise mix and
creative presentation will allow the Company to expand circulation of the
Linda Anderson catalog.
The Company plans to produce and mail the Linda Anderson catalog four times
in 1997.
3. Colorful Images Presents Impressions
The Colorful Images Presents Impressions catalog was introduced in the
second quarter of 1996. Under this trade name, the Company markets various
personalized products such as throws, note pads, coffee mugs, stationery and
mouse pads. While some product lines are similar to those sold in the
Colorful Images and Linda Anderson catalogs, there is very little specific
product overlap. The Company sells these personalized products exclusively
through its digest-sized Impressions catalog. The latest version contained
only 24 pages, but the Company expects page count to increase. Prices
charged for these products range from $5.95 to approximately $60.00,
excluding shipping and handling. The Company plans two editions of
Impressions in 1997. The catalog is currently distributed only to customers
who have previously purchased products from this catalog, to selected
Colorful Images and Linda Anderson customers and to a few prospect lists.
The Company uses its catalog titles, as well as the alternate media
mentioned above, to solicit existing customers and prospect for new
customers. Product and media performance are analyzed based on
profitability. Product continuation and media utilization are determined
based on these analyses. The Company seeks to improve financial results by
presenting customers and prospects merchandise tailored to their historic
tastes and preferences, by increasing circulation, and by expanding the
selection of merchandise offered.
The Company has numerous ideas for new product lines and direct marketing
concepts. All of them involve direct marketing. Most employ the basic
strategy of leveraging the Company's existing customer database by offering
products and product lines which current customers should find appealing.
With these strategies in mind, the Company is currently working on several
new concepts that it believes have promise. The Company hopes to begin
implementing these concepts during 1997, but specific timing will depend on
when the Company believes a new concept is ready for launch from a
marketing, merchandise and operations standpoint.
LICENSING AND SERVICE MARKS
The Company has federally registered service marks for each of its catalog
titles. The Company anticipates that it will seek registered service marks
for other business concepts and catalog titles 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 (Registered Trademark), Boyds Collection Ltd. (Registered
Trademark), Cast Art Industries, Inc. (Registered Trademark) and others.
Management anticipates the licenses and royalty arrangements may be renewed
or replaced, as appropriate, with minimal disruption to ongoing operations.
SUPPLIERS AND INVENTORY
The Company purchases its product inventory from numerous domestic
manufacturers and several importers and foreign manufacturers. Domestic
sources supply essentially all of the Company's gift and apparel
merchandise. Purchase arrangements with suppliers are generally for a
specified product, price and quantity of product. The base paper stock for
personalized labels is produced by a limited number of vendors. Management
believes alternative label stock sources are available, if needed. The
remainder of the product line and material used in the production of the
Company's catalogs are available from many different sources.
Except for a few specialized items which are drop shipped directly from
suppliers, the Company maintains an inventory of all products it sells.
Based on analysis of past successful advertising efforts, evaluation of
probable customer buying patterns and projections of sales levels for new
products, the Company has been able to plan its inventory needs without the
necessity of committing large amounts of working capital to inventory for
substantial periods of time. Historically, the Company has monitored and
found satisfactory the backorder levels produced by its inventory approach.
If the Company attempts to decrease future backorders below historic levels,
the Company's investment in gift and apparel merchandise inventory as a
percentage of sales will need to be increased above historic levels,
particularly in the holiday season. The Company's gift and apparel
inventory liquidation processes include product exchange agreements with
vendors and the sale of outdated products through its small retail outlets.
The Company spends significant amounts on paper used in the production of
its catalogs and paper products. The price of paper is dependent upon
supply and demand in the marketplace. In the first half of fiscal 1996, the
supply of paper was low, increasing the cost of paper and accordingly, the
Company's cost of doing business. Paper costs declined during the latter
part of 1996. While the Company cannot predict future paper cost increases,
such increases would have an impact on the Company's future earnings.
ORDER FULFILLMENT
Orders for the Company's merchandise are received by mail, telephone and
FAX. All orders are received and processed at the Company's headquarters in
Longmont, Colorado. The Company's ability to timely fulfill orders,
especially during the busy pre-Christmas season, is important to the
Company's success. This ability depends, in part, on the availability of
part-time employees who have adequate training before the peak of the
holiday season and the efficiency of the Company's in-house telephone call
center.
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 seven days. The level of
order backlog fluctuates with seasonal sales patterns as discussed above.
Difficulty in implementing new operations software and systems to perform
order fulfillment, inventory control and related functions resulted in
higher levels of backlog than might otherwise have been experienced during
the last half of 1995. No such events occurred in 1996.
The Company generally receives payment in advance from customers for sales
and shipping and handling. The Company's orders are shipped via United
States Postal Service (USPS) and other carriers. Priority or express
service is available for an extra charge.
CUSTOMER SERVICE
The Company places great emphasis on customer service and has implemented a
return policy which attempts to guarantee customer satisfaction. The retail
value of refunds and merchandise replacements issued under the returns
policy in 1996 was approximately 5.8% of net sales. Returned merchandise is
generally restocked if undamaged and unused. Otherwise it is returned to
the manufacturer if defective or held for disposal in inventory liquidation
processes described above under "Suppliers and Inventory". Product and
order problem inquiries are directed to trained customer service personnel
who are generally able to resolve most customer issues.
SEASONALITY
The Company's business is seasonal. Historically, a substantial portion of
the Company's revenues and net income have been realized during its third
and fourth fiscal quarters. The Company believes this is the general
pattern associated with the mail order and retail industries. Accordingly,
the Company increases inventory of both its paper products and its gift and
apparel merchandise during the Christmas holiday season to accommodate
anticipated increases in sales. Further discussion of the effect of
seasonality upon revenues and income is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
Direct marketing is highly competitive. Although it is difficult to
estimate the exact number of companies with which the Company competes,
thousands of companies offer products via catalog, direct mail, newspaper
inserts and other media.
Management believes that, although there are many companies that offer
return address labels, note pads and note cards, there are only a few
companies that offer the variety of labels offered by the Company, which
provides the Company a competitive advantage. The Company's other
merchandise product lines face greater competition in the marketplace than
the Company's paper products. A substantial number of competitors
distribute catalogs that contain some of the merchandise contained in the
Company's catalogs. In addition, much of the merchandise sold in the
Company's catalogs is available in retail stores.
Although management believes that the Company can compete effectively, there
are some negative factors associated with the position of the Company in the
industry. First, because the Company is a relatively new business, its name
recognition is not as strong as some other catalog companies (although this
is becoming less of an issue as the Company increases its catalog
distribution). Second, the Company's order fulfillment operations are not
as efficient as some of its competitors', although the Company believes this
weakness has lessened significantly since the successful new software
installation in 1995. The Company also believes that planned refinements
and enhancements to its computerized fulfillment system, as well as its
planned 1997 expansion into new, larger facilities, will have a positive
impact on operations. Third, the Company's experience in the marketplace is
limited due to the fact that the Company is relatively new to the business
and therefore, the Company may not have as many resources or as extensive a
customer database as some of its competitors.
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 were in information
technology, 11 were in creative and marketing functions, 170 were in
fulfillment operations and 19 were in other administrative functions. The
employees are not covered by collective bargaining agreements. The Company
considers its relationship with its employees to be satisfactory.
GOVERNMENT REGULATIONS
The Company must comply with Federal, state and local laws that affect its
business. In particular, the Company is subject to Federal Trade Commission
regulations governing the Company's advertising and trade practices. While
the Company believes it is currently in compliance with such regulations, in
the event of noncompliance, the Company may be subject to injunctive
proceedings, cease and desist orders, civil fines and other penalties.
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 house with neither sales
representatives nor outlets in the state placed an unconstitutional burden
on interstate commerce. However, the Court also noted that Congress may be
better equipped to resolve the issue presented by the case. If Congress
should pass applicable legislation, it could have an impact on the future
operations of the Company. The actual impact would depend on the specifics
of any such legislation.
A similar issue has arisen in some states that 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.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The Company's identifiable assets are attributable entirely to the Company's
domestic operations. The Company has no foreign operations, but does
advertise in Canada. Export sales to Canada accounted for approximately
$975,000, $1,037,000 and $948,000 of the Company's sales in 1994, 1995 and
1996, respectively. Export sales excluding Canada are insignificant.
ITEM 2. PROPERTIES
REAL PROPERTY
The Company's corporate headquarters and administrative offices are located
in Longmont, Colorado. While the Company believes that the facilities it
occupies are well maintained and in good operating condition, the Company
needs additional space to expand its operations. Therefore, the Company
purchased approximately 139 acres of undeveloped land near the Company's
offices in January 1997. The Company is building on this land a new
facility approximately twice the size of its current headquarters and plans
to house all of its production and administrative functions in this facility
by September 1997. The Company believes this deadline will be met. If it
is not met, the Company will need to lease temporary space in order to
accommodate anticipated 4th quarter volume. Some of the remaining land will
be held for expansion, and the Company will attempt to sell most of the
balance of the acreage to other parties.
The following table sets forth the primary real property which the Company
leases.
Location Function Lease Term 1997 Rent Square Feet
Longmont, CO Headquarters 5/1/92-8/31/97 $306,000 58,064
Longmont, CO Retail Outlet 8/15/95-8/30/97 $15,600 1,700
Cheyenne, WY Retail Outlet 10/1/95-10/1/97 $9,200 1,100
FULFILLMENT HARDWARE AND SOFTWARE
All of the Company's order fulfillment hardware is located at its
headquarters facility. The primary computer hardware is manufactured by
Xerox Corporation and Data General Corporation. Management believes that
the Company's present hardware is being operated at approximately 80% of its
capacity. The Company anticipates the change and probable addition of
computer hardware capacity will occur prior to the time it moves to its new
facility and that this will accommodate near-term projected sales volume
increases.
Historically, the Company has used various licensed computer software
packages to perform order fulfillment, inventory control and related
functions. Over a period of several years, the Company developed
replacement software using DG/UX and Oracle as the primary platforms to more
efficiently handle sales. During the third quarter of 1995, the Company
implemented the new operations software and systems to perform order
fulfillment, inventory control and related functions. Initially, certain
difficulties were experienced with the implementation which delayed customer
shipments and related sales recognition in 1995. The Company believes that
those software problems have been substantially corrected and that further
improvements to the software will continue.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation which management believes is
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information concerning the executive officers of the Company
is included in this report pursuant to General Instruction G (3) of Form
10-K. No person other than those identified below has been chosen to become
an executive officer of the Company. The executive officers serve at the
pleasure of the Board of Directors. No family relationships exist among the
executive officers of the Company.
Phillip A. Wiland, 50, is Chief Executive Officer and Chairman of the Board
of Directors since December 18, 1992. Mr. Wiland was President of the
Company since the Spin-Off from Wiland Services, Inc. on September 30, 1992.
Mr. Wiland was President and Chief Executive Officer of Wiland Services,
Inc. from 1971 to September 30, 1992.
J. Michael Wolfe, 38, is President and Chief Operating Officer of the
Company since December 18, 1992. Mr. Wolfe was Vice President of the
Company since the Spin-Off from Wiland Services, Inc. on September 30, 1992.
Mr. Wolfe was Vice President, Consumer Products of Wiland Services, Inc. and
served in that position since 1989. Mr. Wolfe served as Vice President,
Product Marketing with Wiland Services, Inc. from 1987 to 1989.
H. Franklin Marcus, Jr., 51, is Secretary-Treasurer and Chief Financial
Officer of the Company and has served in that position since the Spin-Off
from Wiland Services, Inc. on September 30, 1992. Mr. Marcus served as
Secretary-Treasurer of Wiland Services, Inc. from 1978 and as Chief
Financial Officer since 1989.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET AND PRICE INFORMATION
The Company's common stock, par value $.10 (the "Common Stock"), is
currently traded on the Nasdaq SmallCap Market under the symbol CDIR. The
quarterly high and low bid quotations, as reported by the National
Association of Securities Dealers, Inc. for each full quarterly period
available for reporting by the Company for 1995 and 1996 are set forth
below.
Quarter and Year High Low
Calendar 1995
1st Quarter 8 5
2nd Quarter 8 7
3rd Quarter 9 3/4 8
4th Quarter 13 1/4 9 3/4
Calendar 1996
1st Quarter 20 1/2 12 3/4
2nd Quarter 20 1/2 18
3rd Quarter 19 16
4th Quarter 18 1/2 17
The foregoing quotations of high and low bid prices represent prices between
dealers and do not include retail mark-up, mark-down or commissions. They
do not necessarily represent actual transactions. The highest bid on each
day is reported. These prices do not reflect a two-for-one stock split to
be paid on March 31, 1997 to shareholders of record on March 14, 1997.
NUMBER OF SHAREHOLDERS
As of February 18, 1997, there were approximately 550 registered and
beneficial record holders of the Common Stock, according to the Company's
Stock transfer agent and registrar.
DIVIDENDS
Except for the distribution of proceeds from the disposal of the Company's
Direct Marketing Services division in 1992, the Company has never paid cash
dividends on the Common Stock. It intends to retain earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors, which will periodically review the Company's
dividend policy, considering the Company's earnings, capital requirements,
and financial condition, among other factors.
ITEM 6. SELECTED FINANCIAL DATA
December 31,
1996 1995 1994 1993 1992
(amounts in thousands except per share data)
INCOME STATEMENT DATA
Net sales $51,126 $42,147 $20,724 $15,936 $22,631
Operating income (loss) from
continuing operations 2,562 638 1,403 (2,543) (5,629)
Income (loss) from continuing
operations before income taxes 2,808 937 1,490 (2,509) (5,578)
Income (loss) from continuing
operations 1,937 843 1,490 (2,252) (3,570)
Income from discontinued
operations 0 0 0 0 23,598
Net income (loss) 1,937 843 1,490 (2,252) 20,028
Earnings (loss) per share from
continuing operations $ 0.87 $ 0.38 $ 0.69 $ (1.13) $ (1.98)
Earnings per share from
discontinued operations $ 0 $ 0 $ 0 $ 0 $ 13.09
Net earnings (loss) per share $ 0.87 $ 0.38 $ 0.69 $ (1.13) $ 11.11
Weighted average common shares
and common share equivalents
outstanding 2,221 2,202 2,162 2,000 1,802
BALANCE SHEET DATA
Current assets $13,443 $ 8,722 $ 7,174 $ 4,174 $ 7,174
Current liabilities 7,518 4,833 3,963 2,212 3,624
Net assets of discontinued
operations 0 0 0 0 0
Total assets 14,487 9,924 8,294 5,047 8,436 "
Long-term liabilies 0 67 160 155 207
Stockholders' equity 6,969 5,024 4,172 2,681 4,064 "
Earnings per share data and weighted average common shares and common
share equivalents outstanding have been restated to reflect the 1992
one-share-for-four-shares reverse stock split and the 1994
two-shares-for-one-share stock split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sales increased 21% in 1996 from 1995 and increased 103% in 1995 from 1994.
The increases in sales 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 can
also be attributed to improved response rates and an increase in the number
of products offered in these catalogs. Based on the constraints of desired
customer response rates and the need to market new products with acceptable
profit margins, the Company intends to continue to add new products to its
product line. Company sales have certain seasonal fluctuations that
primarily relate to the purchasing patterns of individual consumers and
increased levels of advertising. These patterns tend to concentrate sales in
the latter half of the year, particularly before Christmas. In 1996,
approximately 41% of sales occurred in the last three months of the year.
The net earnings of any interim quarter are usually seasonally
disproportionately lower as a percent 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.
Cost of product and delivery as a percentage of sales was 52% in 1996, as
compared to 53% in 1995 and 55% in 1994. The decreases in 1996 and 1995
occurred primarily because of improved efficiencies of operations, increased
sales of paper products which have higher margins and higher sales over
which to spread fixed costs. The decrease would have been larger in 1995 had
it not been for difficulties related to the implementation of new software
and systems to perform order fulfillment, inventory control and related
functions. Product margins have decreased because personal and home
accessories product costs are generally in excess of 30% of sales price as
compared to the Company's paper product costs which are generally less than
15% of sale price.
Selling, general and administrative costs as a percentage of sales were 43%
in 1996, 46% in 1995 and 38% in 1994. The decrease in 1996 primarily
resulted from improved response to Company advertising, lower paper costs,
in the holiday 1996 mailing season, and increased sales over which to spread
relatively stable fixed costs. The increase in 1995 primarily resulted from
the distribution of a greater number of catalogs and other advertising
materials to prospects than occurred in 1994. Increased paper and postage
costs related to catalog preparation and distribution also contributed to
the increase in 1995.
The Company had income before income taxes of $2,808,000, $937,000 and
$1,490,000 in 1996, 1995 and 1994, respectively. Other income, primarily
interest income and vendor payment discounts, was $246,000 for 1996,
$298,000 for 1995 and $87,000 for 1994.
Income tax expense was $871,000 in 1996 and $94,000 in 1995. Income tax
expense in 1996 was lower than the statutory rate, approximately 31%,
because of the availability of research and development credits. Income tax
expense in 1995 was lower than the statutory rate, approximately 10%, due to
the availability for book purposes of valuation allowances for deferred tax
assets, all of which were utilized in 1995. If the Company continues to be
profitable in 1997, management anticipates the income tax rate will be
approximately 35%.
The Company's net income for 1996, 1995 and 1994 was $1,937,000, $843,000
and $1,490,000, respectively. Income per share was $.87 for 1996, $.38
for 1995 and $.69 for 1994.
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 for stockholders of record on March 14, 1997.
Historical per share data has not been adjusted to reflect the effect of
this stock split.
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 for stockholders of record on November 14, 1994. Historical per
share data has been adjusted to reflect the effect of this stock split.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $3,100,000 in 1996, decreased by
$13,000 in 1995 and increased by $1,933,000 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 $1,612,000 in 1996 primarily
related to 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 $58,000 in 1995 primarily related to the distribution of January
1996 catalogs in early January as compared to distribution of similar
catalogs in late December of the prior year. If the timing of the catalog
distribution had been the same as in 1995, management believes deferred
advertising costs and accounts payable would have increased by approximately
$1,000,000. Increased advertising of products over 1993 levels was the
primary reason for increases of deferred advertising costs of $1,163,000 in
1994 and increased accounts payable in 1994 of $1,312,000. The increases of
inventories of $1,640,000 and $386,000 in 1995 and 1994, respectively,
primarily related to increased sales. The increase in accounts payable of
$2,216,000 in 1996 primarily relates 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 $1,937,000,
$843,000 and $1,490,000 in 1996, 1995 and 1994, respectively, contributed
significantly to increased cash in these years.
Significant items of investment of cash during the periods were purchases of
property and equipment of $377,000, $550,000 and $502,000 for 1996, 1995 and
1994, respectively. These purchases primarily related to computer
equipment, fulfillment equipment and furnishings acquisitions to accommodate
the sales growth and expansion of the Company's computer systems.
The Company had $6,425,000 of cash and cash equivalents at December 31,
1996. Management believes that results of operations, continued operational
planning review procedures, plus current cash balances will produce funds
necessary to meet its anticipated working capital requirements for the
current year. In early 1997, the Company used current cash balances to
purchase approximately 139 acres of undeveloped land for approximately
$1,375,000. During 1997, the Company anticipates using current cash
balances and outside sources to finance the construction of a new facility
on this property. The Company will attempt to sell most of the remaining
acreage to other parties.
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") provide companies with a "safe harbor" when making forward looking
statements. This "safe harbor" encourages companies to provide prospective
information about their companies without fear of litigation. Company
statements that are not historical facts, including statements about
management's expectations, beliefs, plans and objectives for fiscal year
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:
- - changes in postal rates or the cost of paper;
- - changes in the general economic conditions of the United States leading to
increased competitive activity; and changes in consumer spending generally
or specifically with reference to the types of merchandise that the Company
offers in its catalogs;
- - changes in the Company's merchandise product mix or changes in the
Company's customer response to advertising offers;
- - competitive factors including name recognition and the Company's relative
newness to the mail-order catalog business;
- - the Company's ability to complete construction of and transfer to the
Company's new headquarters before the Fall of 1997 thereby avoiding any
material decrease in the Company's efficiency at a time of the year when it
historically has received a significant portion of its orders and related
annual revenues;
- - lack of availability/access to capital or sources of supply for
appropriate inventory;
- - state tax issues relating to the taxation of out of state mail-order
companies with neither sales representatives nor outlets in a particular
state seeking to impose sales and similar taxes;
- - lack of effective performance of customer service and the Company's order
fulfillment system; and
- - changes in strategy and timing relating to the testing and rollout of new
catalogs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of Concepts Direct, Inc. are set forth
below:
Report of Independent Auditors on the financial statements and schedules of
Concepts Direct, Inc. for the years ended December 31, as set forth
below.
Balance Sheets as of December 31, 1996 and December 31, 1995
Income Statements for the years ended December 31, 1996, December 31,
1995 and December 31, 1994
Statements of Stockholders' Equity for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994
Statements of Cash Flows for the years ended December 31, 1996, December 31,
1995 and December 31, 1994
Notes to Financial Statements - December 31, 1996
The financial statement schedules of Concepts Direct, Inc. are set forth
below:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Concepts Direct, Inc.
We have audited the accompanying balance sheets of Concepts Direct, Inc. as
of December 31, 1996 and 1995, and the related income statements,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with 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. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/S/ ERNST & YOUNG LLP
Denver, Colorado
January 31, 1997
except for Note 7 as to which the date is
February 25, 1997
CONCEPTS DIRECT, INC.
BALANCE SHEETS
December 31,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 6,425,137 $3,324,838
Accounts receivable, less allowances 165,833 108,102
Deferred advertising costs 3,818,827 2,207,244
Inventories, less allowances 2,783,999 2,798,878
Prepaid expenses and other 248,920 283,254
----------- ----------
Total current assets 13,442,716 8,722,316
Property and equipment, net 792,199 994,744
Other assets 252,068 206,768
----------- ----------
$14,486,983 $9,923,828
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,323,278 $3,107,174
Current maturities of lease obligations 59,457 87,275
Accrued employee compensation 584,868 638,943
Customer liabilities 762,491 908,264
Current and deferred income taxes payable 787,643 90,925
----------- ----------
Total current liabilities 7,517,737 4,832,581
Lease obligations 0 67,493
Commitments and contingencies
Stockholders' equity
Common Stock, $.10 par value, authorized
6,000,000 shares, issued and outstanding
2,121,108 and 2,116,441 in 1996 and 1995,
respectively 212,111 211,644
Additional paid-in capital 4,374,455 4,366,633
Retained earnings 2,382,680 445,477
----------- ----------
Total stockholders' equity 6,969,246 5,023,754
----------- ----------
$14,486,983 $9,923,828
=========== ==========
See notes to financial statements.
CONCEPTS DIRECT, INC.
INCOME STATEMENTS
Year Ended December 31,
1996 1995 1994
Net Sales $51,125,844 $42,146,997 $20,723,829
Operating costs and expenses
Cost of product and delivery 26,833,956 22,286,173 11,406,063
Selling, general and administrative 21,729,621 19,222,425 7,914,501
----------- ----------- -----------
Total operating costs and expenses 48,563,577 41,508,598 19,320,564
----------- ----------- -----------
Operating income 2,562,267 638,399 1,403,265
Other income, net 245,936 298,266 87,195
----------- ----------- -----------
Income before income taxes 2,808,203 936,665 1,490,460
Provision for income taxes 871,000 94,000 0
----------- ----------- -----------
Net income $ 1,937,203 $ 842,665 $ 1,490,460
=========== =========== ===========
Earnings per share $ 0.87 $ 0.38 $ 0.69
=========== =========== ===========
Weighted average number of
common shares and common
share equivalents outstanding 2,220,832 2,202,166 2,161,548
See notes to financial statements.
CONCEPTS DIRECT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Total
shares of Additional Retained Stock-
Common Common Paid-In Earnings holders'
Stock Stock Capital (Deficit) Equity
Balance at December
31,1993 1,055,387 $105,539 $4,463,295 $(1,887,648) $2,681,186
Net income 0 0 0 1,490,460 1,490,460
Stock split 1,055,387 105,538 (105,538) 0 0
--------- --------- --------- ----------- ----------
Balance at December
31, 1994 2,110,774 $211,077 $4,357,757 $ (397,188) $4,171,646
Net income 0 0 0 842,665 842,665
Exercise of
stock options 5,667 567 8,876 0 9,443
--------- -------- ---------- ----------- ----------
Balance at December
31, 1995 2,116,441 $211,644 $4,366,633 $ 445,477 $5,023,754
Net income 0 0 0 1,937,203 1,937,203
Exercise of
stock options 4,667 467 7,822 0 8,289
--------- -------- ---------- ----------- ----------
Balance at December
31, 1996 2,121,108 $212,111 $4,374,455 $ 2,382,680 $6,969,246
========= ======== ========== =========== ==========
See notes to financial statements.
CONCEPTS DIRECT, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
OPERATING ACTIVITIES
Net income $1,937,203 $ 842,665 $1,490,460
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for (recovery of) losses
on accounts receivable 23,000 (3,130) (18,870)
Provision for losses in inventory
values 41,721 32,602 247,364
Depreciation and amortization 520,698 507,689 376,537
Increase in current and deferred
income taxes 696,718 90,925 0
Loss on disposals of property and
equipment 59,013 0 1,779
Changes in operating assets and
liabilities:
Accounts receivable (80,731) 119,339 174,152
Deferred advertising costs (1,611,583) (57,560)(1,163,440)
Inventories (26,842) (1,639,514) (385,961)
Prepaid expenses and other 34,334 (13,681) 80,368
Accounts payable 2,216,104 94,078 1,312,468
Accrued employee compensation (54,075) 191,755 230,699
Customer liabilities (145,773) 480,173 182,274
----------- ---------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 3,609,787 645,341 2,527,830
INVESTING ACTIVITIES
Purchases of property and equipment (377,426) (550,328) (502,186)
Sales of property, equipment and
investments 260 0 900
Other investing activities, net (45,300) (38,135) (31,796)
----------- ---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (422,466) (588,463) (533,082)
FINANCING ACTIVITIES
Principal payment of lease obligations (95,311) (79,498) (61,530)
Sale of Common Stock and exercise
of stock option 8,289 9,443 0
---------- ---------- ---------
NET CASH USED IN FINANCING ACTIVITIES (87,022) (70,055) (61,530)
---------- ---------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,100,299 (13,177) 1,933,218
Cash and cash equivalents at beginning
of year 3,324,838 3,338,015 1,404,797
---------- ---------- ----------
Cash and cash equivalents at
December 31, $6,425,137 $3,324,838 $3,338,015
========== ========== ==========
See notes to financial statements.
Concepts Direct, Inc.
Notes to Financial Statements
December 31, 1996
NOTE 1. Significant Accounting Policies
Organization: Concepts Direct, Inc. markets various products directly
to individual consumers, including a line of personalized labels, gift
items, home decorative items 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.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from these estimates.
Revenue Recognition: Revenues from the sale of products are recognized
when products are shipped to customers.
The Company's sales are attributable entirely to United States
operations. Export sales to Canada were approximately 1.9%, 2.5% and
4.6% of total sales in 1996, 1995, 1994, respectively. Export sales,
excluding Canada, were less than 2%.
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 December 31:
1996 1995
U.S. Government Obligations $4,555,206 $ 986,600
Commercial Certificates of Deposit 360,000 720,000
---------- ----------
Total Marketable Securities $4,915,206 $1,706,600
Deferred Advertising Costs: These costs primarily relate to printing
and distribution of advertising materials. Such costs are deferred for
financial reporting purposes until the advertising materials are
distributed, then amortized over succeeding periods (not to exceed
twelve months) on the basis of estimated sales. Amortization is
accelerated in the earlier months of the amortization period. Historical
sales statistics are the principal factor used in estimating the
amortization rate. Other advertising and promotional costs are expensed
as incurred. Advertising costs were $18,373,000, $16,477,000 and
$6,142,000 in 1996, 1995 and 1994, respectively.
Inventories: Inventories of products, net of valuation allowances of
$400,000 and $692,000 at December 31, 1996 and 1995, respectively, 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.
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 share
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:
Year Ended December 31,
1996 1995 1994
Non-cash investing and financing activities:
Lease obligation incurred in connection with
acquisition of data processing equipment $ 0 $ 0 $ 92,619
Cash - flow data:
Cash paid during the year for:
Interest $ 12,801 $ 19,197 $ 17,081
Income taxes $174,282 $ 3,075 $ 0
NOTE 3. Property and Equipment
Following is a summary of property and equipment at:
Principal
Estimated
December 31, Useful
1996 1995 Lives
Data processing equipment $1,071,792 $1,091,440 5-7 years
Purchased and leased computer software 389,269 609,406 5 years
Furniture and equipment 761,350 743,008 1-5 years
Leasehold improvements 368,233 368,233 5 years
Deposits on land and building 182,676 0
---------- ----------
2,773,320 2,812,087
Less accumulated depreciation and
amortization (1,981,121) (1,817,343)
---------- ----------
$ 792,199 $ 994,744
========== ==========
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
$8,000,000, 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.
NOTE 4. Lease Obligations
Future minimum lease payments for all non-cancelable leases are as
follows at December 31, 1996:
Operating Capital
1997 $ 1,085,000 $ 61,871
1998 687,000 0
1999 671,000 0
2000 471,000 0
2001 234,000 0
Thereafter 0 0
----------- --------
Total future minimum lease payments $ 3,148,000 61,871
===========
Less imputed interest (2,414)
--------
Present value of capital lease obligations $ 59,457
========
The Company leases various buildings and equipment used in operations
under agreements which expire at various dates through December 2001,
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 $1,269,000,
$1,072,000 and $834,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
Capital leases with net unamortized values of $60,865 and $137,261 are
classified with data processing equipment and purchased and leased
computer software at December 31, 1996 and 1995, respectively.
Depreciation expense includes amortization of such assets.
NOTE 5. Other Income, Net
Following is a summary of the Company's other income (deductions):
Year Ended December 31,
1996 1995 1994
Interest income $161,430 $144,718 $ 79,050
Interest expense (12,801) (19,197) (17,081)
Vendor payment discounts 121,149 134,771 27,135
Other, net (23,842) 37,974 (1,909)
-------- -------- --------
$245,936 $298,266 $ 87,195
======== ======== ========
NOTE 6. Income Taxes
The differences between federal statutory income tax rates and the
Company's effective tax rates are as follows:
Year Ended December 31,
1996 1995 1994
Federal tax expense at statutory rate $955,000 $318,000 $507,000
Effect of permanent differences 3,000 3,000 3,000
State income tax less federal tax
benefits 17,000 7,000 6,000
Utilization of net operating loss
carryforwards 0 0 (516,000)
Research and experimentation tax credits (104,000) 0 0
Valuation allowance for deferred tax assets 0 (234,000) 0
-------- -------- --------
$871,000 $ 94,000 $ 0
======== ======== ========
The income tax expense consists of the following:
Year Ended December 31,
1996 1995 1994
------------------- ------------------- --------------------
Current Deferred Current Deferred Current Deferred
Federal $141,000 $702,000 $ 54,000 $ 37,000 $ 0 $ 0
State 7,000 21,000 2,000 1,000 0 0
-------- -------- -------- -------- -------- --------
$148,000 $723,000 $ 56,000 $ 38,000 $ 0 $ 0
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets consist of the following:
December 31,
1996 1995 1994
Deferred tax liabilities:
Deferred advertising costs $(1,337,000) $ (773,000) $ (752,000)
Deferred tax assets:
Allowance for doubtful accounts 14,000 6,000 7,000
Inventory differences 236,000 376,000 646,000
Property and equipment 160,000 142,000 156,000
Other nondeductible accruals 166,000 211,000 120,000
Net operating loss carryforwards 0 0 57,000
----------- ---------- ----------
Total deferred tax assets 576,000 735,000 986,000
Valuation allowance for deferred
tax assets 0 0 (234,000)
----------- ---------- ----------
Net deferred tax assets 576,000 735,000 752,000
----------- ---------- ----------
Net deferred tax liabilities $ (761,000) $ (38,000) $ 0
=========== ========== ==========
At December 31, 1996, 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. No historical
restatement of stock option or per share data has been made 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. Stock
option and per share data have been retroactively adjusted to reflect
the split.
During 1993, the Company issued and sold 292,000 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 139,000 and 140,000 shares of Common
Stock reserved for issuance under the plan as of December 31, 1996 and
1995, 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
30,666 and 34,333 shares of Common Stock reserved for issuance under the
plan as of December 31, 1996 and 1995, 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:
1996 1995
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
The weighted-average fair value of options granted were as follows:
1996 1995
1992 Employee Plan $ 10.39 $ 4.29
1992 Non-Employee Plan $ 6.75 $ 0
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options
have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows:
1996 1995
Pro forma net income $1,907,467 $ 827,705
Pro forma earnings per share $ 0.86 $ 0.38
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.
1992 1992
Employee Plan Non-Employee Plan
------------------ --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ -------- ------ --------
Outstanding at December 31, 1993 78,000 $ 1.08 12,000 $ 1.16
Granted at market price 32,000 $ 3.02 8,000 $ 5.50
Canceled (22,000) $ 1.20 0 $ 0
------- -------- ------ --------
Outstanding at December 31, 1994 88,000 $ 1.76 20,000 $ 2.89
Granted at market price 24,500 $ 7.53 0 $ 0
Exercised 0 $ 0 (5,667) $ 1.67
------- -------- ------ --------
Outstanding at December 31, 1995 112,500 $ 3.01 14,333 $ 3.38
Granted at market price 12,500 $ 18.25 8,000 $ 19.50
Exercised (1,000) $ 1.16 (3,667) $ 1.95
Canceled (4,000) $ 1.75 0 $ 0
------- -------- ------ --------
Outstanding at December 31, 1996 120,000 $ 4.66 18,666 $ 10.57
------- -------- ------ --------
A summary of outstanding options, by year they become exercisable, follows:
1992 1992
Employee Plan Non-Employee Plan
------------------ --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ -------- ------ --------
1996 6,000 $ 1.16 8,002 $ 3.33
1997 15,000 $ 1.08 5,332 $ 12.51
1998 21,000 $ 1.76 2,668 $ 19.50
1999 27,125 $ 3.06 2,664 $ 19.50
2000 23,250 $ 5.68 0 $ 0
2001 15,250 $ 8.12 0 $ 0
2002 9,250 $ 11.15 0 $ 0
2003 3,125 $ 18.25 0 $ 0
------- -------- ------ --------
Outstanding at December 31, 1996 120,000 $ 4.66 18,666 $ 10.57
Exercise price range of options outstanding:
1992 Employee Plan $1.00-$18.25
1992 Non-Employee Plan $1.16-$19.50
Weighted-average remaining contractual life of options outstanding
1992 Employee Plan 7.3 years
1992 Non-Employee Plan 2.8 years
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 $.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 $55,000,
$33,000 and $27,000 in 1996, 1995 and 1994, respectively.
NOTE 9. Quarterly Financial Information (Unaudited)
Income Earnings
(Loss) Net (Loss)
Net from Income per Common
Sales Operations (Loss) Share
(Dollars in thousands except per share data)
1994:
First $ 3,652 $ 148 $ 161 $ 0.08
Second 4,107 129 151 0.07
Third 4,669 350 372 0.17
Fourth 8,296 776 806 0.37
1995:
First $ 8,100 $ 291 $ 229 $ 0.10
Second 9,491 192 177 0.08
Third 8,307 (282) (137) (0.06)
Fourth 16,249 437 574 0.26(a)
1996:
First $11,584 $ 263 $ 266 $ 0.12
Second 9,000 (344) (220) (0.10)
Third 9,800 258 220 0.10
Fourth 20,742 2,386 1,671 0.75
(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.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CONCEPTS DIRECT, INC.
Year Ended December 31, 1996
COL. A COL. B COL. C COL. D COL. E COL. F
Charged Charged
(Credited) to Balance
Balance at to Costs Other Deduc- at
Beginning and Accounts- tions End of
DESCRIPTION of Period Expenses Describe Describe Period
- --------------------------- --------- --------- -------- -------- -------
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful
accounts $ 18,078 $ 23,000 $ 0 $ (78)a $41,000
Allowance for inventory
obsolescence 691,542 41,721 0 (333,263)b 400,000
-------- --------- ------- --------- --------
Totals deducted from asset
accounts $709,620 $ 64,721 $ 0 $(333,341) $441,000
======== ========= ======= ========= ========
Product warranty liability $383,064 $(128,940)$ 0 $ 0 $254,124
======== ========= ====== ========= ========
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts $ 21,130 $ (3,130) $ 0 $ 78 a 18,078
Allowance for inventory
obsolescence 761,981 32,602 0 (103,041)b 691,542
-------- -------- ------- --------- -------
Totals deducted from asset
accounts $783,111 $ 29,472 $ 0 $(102,963) $709,620
======== ======== ======= ========= ========
Product warranty liability $129,111 $253,953 $ 0 $ 0 $383,064
======== ======== ======= ========= ========
Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful
accounts $ 40,000 $(18,870) $ 0 $ 0 $21,130
Allowance for inventory
obsolescence 679,969 247,364 $ 0 (165,352)b 761,981
------- -------- ------- --------- -------
Totals deducted from asset
accounts $719,969 $228,494 $ 0 $(165,352) $783,111
======== ======== ======= ========= ========
Product warranty liability $ 92,718 $ 36,393 $ 0 $ 0 $129,111
======== ======== ======= ========= ========
a) Uncollectible accounts written off, net of recoveries.
b) Inventory written off, net of recoveries.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report in that
the Company will file a definitive Proxy Statement pursuant to Regulation
14A (the "Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this report and certain information included therein
is incorporated herein by reference.
With the exception of the information incorporated by reference from the
Company's Proxy Statement in Items 10, 11, 12 and 13 of Part III of this
Form 10-K, the Company's Proxy Statement for its annual meeting of
shareholders scheduled for April 19, 1997 is not to be deemed filed as a
part of this Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information concerning the directors of the Company is incorporated herein
by reference to material contained under the heading "Election of Directors"
in the Company's Proxy Statement for its annual meeting of shareholders
scheduled for April 19, 1997.
Information concerning the executive officers of the Company is set forth
under the heading "Executive Officers of the Registrant" at the end of Part
I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to material contained under the headings "Compensation of
Directors" and "Executive Compensation" in the Company's Proxy Statement
for its annual meeting of shareholders scheduled for April 19, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to security ownership of certain beneficial owners and
management is incorporated herein by reference to material contained under
the heading "Voting Securities and Principal Shareholders" in the Company's
Proxy Statement for its annual meeting of shareholders scheduled for April
19, 1997. The Company does not know of any arrangements the operation of
which may at a subsequent date results in a change in control of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to certain relationships and related transactions is
incorporated herein by reference to material contained under the heading
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement for its annual meeting of shareholders scheduled for April 19,
1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORMS 8-K
(a) Documents filed as part of this report:
1. The financial statements and related Report of
Independent Auditors required by this item are listed and
included in Item 8 of this report.
2. The financial statement schedules required by this
item are listed and included in Item 8 of this report.
3. Exhibits required to be filed by Item 601 of
Regulation S-K: SEE INDEX TO EXHIBITS
(b) No Reports on Form 8-K have been filed during the last
quarter of the year ended December 31, 1996.
INDEX TO EXHIBITS
(3) Articles of incorporation and bylaws.
(a) Registrant's Amended and Restated Certificate of
Incorporation filed as Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 is expressly
incorporated herein by this reference.
(b) Registrant's Bylaws and Statement of Organization of the
Incorporator filed as Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, is expressly
incorporated herein by this reference.
(4) Instruments defining the rights of security holders,
including indentures.
(a) See the Seventh Article of Exhibit 3(a) and Articles I, IV, V, VI
and VII of Exhibit 3(b).
(10) Material Contracts.
(a) Lease dated March 17, 1992 between registrant and Pratt
Partnership. This lease was previously filed as Exhibit 2 to Wiland
Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992 and is expressly incorporated herein by this
reference (Wiland Services, Inc.'s Reporting Number is 0-12967).
(b) Amendment dated May 16, 1996 to Lease dated March 17, 1992
between registrant and Pratt Partnership. This lease amendment was
previously filed as exhibit 2 to registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 and is expressly
incorporated herein by this reference.
(c) Real Estate Contract and Purchase and Sale Agreement dated March
20, 1996 between registrant and Richard B. Norton. This agreement
was previously filed as exhibit 1 to registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996 and is expressly
incorporated herein by this reference.
(d) First amendment dated May 10, 1996 to Purchase and Sale
Agreement dated March 20, 1996 between registrant and Richard B.
Norton. This agreement was previously filed as exhibit 1 to
registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 and is expressly incorporated herein by this
reference.
(e) Second amendment dated November 26, 1996 to Purchase and Sale
Agreement dated March 20, 1996 between registrant and Richard B.
Norton is filed herewith.
(f) 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 is filed herewith.
(g) 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 is filed herewith.
(h) 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 is filed herewith.
(i) Registrant's amended Profit Sharing Plan, reflecting an
amendment under Section 401(k) of the Internal Revenue Code dated
May 31, 1985. This Plan was previously filed as Exhibit 10(l) to
Wiland Services, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1985 and is expressly incorporated herein by
this reference (Wiland Services, Inc.'s Reporting Number is
0-12967).
(j) 1997 Incentive Compensation Plan for officers of the registrant
is filed herewith.
(k) 1992 Stock Option Plan was previously filed as Exhibit A to
registrant's definitive proxy statement dated June 29, 1993 for the
Annual Meeting of Shareholders held on July 30, 1993, and is
expressly incorporated herein by this reference.
(l) 1992 Non-Employee Director Stock Option Plan was previously
filed as Exhibit B to the registrant's definitive proxy statement
dated June 29, 1993 for the Annual Meeting of Shareholders held on
July 30, 1993, and is expressly incorporated herein by this
reference.
(23) Consent of Experts and Counsel.
(a) The Consent of Ernst & Young LLP to incorporation by reference
of Auditor's report into the registrant's Registration Statement on
Form S-8 (File No. 33-66964) dated August 3, 1993 pertaining to the
Concepts Direct, Inc. 1992 Stock Option Plan and 1992 Non-Employee
Director Stock Option Plan is filed herewith.
(27) Financial Data Schedule
(a) The financial data schedule is included in the electronic
Edgar filing only.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONCEPTS DIRECT, INC.
Date: February 25, 1997 By: /s/ Phillip A. Wiland
Phillip A. Wiland
Chief Executive Officer
Principal Executive
Officer
Date: February 25, 1997 By: /s/ H. Franklin Marcus, Jr.
H. Franklin Marcus, Jr.
Secretary/Treasurer
Chief Financial Officer
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: February 25, 1997 /s/ Michael T. Buoncristiano
Michael T. Buoncristiano, Director
Date: February 25, 1997 /s/ Robert L. Burrus, Jr.
Robert L. Burrus, Jr., Director
Date: February 25, 1997 /s/ Stephen R. Polk
Stephen R. Polk, Director
Date: February 25, 1997 /s/ Phillip D. White
Phillip D. White, Director
Date: February 25, 1997 /s/ Phillip A. Wiland
Phillip A. Wiland, Director
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO THE REAL ESTATE CONTRACT AND PURCHASE AND SALE
AGREEMENT (hereinafter the "Agreement") is made as of the 26th day of
November, 1996, by and between RICHARD B. NORTON ("Seller") and CONCEPTS
DIRECT, INC., a Delaware corporation, its assignees, designees or
nominees ("Purchaser").
RECITALS
A. Seller and Purchaser entered into a Real Estate Contract and
Purchase and Sale Agreement as of the 20th day of March 1996 (the
"Agreement"). The Agreement pertains to the approximately 139.093 acres
owned by Seller of which Seller originally proposed to retain his
residence on the Property together with approximately 6.7 acres and to
convey the remainder of approximately 132.393 acres to Purchaser, but
now proposes to sell the entire 139.093 acres to Purchaser.
B. Seller and Purchasers entered into a First Amendment to the Real
Estate Contract and Purchase and Sale Agreement as of the 10th day of
May, 1996 (the "First Amendment").
C. Said Agreement, as amended by the First Amendment, is a valid,
binding legal agreement between the Seller and Purchaser and neither
party to said Agreement is in default under any terms of the Agreement,
as amended (hereinafter the amended agreement is referred to as the
"Agreement").
D. Seller and Purchaser have filed for a rezoning of the Property.
Purchaser and Seller have agreed to rezone the Property and the rezoning
district and uses for the Property and both parties have requested that
the Property be annexed into the City of Longmont, Colorado, and both
parties have determined that additional time may be necessary for the
proposed annexation and rezoning.
E. Seller and Purchaser desire to enter into this Second Amendment to
permit a further extension of the Closing date to permit the intended
rezoning and annexation of the Property and necessary agency approvals.
F. Seller and Purchaser further desire to enter into this Second
Amendment to permit a change to the Agreement that permits the Purchaser
to purchase all of Seller's 139.093 acres of real property, including
the 6.7+ acres and residence, other improvements and water rights that
Seller in the original agreement was to retain.
AGREEMENT
In consideration of the Deposit, the premises, and the mutual benefits
to be derived by Seller and Purchaser under the terms of the Agreement,
as herein amended, the parties hereto agree as follows:
1 . The Closing date, as provided for in paragraph 6.1 of the Agreement
shall be extended from the current amended closing date of December 1,
1996, to January 31, 1997. In addition, the provisions of paragraph 2.1
regarding increases in the Purchase Price for each day the Closing is
delayed past June 1, 1996, shall continue to apply.
2. Seller agrees to execute all necessary zoning and annexation
documents promptly upon written request of Purchaser and in any event in
sufficient time to allow action by the City Council on December 17,
1996, provided, however, Seller shall not incur any expense or liability
in connection therewith. Any delay or failure of Seller to sign such
zoning or annexation documents, which delay or failure results in a
delay of the December 17, 1996 City Council action, or any failure by
the City Council to approve the requested rezoning and annexation
requests on December 17, 1996, shall result in a thirty (30) day
extension of the Closing date, subject, however to the provisions of
paragraph 2.1 regarding increases in the Purchase Price for each day
Closing, is delayed past June 1, 1996.
3. Paragraph I. I (a) of the Contract is amended to delete in lines 6
and 7 the words "(except as noted and specified in Exhibit E)"; and said
paragraph is also amended to delete all the language from line 20
starting with the words "less and except" so that all the following is
deleted from said paragraph
"less and except the water rights to be retained by Seller and specified
on Exhibit E and Seller's existing residence located at 545 Highway 119,
Longmont, Colorado, Seller's pump house and direct accessory
outbuildings immediately adjacent to the residence, together with
approximately six and seven tenths (6.7) acres immediately surrounding
said residence, as shown generally on Exhibit A-1."
The purpose of said deletion is intended to clarify that Seller desires
to sell and Purchaser desires to purchase all of Seller's approximately
139.093 acres ("Land"), all of Seller's water rights pertaining to the
Land and the Property, Seller's residence and all other improvements on
the Property; and to also quit claim to Purchaser the approximately four
(4.) acres of land referenced in Exhibit A-2.
5. All references in the Agreement to Seller retaining approximately
6.7 acres of land, Seller's existing residence and other fixtures and
improvements on the Property are hereby deleted.
6. Exhibit A is modified by deleting on pace 4 of Exhibit A, all the
language in the last two paragraphs beginning with the words ".Less and
Except Seller's existing residence ......
7. Exhibit A- I (plat of the Property) is amended to delete all
handwritten notes on the plat referring to Seller retaining his
residence and approximately six (6) acres of land.
8. Exhibit A-2 is amended to delete all the words in the last three (3)
lines of said exhibit after the word "quitclaim" and starting with the
symbol and words as follows "(less the approximately 6.7 acres ...."
9. Exhibit C is amended to delete all references to Seller retaining
approximately 6.7 acres of land.
10. Exhibit E is amended to delete all the language regarding Seller's
retaining certain water rights which language to be deleted starts with
the words "Note: Purchaser and Seller agree that ... Seller is entitled
to retain:" and all language thereafter on said Exhibit E.
The purpose of said deletion is intended to further clarify that Seller
desires to sell and Purchaser desires to purchase all of Seller's water
rights that pertain to or are part of Seller's ownership of the Land and
the Property.
11. Paragraph 2.1 Purchase Price is amended by deleting all of the
language in existing paragraph 2.1 and substituting the deleted language
with new language that reads as follows:
The total base Purchase Price to be paid by Purchaser to Seller for the
entire Property shall be One Million Three Hundred Fifty-nine Thousand
Three Hundred Ten and 60/100 dollars ($1,359,310.60). Of which sum
$275,000 is the agreed to payment for the approximately 6.86 acres of
Land, Seller's residence, other fixtures and improvements on the
Property and certain water rights that Seller in the original Agreement
intended to retain. Furthermore, Seller and Purchaser further agree
that the base Purchase Price, as provided for above, includes the price
for the additional approximately four (4) acres to be quitclaimed by
Seller to Purchaser. The total base Purchase Price as provided for
above is subject to any specific adjustments as provided for herein
including the increase in base Purchase Price of $100 per day for each
day Closing is delayed past June 1. 1996."
12. Paragraph 6.6 Purchaser's obligations at the Closing is amended
to add a new subparagraph (c) that provides as follows:
"(c) Lease Back:
Purchaser agrees at Closing to enter into a standard Weld County Board
of Realtors form residential lease or similar form residential lease on
the Property which would allow Seller and his wife to remain in Seller's
existing house on the Property for a period of no more than three
hundred sixty five (' )65) days from the Closing date. If not already
in the standard form lease. the following provisions shall be added:
1 . The rent for said 365 day period shall be the sum of one dollar
($1.00) per each calendar month or any portion thereof. Furthermore, it
is understood that Seller, as Tenant, may terminate the lease at anytime
during the term upon two weeks advance written notice to Purchaser, as
Landlord.
2. Seller, as Tenant, shall maintain all existing amounts of insurance
on the Property, but shall convert said policies to Tenant policies and
shall have Purchaser named as a co-insured on said policies. Seller
shall pay all policy amounts necessary to maintain said insurance in
full force and effect during the Seller's tenancy. Seller, on or before
the Closing date shall provide Purchaser with evidence of such tenant
insurance and that Purchaser has been listed as a co-insured. Seller
hereby agrees that if any act of damage or fire damages or destroys all
or any part of the residence or other fixtures or improvements on the
Property that all sums paid to seller for said damage shall be assigned
or paid over to Purchaser, but Purchaser shall have no entitlement for
payments made to Seller for damage to Personal Property.
Seller shall not be entitled to hold over as a tenant by sufferance
after the expiration of 365 days of said lease. Should Seller hold
over, he shall pay to Purchaser the sum of $150 per day for each day
Seller remains in the house after 365 days.
4. Seller, as part of his tenancy and in the lease, shall warrant,
covenant and agree to maintain the residence, all appliances, fixtures
and other improvements in good order and repair, subject to ordinary
fair wear and tear, and Seller shall take no act nor fail to take any
act which would result in damage to the residence or other improvements
on the Property or result in any diminution in value of the improvements
or the Property. In consideration of the reduced rent, Purchaser. as
Landlord. shall have no repair or replacement obligation s during the
lease term and Seller, as Tenant, and Purchaser, as Landlord agree that
Seller shall not have any obligation to paint the house during the lease
term or to paint the house or replace non-working appliances and/or
fixtures upon termination.
5. Seller shall also be responsible to pay all utility charges,
including but not limited to, electric, gas, water and sewer if and as
applicable, during the Seller's tenancy. In the event that post Closing
if either Seller or the utilities require that Purchaser establish any
existing utility account in Purchaser's name, then Seller shall first
post an escrow with Purchaser equal to Seller's utility bills for the
previous 12 month period.
6. Seller shall provide Purchaser with a minimum of two weeks advance
written notice of Seller's intent to vacate the Property. Upon
completion of the tenancy, Seller shall leave the leased area of the
Property and the residence in a good and clean condition with all
personal effects and trash removed from the leased Property. To insure
reasonable compliance with the Seller's obligations in the lease, Seller
at time of execution of the lease shall place the sum of $1,000 in
escrow as the tenant's security deposit."
13. Paragraph 10.2 is amended to add the following new language at the
end of the current language in paragraph 10.2 "Both Seller's and
Purchaser's brokers agree that they are not entitled to any fee,
commission or payment due to the change in the Purchase Price by
$275,000 as provided for in this Second Amendment."
14. Seller and Purchaser agree that said Real Estate Contract and
Purchase and Sale Agreement, as amended herein, is a valid and legally
binding contract between Seller and Purchaser and neither party is in
default under the terms of said Agreement and furthermore, if either
party is in technical default, the other party hereby irrevocably waives
such default and the Agreement, as amended, is and remains valid and in
full force and effect.
15. All other words, provisions and requirements of the Agreement shall
remain as originally written unless modified herein. Notwithstanding
the above, the terms, provisions and intent of the First and Second
Amendments shall prevail in the event of any conflict of terms or intent
as expressed in the First and Second Amendments when compared to the
terms of the original Agreement.
SELLER:
/s/ Richard B. Norton (SEAL)
RICHARD B. NORTON
PURCHASER:
CONCEPTS DIRECT, INC., a Delaware corporation
/s/Phillip A. Wiland (SEAL)
PHILLIP A. WILAND, CHAIRMAN
PURCHASER'S AGENT/BROKER:
GRUBB & ELLIS
By: /s/Timothy J. D'Angelo
Name: Timothy J. D'angelo
Title: Vice President
SELLER'S AGENT/BROKER:
THE BARNARD AGENCY
By: Ruth L. Sloane
Name:
Title: Pres.
EXHIBIT : Survey of the Property
January 21, 1997
Mr. Phil Wiland
Concepts Direct, Inc.
1351 South Sunset Street
Longmont, Colorado 80501-6549
RE: New Concepts Direct Facility - Letter of Intent Notice to
Proceed with Earthwork
Mr. Wiland:
Per our previous discussions, this letter is to establish that Concepts
Direct, Inc. and Saunders Construction, Inc. propose, subject to the
conditions contained herein, to enter into an agreement for the
construction of a new facility for Concepts Direct on Lot 1, Block I of
Concepts Direct Filing Number I in Longmont, Colorado. The final
pricing and terms of the agreement will be in general accordance with
Saunders Construction's preliminary proposal, but subject to the mutual
agreement of Concepts Direct, Inc. and Saunders Construction, Inc., and
will be finalized upon completion of construction documents prepared by
Intergroup Architects. We are currently preparing mechanical and
electrical construction documents under our letter of December 10, 1996,
but in order to keep the project on schedule it is necessary to mobilize
the site, construct access roads and temporary utility services, rough
grade the site, and construct the building pad.
With your signature in the space provided on the following pace, this
letter will serve as our Notice to Proceed with this work. The total
not-to-exceed cost for this work is itemized on the attached sheets.
It is understood by Concepts Direct and Saunders Construction, Inc. that
Concepts Direct may terminate this agreement at any time, however, if
this project is terminated for any reason the above costs will be
payable to Saunders Construction, Inc., less the value of any
uncompleted work at the point of termination. It is agreed by both
parties that the intent of this letter is to allow the start of
construction prior to the execution of a formal contract. Upon
execution of a formal contract, this letter will become null and void
and the above costs will become a cost of the executed contract.
Please signify your acceptance of these conditions by providing a dated
signature in the space provided below and returning to Saunders
Construction, Inc.. Saunders Construction, Inc. and Concepts Direct both
agree that this letter of intent and agreement is binding only as to the
specifics contained herein and neither party by this letter is obligated
to enter into, or execute any additional contract or agreement unless
mutually satisfactory to both parties and executed by both parties.
Should you have any questions or concerns, please feel free to call. We
look forward to working with you on this project.
Sincerely,
SAUNDERS CONSTRUCTION, INC.
/s/ David F. Hoffman
David F. Hoffman
Chief Estimator
Accepted,
CONCEPTS DIRECT, INC.
/s/ Phillip A. Wiland
Phil Wiland
Chairman
Date 1-27-97
(Various tables follow in the original outlining the total anticipated costs
totaling $251,798.)
February 20, 1997
Mr. Phil Wiland
Concepts Direct, Inc.
1351 South Sunset Street
Longmont, Colorado 80501-6549
RE: New Concepts Direct Facility - Letter of Intent
Notice to Proceed with Material Pre-orders & Structural Work
Mr. Wiland:
Per our previous discussions, this letter is to establish that Concepts
Direct, Inc. and Saunders Construction, Inc. propose, subject to the
conditions contained herein, to enter into an agreement for the
construction of a new facility for Concepts Direct on Lot 1, Block I of
Concepts Direct Filing Number I in Longmont, Colorado. The final
pricing and terms of the agreement will be in general accordance with
Saunders Construction's preliminary proposal, but subject to the mutual
agreement of Concepts Direct, Inc. and Saunders Construction, Inc., and
will be finalized upon completion of construction documents prepared by
Intergroup Architects. In order to keep the project on schedule it is
necessary to pre-order long lead items, begin the shop drawing process
on structural components, install all underground piping and utilities
at the building pad, and begin the construction of the foundations,
slab-on-grade and exterior wall panels.
With your signature in the space provided on the following page, this
letter will serve as our Notice to Proceed with this work. The total
not-to-exceed cost for this work is itemized on the attached sheets.
Please note that this cost does not include plan check and permit fees
or water and sewer fees which will be paid directly by Concepts Direct.
It is understood by Concepts Direct and Saunders Construction, Inc. that
Concepts Direct may terminate this agreement at any time, however, if
this project is terminated for any reason the above costs will be
payable to Saunders Construction, Inc., less the value of any
uncompleted work at the point of termination. It is agreed by both
parties that the intent of this letter is to allow the start of
construction prior to the execution of a formal contract. Upon
execution of a formal contract, this letter will become null and void
and the above costs will become a cost of the executed contract.
Please signify your acceptance of these conditions by providing a dated
signature in the space provided below and returning a copy to Saunders
Construction, Inc.. Saunders Construction, Inc. and Concepts Direct both
agree that this letter of intent and agreement is binding only as to the
specifics contained herein and neither party by this letter is obligated
to enter into or execute any additional contract or agreement unless
mutually satisfactory to both parties and executed by both parties.
Should you have any questions or concerns, please feel free to call. We
look forward to working with you on this project.
Sincerely,
SAUNDERS CONSTRUCTION, INC.
/s/ David F. Hoffman
David F. Hoffman
Chief Estimator
Accepted,
CONCEPTS DIRECT, INC.
/s/ Phillip A. Wiland
Phillip A. Wiland
Chairman
(Various tables follow in the original outlining the total anticipated costs
totaling $1,977,676.)
CONTRACT BETWEEN CONCEPTS DIRECT, INC. AS OWNER AND INTERGROUP, INC.
AS ARCHITECT FOR THE PROVISION OF ARCHITECTURAL SERVICES
THIS CONTRACT AND AGREEMENT is made between CONCEPTS DIRECT, INC., a
Delaware corporation ("Owner") and INTERGROUP, INC., a Colorado
corporation ("Architect"). The Owner has acquired or is in the process
of acquiring land described as: 139.093 acres of land with frontage on
Colorado State Highway 119, commonly known as the Richard B. Norton
Property in Weld County, Colorado. Said land to be annexed into the
City of Longmont, Colorado.
RECITALS
1. Owner desires to develop, on the land, the following project: An
approximately 115,000 square foot office production/light manufacturing
and distribution facility (hereinafter the "New Facility").
2. Architect is a registered and licensed architect in the State of
Colorado and Architect represents to Owner that Architect is skilled and
experienced in the architectural design of building facilities similar
to the New Facility that Owner desires to construct and Architect
desires to design the New Facility for Owner.
3. Owner agrees to provide Architect with basic programming
information, to inform Architect as to the use of the New Facility to be
designed and the amount of space needed to be devoted to various
purposes, and will supply Architect with as much detailed information as
reasonably possible as to the characteristics of the project desired by
Owner, including economic and aesthetic criteria. Owner, at no cost to
Architect, will supply Architect with all reasonably required
information and documents in Owner's possession as to zoning,
governmental restrictions, surveys, construction financing, recorded
covenants, conditions, restrictions, and all other information that is
known to Owner and would be relevant to the proper performance of
Architect's duties under this contract.
AGREEMENT
Owner employs Architect to perform, and Architect agrees to perform, the
following services:
1. New Facility Design.
A. Programming and Schematic Design. Architect, based on the
programming and other information provided by the Owner, will provide
for the consideration of Owner, a scheme of design as to the location,
size, structure, appearance, and function of the project and preliminary
schematic design drawings for the New Facility that will display the
general characteristics, appearance, and dimensions of the project.
Owner will, in turn, provide Architect with detailed reactions to the
Architect's scheme, and the Architect will supply a gross estimate as to
the cost of the project. Architect will take Owner's reactions and then
revise Architect's preliminary designs and develop a final schematic
preliminary site plan, schematic elevations and other standard schematic
design drawings that address Owner's preliminary reactions and which can
be used as a basis for construction documents.
B. Design Development/Preliminary Drawings. After Owner and Architect
have agreed as to the philosophy of design and after Owner has approved
the schematics, the Architect will proceed with preliminary drawings.
The purpose of the preliminary drawings is to describe the general
characteristics of the project as to the size and location of buildings,
size and location of rooms and other spaces within the buildings, the
general characteristics of the Architectural design, the general
characteristics of the structural and roof design, and the allocation of
interior and exterior functions and spaces. Architect will not proceed
with working drawings/construction documents until Owner has approved,
in writing, the preliminary drawings. Based on the preliminary
drawings, Architect will supply Owner with a written preliminary
estimate of the cost of constructing the project.
C. Working Drawings. Architect will produce all necessary working
drawings and specifications for the construction documents/working
drawings including final site plans, elevations, sections, details,
construction plans, and specifications to enable Owner and/or Owner's
contractor to obtain all necessary building permits and to construct the
New Facility in accordance with acceptable architectural, fire, safety
and building code requirements. Architect will submit drawings to
contractor for final bidding purposes, and review bids. Architect will
assist the Owner and/or Owner's contractor in submitting the drawings to
all applicable governmental agencies for approval, and will make any
corrections that are necessary to obtain all necessary governmental
approvals. Architect, at no additional cost, will perform revisions and
redesign necessary to meet governmental requirements. If Owner requires
Architect to change drawings that Owner has already approved or agreed
to, Architect's fee will be equitably adjusted.
D. Construction Administration.
(1) Contractor Selection. Architect will consult with Owner as to the
various systems available for the employment of a contractor or
contractors for the construction of the project, and will review and
advise Owner or Owner's attorney regarding the proposed contract with
the contractor. Architect will advise Owner as to the reputations (if
known) of contractors and subcontractors who are under consideration.
If competitive bidding is to be employed, it will be from a select bid
list approved by Owner and Architect, and bidding and bid opening will
be supervised by Architect.
(2) Construction Observation. During the progress of the job, the
Architect will visit the job site at appropriate intervals, but as a
minimum, on a bi-weekly basis, and observe and review the progress of
the work and to insure conformance with contract documents and
conformance with Owner's reasonably desired construction schedule. The
Architect's observations will be as to those features of the project
that can be observed without intrusive or destructive techniques.
Intrusive, destructive, chemical, mechanical, and laboratory testing
will be performed by appropriate agencies employed by Owner upon the
recommendation of Architect. Architect will act as Owner's agent, and
will deal, as such, with the contractor in order to protect the
interests of Owner against deviation from the contract documents or
acceptable standards of construction. If Architect determines that work
performed by the contractor does not comply with the requirements of the
contract documents, Architect will notify Owner and contractor of such
deviation in writing, and Owner will take such measures as it deems
desirable to secure compliance. Construction inspection and observation
shall include review of shop drawings, review and approval of contractor
pay requests, in accordance with policies and procedures established by
Owner and/or Owner's Lender, answering field questions and providing a
detailed written final construction punchlist.
(3) Construction Progress Payments. Architect will recommend documents
and an appropriate system for processing progress payments to the
contractor, in accordance with policies and procedures established by
Owner and/or Owner's Lender, and will approve certificates for payment,
as appropriate under the contract documents, based on information
obtained by Architect by inspection of the progress of the work.
(4) Master Planning. In addition to the New Facility design, Architect
agrees to provide to the Owner a conceptual design for the 139 acre
parcel consisting of overall land use strategies, road alignments,
general landscaping, open space planning, and phasing. Major utility
locations will be shown on said plans if provided by Owner's civil
engineer. Architect will only revise said plans a total of three times
for the price specified herein: (1) revisions to address Owner's civil
engineers and Owner's broker's preliminary comments (2) revisions to
address governmental agencies' initial comments; and (3) revisions
necessary to obtain final governmental zoning approvals.
(5) Covenants. In addition to the New Facility design and master
planning, Architect agrees to provide to the Owner a detailed written
set of conditions, covenants, and restrictions (collectively
"Covenants") designed to establish a quality architectural design
baseline and unified architectural theme for the development of the
entire 139 acre project of Owner. Said Covenants shall include written
baseline standards for all future development, including standards to
protect and insure that the quality of development established by the
New Facility is not degraded by future development and shall include the
requirement that all future site plans, elevations and building
materials shall be approved in advance by an architectural review board
to be established by Owner.
(6) Completion of Work. The following conditions are necessary for
completion of the work in a timely and orderly manner and within the
rates set forth in Paragraph 11 of this Agreement. Because Architect
wishes to provide the service Owner needs in a prompt, efficient manner,
Architect has conditioned this Agreement on these requirements:
(a) Upon submission by Intergroup, Inc. to the Owner of any and all
documents or work products prepared by Architect, Owner shall review the
same and approve or specify changes required within a reasonable period
of time. Any delay in the response of the Owner to Architect's
submission will, at Architect's option, extend all subsequent deadlines
for Architect set forth in any work schedule or in this Agreement.
Owner's signature on any submissions by Architect's proof of Owner's
satisfaction with the product.
(b) No partial payment made hereunder shall be or construed to be final
acceptance or approval of that part of the services to which such
partial payment relates or relive Architect of any of its obligations
hereunder with respect thereto.
(c) Architect represents, covenants, and agrees that it shall, at its
own cost, make good any defects in its services as soon as Architect
becomes aware of such defects or is notified of such defects. This
commitment by Architect is in addition to, and not in substitution for,
any other remedy for defective services which Owner may have at law or
in equity.
(d) The final request for payment for any work required under this
agreement or any additional services requested by Owner shall not be
made until Architect delivers to Owner a complete release of all liens
arising out of this agreement and an affidavit that so far as Architect
has knowledge or information, the release includes and covers all
materials and services over which Architect has control for which a lien
could be filed.
2. Architects Duties and Representations.
A. Notwithstanding anything to the contrary contained in this
agreement, Owner and Architect agree and acknowledge-e that Owner is
entering into this agreement in reliance on Architect's special and
unique abilities with respect to performing the architectural services
provided for herein. Architect accepts the relationship of trust and
confidence established between it and Owner by this agreement.
Architect covenants with Owner to use its best efforts, skill, judgment,
and abilities to design the New Facility and to further the interests of
Owner in accordance with the best prevailing professional standards and
in compliance with all applicable national, federal, state, municipal
laws, regulations, codes, ordinances, orders and with those of any other
body having jurisdiction. Prior to the commencement of construction,
Architect shall certify to Owner and the lending institution or
institutions financing the construction of the project ("Lender") that
the drawings and specifications and all drawings and the improvements
when built in accordance therewith conform to all applicable
governmental regulations, statutes, and ordinances.
B. Architect represents, covenants, and agrees that its project
drawings and specifications will be accurate and free from any material
errors and the shop drawings that it must approve will be accurate and
free from any material errors.
C. Architect's duties as set forth herein shall at no time be in any
way diminished by reason of any approval by Owner of the drawings and
specifications nor shall Architect be released from any liability by
reason of such approval by Owner, it being understood that Owner at all
times is ultimately relying upon Architect's skill and knowledge in
preparing the drawings and specifications.
3. Property of Owner.
A. All drawings and specifications, computations, sketches, renderings,
and other materials peculiar to the services prepared by Architect or
Architect's consultants, are the services prepared by Architect or
Architect's consultants, and once paid for by Owner as provided for
herein are the property of the Owner and for its exclusive use and
re-use at any time without further compensation due Architect and
without any restrictions.
B. All documents including drawings and field notes prepared by
Architect, pursuant to this Agreement are not represented by Architect
to be suitable for re-use by Owner or others on extensions of this
project or any other project. Any re-use is hereby and shall be
permitted, but will be at Owner's sole risk and without liability to
Architect and Owner shall indemnify and hold harmless Architect from all
claims, damages, losses and expenses including attorney's fees arising
out of or resulting therefrom.
4. Confidentiality.
Architect shall treat all material and information provided by Owner and
all statements by Owner concerning the development of the 139 acres and
the development and construction of the New Facility in a confidential
manner, and Architect shall neither use any such material or information
or copies thereof on other work nor disclose such material or
information to any other party without Owner's prior written approval.
5. Owner's Lender.
A. Architect will reasonably cooperate with Owner's Lender in all
respects regarding the construction of the New Facility.
B. Architect agrees that notwithstanding a default by Owner under the
provisions of this agreement which would give Architect the right to
terminate this Agreement, Architect will continue to perform its
obligations hereunder (on the same terms and conditions as are set forth
herein) for and on account of Lender if Lender shall cure any such
default by Owner within fifteen (15) days after notice from Architect to
Lender and shall agree in writing to perform all obligations of the
Owner hereunder accruing from and after the date Lender succeeds to
Owner's rights and obligations hereunder. If requested by Under,
Architect will execute a separate letter or other reasonable agreement
with the Lender further evidencing its commitment to continue
performance pursuant to this article.
C. Whenever herein an approval, acceptance, direction, requirement,
permission, designation, prescription, or other action by Owner is
required or permitted under the contract documents, such action may, at
the option of Owner and/or Lender, be deemed to include and be
conditioned upon the authorization of or joinder in such action by
Lender or an appropriate representative of Lender; provided, however, no
such action by Lender shall abrogate any right granted to Architect
under the contract documents. Architect shall prepare and submit all
reports, certificates, and statements required by Lender and shall
perform such other actions as may be reasonably required of Architect by
Lender subject, however, to reasonable reimbursement for such additional
services as provided on Schedule A attached hereto and incorporated
herein by reference.
6. Change Orders.
Architect will recommend a procedure for processing change orders, will
check pricing of change orders, and will recommend appropriate change
orders for signature by Owner. Owner will avoid dealing directly with
the contractor and will process change orders through Architect.
7. Job Site Discipline and Safety.
Within the constraints of periodic observation, Architect will use its
best efforts, as the agent of Owner, to require the contractor to
maintain a disciplined, orderly, and safe job site. Architect is not,
however, responsible for activities that are beyond its control, or that
occur when Architect is not present on the site, or for activities or
conditions that are not reasonably observable by Architect when present
on the site. If Architect determines that the job is being conducted in
an unsafe manner, it will inform the contractor and Owner in writing,
and Owner will take such measures as are necessary to require the
contractor to proceed safely.
8. Shop Drawings, Submittals, Selections.
Architect will process shop drawings and other submittals and will make
color and material selections, and will promptly respond to reasonable
requests for information from contractor.
9. Completion and Occupancy .
When the project is substantially complete, Architect win make a
detailed inspection, and will prepare a punch list. Architect will
determine when the project is substantially complete, and when it is
ready for occupancy.
10. Repairs and Warranties.
Architect will assist the Owner in processing warranty claims, repairs,
and corrections, and will use its best efforts, as the agent of the
Owner, to require contractors, subcontractors, and suppliers to correct
improper work and to make good their warranties. If legal action is
required to secure corrective or warranty work, Owner will employ a
lawyer for that purpose.
11. Payment.
For the Architect's services, Owner shall make payments as follows:
A. Programming and Schematic Design Drawings. For the creation of the
design concept and philosophy, including preliminary schematic drawings,
Owner will pay Architect a fixed design fee not to exceed $11,400.00.
B. Design Development/Preliminary Drawings. For the preparation of
preliminary elevation, design and interior layout drawings, the Owner
will pay architect a fixed fee not to exceed $25,500.00.
C. Working Drawings and Specifications. For the preparation of working
drawings and specifications, Owner will pay Architect, against monthly
billings, according to Schedule A which is attached hereto and
incorporated herein, a fixed fee for complete working drawings and
specifications not to exceed $69,625.00. Notwithstanding anything to the
contrary contained herein, the final payment of $10,000 of said
$69,625.00 shall not be made by Owner (and shall not be accrue any
interest or late fees) until all said drawings and specifications have
been approved by all government officials and building permits issued
for the construction of the New Facility.
D. Construction Administration. For all construction administration
services rendered by Architect, including services in connection with
contractor selection, bidding, construction supervision, inspection,
warranty, and corrective work, Owner will pay Architect a fixed fee not
to exceed $20,675.00. Notwithstanding anything to the contrary contained
herein, the final payment of $5,000 of said $20,675.00 shall not be made
by Owner (and shall not accrue any interest or late fees) until (a) the
appropriate governmental agency has made and approved a final inspection
and issued an occupancy permit; and (b) Architect has issued a written
letter of completion to Owner certifying that the New Facility has been
completed by the contractor in accordance with the Architect's drawings
and specification.
E. Master Planning. For all master planning and land use design for
the Owner's entire 139 acre parcel of land, the Owner will pay Architect
a fixed fee not to exceed $7,500.00.
F. Covenants. For the development and preparation of a complete and
detailed written set of conditions, covenants and restrictions designed
to establish a quality architectural design baseline and unified
architectural theme for the development of the entire 139 acre project
of Owner, the Owner will pay Architect a fixed, not to exceed fee of
$5,000.00.
G. Extra Services. If Architect provides extra services not included
within the scope of this agreement and at the written request of Owner,
Architect will bill monthly for such services, which will be compensated
by Owner in accordance with the rates established by Schedule A attached
hereto and incorporated herein by reference.
12. Errors and Omissions/Insurance.
Architect will use its best efforts to guard against errors or omissions
in the performance of its services under this agreement and will
carefully prepare the drawings, contract documents and instruments of
service. Architect, during all periods this agreement remains in full
force and effect, shall maintain a comprehensive general liability
insurance policy in a commercially reasonable amount to protect
Architect from any claims that may be made by Owner due to negligence.
errors, omissions, mistakes, and breaches of warranty that may be
committed by Architect in the performance of Architect's services and
duties as provided for herein. Architect agrees to. provide a
certificate from its insurance carrier evidencing the existence of said
insurance upon request of Owner or Owner's Lender.
13. Disputes.
If a dispute should arise between Owner and the contractor, Architect
shall determine the dispute by a written decision. Architect's written
decision shall be subject to review by appropriate arbitration or court
proceedings. Architect shall give each party an opportunity to produce
evidence and argument supporting its side of the dispute.
14. Attorneys' Fees.
If Architect or Owner should become involved in litigation or
arbitration proceedings as a result of this agreement, or the
construction of the project, the court or arbitration tribunal shall
award reasonable attorneys fees to the prevailing party.
15. Arbitration.
If a dispute should arise between Architect and Owner relating to this
agreement or its performance, it shall be subject to arbitration under
the rules of the American Arbitration Association. The contractor and
any other party with a direct interest in the dispute may become a party
to the arbitration with the permission of the arbitrator. By submitting
the dispute to arbitration, the parties do not waive the right to seek
provisional remedies from a court. The parties authorize the
arbitration tribunal to grant equitable, as well as monetary, relief.
The arbitration tribunal is authorized to award compensation for the
time and trouble of arbitration, including arbitration fees, expert
witness fees, and attorneys fees, to the party or parties justly
entitled thereto. If a party, after due notice, fails to participate in
an arbitration hearing, the tribunal shall decide the dispute in
accordance with evidence introduced by the party or parties who do
participate.
16. Termination.
If Owner or the agents or contractors of Owner substantially and
materially interfere with the work or services to be performed by
Architect, Architect may give notice of such interference to Owner. In
the event of such notice, if the interference has not been corrected
within ten (10) days of Owner's receipt of notice or if the parties have
not satisfactorily resolved the problem within ten (10) days after
Owner's receipt of notice, then Architect may give Owner notice of
termination. Architect shall be paid for all work performed and
expenses incurred up to and including the date of termination. Owner
reserves the right to terminate this Agreement if Architect fails to
perform under the terms of this Agreement, or for any other reason upon
five (5) days written notice. In the event of any such termination by
Owner, Owner shall pay Architect for all fees earned and all work
performed up to the date of termination.
All notices and other communications herein required shall be in writing
and be deemed duly given if personally delivered or mailed by certified
mail, return receipt requested, postage prepaid; to:
(1) Owner, at:
Phillip A. Wiland, Chairman Concepts Direct, Inc. 1351 South Sunset
Street Longmont, CO 80501
and
(2) Architect, at:
Ned K. White, AIA, Chairman Intergroup, Inc. 2696 South Colorado Blvd.,
Ste. 304 Denver, CO 80222
17. Successors and Assigns.
Neither party shall assign or transfer any right, duty, obligation or
interest under this agreement without the prior written consent of the
other party. Absent a written agreement to the contrary, no assignment
or transfer shall release the assignor/transferor from any duty or
obligation hereunder.
18. Entire Agreement.
This represents the entire agreement between Architect and Owner and
supersedes any and all oral discussions or other draft agreements
between Owner and Architect. No modifications to this agreement shall
be deemed to have been made unless in writing and signed by both Owner
and Architect.
Date: September 4, 1996
OWNER: CONCEPTS DIRECT, INC.
By: /s/ Philllp A. Wiland, Chairman
Phillip A. Wiland, Chairman
Date: September 4, 1996
ARCHITECT: INTERGROUP, INC.
By: /s/ Ned K. White, AIA, Chairman
Ned K. White, AIA, Chairman
SCHEDULE A
Billing Procedures and Schedule of Rates for Additional Services
A. BILLING
Owner will be billed on or about the 5th day of each month for all work
performed during the preceding month. Payment will be expected within
thirty (30) days after billing. On past due amounts, a 1.5% late fee
will be charged monthly. On any past due charges requiring the services
of an attorney for collection, you will also be required to pay
reasonable attorney's fees. This is general policy and not a reflection
upon Owner as a valued client; it is necessary to insure adequate cash
flow for Architect and thus, reasonable prices for Architect's services
in the future.
B. SCHEDULE OF RATES FOR ADDITIONAL SERVICES
Principal Architect $100.00/hour
Project Architect $55.00-70.00/hour
Draftsman $ 40.00-55.00/hour
Expenses:
Mileage $0.30/mile
Reproduction $0.12/copy (8-1/2x11)
Blueprinting $1.00/page (24"x36")
Other At direct cost +10%
C. DURATION
Fees contained in this Agreement are based upon the information
Architect has been able to obtain from Owner at this time. If any
changes are made at a later date, a mutual written agreement between the
parties in advance will be required as to the extra work involved.
Because Architect cannot rely on the stability of pricing factors,
Architect cannot and does not guarantee that the fees submitted in this
Agreement will not vary if the work is not begun within thirty (30) days
of the date thereof. The fees assume a six (6) month construction
period from the issuance of building department drawings by Architect.
If the project goes beyond that time, through no fault of Architect, the
fees for administration may have to be increased to cover actual
increased costs and expenses.
*****CONFIDENTIAL*****
Exhibit A to Board Resolution
CONCEPTS DIRECT, INC.
1997 INCENTIVE COMPENSATION PLAN
Effective January 1, 1997
The primary financial objective of Concepts Direct, Inc., is to maximize
the value of the Company for shareholders. A key element - probably the
key element - of achieving this objective is significant, steady profit
improvement.
Concepts Direct wants to increase profits steadily and significantly.
Encouraging our staff to achieve these goals every quarter is the
purpose of this 1997 Incentive Compensation Plan.
For purposes of making the final calculations of amounts due under the
plan set forth herein, Average Shareholders' Equity will be determined
by the external auditors in the course of audits.
For illustration herein ..... $7,000,000 is used
Return on average equity (ROAE) is calculated by averaging the
Shareholders' Equity from each of the four quarterly financial
statements, and dividing the result into after-tax net profit at the end
of the year. Bonuses earned in 1996 will reduce the Company's net
income before calculation of the ROAE bonus. "Net Profit" as used
herein means Net Income after bonuses and taxes excluding any
tax-effected gain on the sale of capital assets of the Company. "EPS"
as used herein will also be adjusted to exclude tax-effected gain on the
sale of capital assets of the Company It is the goal of the Company for
Earnings per share (EPS) to be higher every quarter than they have ever
been during that calendar quarter. The quarterly incentive compensation
plan is established with this goal in mind.
In order to participate in the Incentive Compensation Plan, a person
must be an employee on both the first business day and last calendar day
of period covered. For the annual incentive bonus, the participant must
be an employee on both the first working day in January and December 31,
1997. A person joining the plan later in January, for example, would
not be eligible for the annual incentive bonus, nor the first quarter
bonus. If they are an employee on the first day and the last day of
each of the remaining three quarters, though, they will be eligible for
any incentive bonuses earned for those quarters.
Persons who voluntarily leave the employ of the company will not receive
any incentive compensation which is payable but as yet unpaid on the
date of their termination of employment. Persons who are terminated
involuntarily will be paid any amount they would have received for a
period which was complete prior to their termination.
All incentive compensation payable under this plan shall be paid in full
within 120 days after the close of the applicable period, with the
specific date to be set by the Chief Financial Officer. For purposes of
computing annual or quarterly bonuses, "Base Salary" is defined as
actual number of base payroll dollars (gross -- before deductions) but
excluding previously paid quarterly and/or annual bonuses the employee
has received during the period. This means that if for any reason there
is an adjustment in salary during the period the amount to which the
incentive compensation percentage will be applied is the sum, as
described above, that the employee has received during the period. In
other words, if we were to make up a W-2 for the quarter, what would it
show? For purposes of computing annual bonuses, "Base Salary" is
defined as W-2 earnings before 401-K deductions and excluding previously
paid quarterly and/or annual bonuses and other non-salary items, such as
reimbursement for relocation expense.
Quarterly bonuses will only be paid if the Company is profitable on a
year-to-date basis. For example, if the Company makes money during the
second quarter of 1997, but lost a greater amount of money during the
first quarter (thus leaving the Company in a loss status on a year to
date basis), no second quarter bonus will be paid.
Staff members not named in the plan are not participants in the plan.
Participation in the Incentive Compensation Plan does not constitute a
guarantee of employment, either in a position covered by the plan, or
with the Company, for any fixed period of time. It is not an employment
contract of any kind, nor a forward commitment on the part of the
company for compensation of any nature, in any amount, or for any fixed
period of time.
The 1997 Incentive Compensation Plan is the only plan under which
payments in addition to salary, can be made to the named individuals.
Any other benefit or compensation plans or payment desired or determined
necessary for other employees must be submitted in writing to Personnel
for consideration and may be implemented only after approval by the CEO.
No such plan may allow more than $15,000 in aggregate incentive
compensation payments during 1997. Finance will only pay incentive
compensation to participants based on provisions of this plan.
The Company reserves the right to promote, demote, reassign or terminate
the employment of any person under this plan in the same manner as if
the person were not under the plan.
The Company will distribute a copy of the plan to each eligible
employee. At the same time, a cover memo will be distributed containing
an affirmation stating that the employee has read, understands and
agrees to abide by the regulations of the Incentive Compensation Plan.
The employee must sign and return a copy of the memo to participate in
the Incentive Compensation Plan.
The Company reserves the right to discontinue or revise the Incentive
Compensation Plan and/or its regulations and eligibility requirements at
any time.
Occasionally, the Finance Department may make erroneous payments to a
employees under the Incentive Compensation Plan. If this occurs, the
employee receiving the payment is responsible for notifying Finance that
an error has occurred. After discovery of the error, Finance will
correct their prior action by deducting the appropriate amount from
subsequent payments to the employee on a basis to be determined by the
CFO.
Employees should be aware that the purpose of the Board of Directors in
establishing this incentive compensation plan is to reward achievement
of profit milestones which surpass previous company performance.
Accordingly, it should be anticipated that future incentive compensation
plans, if adopted, will most likely require increased profitability for
bonuses to be paid.
1. Base Monthly Salaries:
Actual at Proposed
Plan 12/1/96 1997
------ ------------- ---------------
Julie Andresen A 6,833 8,125
Dave Haddon A 5,196 5,196*
R. C. Lloyd A 6,042 6,458
Frank Marcus A 7,167 8,125
Tom Murray A 7,167 8,125
Phil Tobias A 11,667 12,834
Phil Wiland A 14,000 16,500
Mike Wolfe A 12,500 14,750
* Subject to change on salary review dates. Others may be changed only
with Board approval.
The incentive compensation plan is divided into Plan A and Plan B.
The participants of these plans are defined as follows:
1. The Participants of Plan A consist of all officers of the Company
with the following titles:
Chairman
President
Vice President
Chief Financial Officer
Controller
2. The participants of Plan B consist of full-time management personnel
who; (1) report to the President and receive an annual salary of
$40,000 or more or, (2) report to another Officer and either receive an
annual salary of $65,000 or more or supervise 10 or more people.
For purposes of this plan, management personnel is defined as someone
who oversees the activities of other employees of Concepts Direct and/or
who oversees the activities of key outside vendors of the company.
2. Annual Bonus Based on Companywide Return on Average Equity (ROAE) for
1997.
PLAN A PLAN B TOTAL
THRESHOLD BONUS AS BONUS AS ANNUAL
ROAE NET PROFIT % OF BASE % OF BASE BONUSES
100.0% up 7,000,000 50.0% 17.50% 563,038
85.00% to 99.99% 5,950,000 48.0% 16.80% 540,516
75.00% to 84.99% 5,250,000 44.0% 15.40% 495,473
65.00% to 74.99% 4,550,000 40.0% 14.00% 450,430
55.00% to 64.99% 3,850,000 36.0% 12.60% 405,387
45.00% to 54.99% 3,150,000 32.0% 11.20% 360,344
35.00% to 44.99% 2,450,000 24.0% 8.40% 270,258
25.00% to 34.99% 1,750,000 15.0% 5.25% 168,911
21.00% to 24.99% 1,470,000 10.0% 3.50% 112,608
16.00% to 20.99% 1,120,000 6.0% 2.10% 67,565
12.00% to 15.99% 840,000 4.0% 1.40% 45,043
8.00% to 11.99% 560,000 2.0% 0.70% 22,522
BELOW 8% 0.0% 0.00% 0
3. Quarterly Bonus Based on EPS:
Plan A Plan B
Qtrly Bonus Qtrly Bonus Annual
EPS this Qtr. vs. Prior As % of As % of Group
Record Same Qtr. Annual Base Annual Base Total
EPS 300% or More of Prior Record 15.0% 5.25% 675,645
EPS 250% - 299% of Prior Record 14.0% 4.90% 630,602
EPS 225% - 249% of Prior Record 13.0% 4.55% 585,559
EPS 200% - 224% of Prior Record 12.0% 4.20% 540,516
EPS 176% - 199% of Prior Record 11.0% 3.85% 495,473
EPS 150% - 175% of Prior Record 10.0% 3.50% 450,430
EPS 140% - 149% of Prior Record 9.0% 3.15% 405,387
EPS 130% - 139% of Prior Record 8.0% 2.80% 360,344
EPS 121% -129% of Prior Record 7.0% 2.45% 315,301
EPS 115% - 120% of Prior Record 5.0% 1.75% 225,215
EPS 101% -114% of Prior Record 4.0% 1.40% 180,172
EPS 90% - 100% of Prior Record 2.3% 0.81% 103,599
EPS 80% - 89% of Prior Record 2.0% 0.70% 90,086
EPS 60% - 79% of Prior Record 1.7% 0.60% 76,573
EPS 40% - 59% of Prior Record 1.0% 0.35% 45,043
EPS 10% - 39% of Prior Record 0.3% 0.09% 11,261
EPS Less than 10% of Prior Record 0.0% 0.00% 0
The following are the record earnings per share and the years in which
each was set; 1st QTR: $.12 (1996); 2nd Qtr: $.08 (1995): 3rd Qtr: $.17
(1994); 4th Qtr: $.37 (1994). (Note: a new fourth quarter record may be
set in 1996.)
4. Additional Annual Bonus for Phillip A. Wiland and J. Michael Wolfe
Only: If all of the following objectives are achieved in 1997, Phillip
A. Wiland and J. Michael Wolfe will each receive an additional bonus
equal to 50% of their 1997 base salary:
a. Revenues in 1996 exceed $75,000,000; and
b. EPS in 1997 exceeds $1.50; and
c. Market Capitalization of the Company's stock at December 31,
1997 exceeds $75,000,000.
NET IMPACT:
THRESHOLD ANNUAL ANNUAL QUARTER TOTAL
ROAE NET PROFIT/LOSS EPS BONUSES BONUSES BONUSES
100.00% up 7,000,000 3.15 563,038 675,645 1,238,683
85.00% to 99.99% 5,950,000 2.68 540,516 675,645 1,216,162
75.00% to 84.99% 5,250,000 2.36 495,473 675,645 1,171,119
65.00% to 74.99% 4,550,000 2.05 450,430 630,602 1,081,033
55.00% to 64.99% 3,850,000 1.73 405,387 585,559 990,947
45.00% to 54.99% 3,150,000 1.42 360,344 495,473 855,818
35.00% to 44.99% 2,450,000 1.10 270,258 405,387 675,645
25.00% to 34.99% 1,750,000 0.79 168,911 180,172 349,083
21.00% to 24.99% 1,470,000 0.66 112,608 90,086 202,694
16.00% to 20.99% 1,120,000 0.50 67,565 76,573 144,138
12.00% to 15.99% 840,000 0.38 45,043 45,043 90,086
8.00% to 11.99% 560,000 0.27 22,522 11,261 33,782
BELOW 8% 0 0.00 0 0 0
RECAP OF IMPACT ON EARNINGS:
ANNUAL QUARTERLY
IF NET PROFIT IS: NET INCENTIVE INCENTIVE INCENTIVE
PROFIT TOTAL TOTAL TOTAL
7,000,000 563,038 675,645 1,238,683
5,950,000 540,516 675,645 1,216,162
5,250,000 495,473 675,645 1,171,119
4,550,000 450,430 630,602 1,081,033
3,850,000 405,387 585,559 990,947
3,150,000 360,344 495,473 855,818
2,450,000 270,258 405,387 675,645
1,750,000 168,911 180,172 349,083
1,470,000 112,608 90,086 202,694
1,120,000 67,565 76,573 144,138
840,000 45,043 45,043 90,086
560,000 22,522 11,261 33,782
Meaning that earnings
before bonuses but
after tax must be....
... then the and Net
percent paid Earnings
in incentives is are:
8,238,683 15.0% 7,000,000
7,166,162 17.0% 5,950,000
6,421,119 18.2% 5,250,000
5,631,033 19.2% 4,550,000
4,840,947 20.5% 3,850,000
4,005,818 21.4% 3,150,000
3,125,645 21.6% 2,450,000
2,099,083 16.6% 1,750,000
1,672,694 12.1% 1,470,000
1,264,138 11.4% 1,120,000
930,086 9.7% 840,000
593,782 5.7% 560,000
1997 INCENTIVE COMPENSATION PLAN
Effective January 1, 1997
Approval Page
APPROVED BY:
Personnel Date
Chief Financial Officer Date
President Date
Chief Executive Officer Date
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-66964) pertaining to the 1992 Non-Employee Director Stock Option Plan
and 1992 Stock Option Plan of Concepts Direct, Inc. of our report dated January
31, 1997, with respect to the financial statements and schedule of Concepts
Direct, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Denver, Colorado
February 27, 1997
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<NAME> CONCEPTS DIRECT, INC. YEAR ENDED DECEMBER 31, 1997
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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0
0
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