FORM 10-K405
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, 1999
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.)
2950 Colorful Avenue, Longmont, Colorado 80504
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (303) 772-9171
_______________________________________________
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive Proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10- K. []
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 6, 2000 was approximately $11,998,000. 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 March 6, 2000. The foregoing calculation should
not be deemed an admission that any of the officers and directors of the
registrant or any holder of more than 5% of the outstanding common stock of
the registrant is an "affiliate."
The number of shares outstanding of the registrant's common stock as of
March 6, 2000 was 4,985,618.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its annual meeting of
shareholders scheduled for May 2, 2000 are incorporated by reference into
Part III
PART 1
ITEM 1. BUSINESS
General
Concepts Direct, Inc. is a direct marketing company, headquartered in
Longmont, Colorado. From 1988 to 1992, operations were conducted in the
Consumer Products division of Wiland Services, Inc. ("Wiland"), which
provided a variety of database management, list processing and marketing
research services to direct marketing companies. The Company was organized
as a Delaware corporation in May 1992 and began operations under its name on
September 30, 1992, as a result of a spin-off from Wiland. Since its
inception, Concepts Direct Inc.'s primary focus has been on utilizing its
direct marketing expertise and its database to produce multiple independent
revenue streams from multiple marketing vehicles. Today it owns and operates
five catalog titles and related niche marketing vehicles.
In February, 2000 after a period of extensive Internet infrastructure
development activity, the Company moved certain of its technology assets and
liabilities to two wholly owned subsidiary corporations called iConcepts,
Inc. and BOTWEB, Inc. This reorganization was accomplished to enhance focus
of the companies on their various missions and goals and to better
communicate the status of each company to investors.
Concepts Direct will continue to operate the established catalog business
and associated Internet sites. Concepts Direct's five primary direct
marketing vehicles are the "Colorful Images," "Linda Anderson," "Snoopy
etc., A catalog with character," "Linda Anderson's Collectibles" and "the
Music Stand" catalogs. Through these media and Internet sites associated
with Linda Anderson and the Music Stand, it currently sells personalized
paper products and a diverse line of merchandise, including collectibles,
gift items, home decorative items and casual apparel. Two primary strengths
of Concepts Direct are its proprietary database (consisting of
approximately 11.3 million customers, catalog requesters, catalog referrals
and gift recipients as of December 31, 1999) and its direct marketing
expertise.
iConcepts has three missions. The first is to provide technology support and
site hosting and development services to Concepts Direct, BOTWEB and other
entities. Second, iConcepts is to operate Internet retailing sites under
new brand names. Current sites are iGift.com, NewBargains.com,
TheBearHouse.com and YourCountryStore.com. Its long-term strategy is to
develop these sites and other sites yet to be launched into significant
retailing sites on the Internet. Finally, iConcepts is intended to operate
as a business incubator, developing new business concepts and growing them
to the point that they operate independently.
BOTWEB is developing the Internet portal, BOTWEB.com. Its mission is to add
features, enhance the site and build significant consumer traffic and
gradually become a leading Internet portal.
In this report, the following terms and definitions are used:
The Company refers to Concepts Direct, Inc. and subsidiaries, which includes
the Concepts Direct catalogs, associated Internet sites and related
operations; the iConcepts Internet retailing sites, hosting equipment and
software and related operations; and the BOTWEB.com Internet portal and
related operations.
Concepts Direct refers to the branded catalogs and associated Internet sites
of the parent company, Concepts Direct, Inc.
iConcepts refers to the non-catalog Internet retailing sites, technology, site
hosting and related operations of iConcepts, Inc (and prior to its
formation, the comparable activities as conducted within Concepts Direct,
Inc.).
BOTWEB refers to the BOTWEB.com Internet portal and related operations of
BOTWEB, Inc (and prior to its formation, the comparable activities as
conducted within Concepts Direct, Inc.).
Financial Information about Segments, Foreign and Domestic Operations and
Export Sales
Refer to Note 13 of the Financial Statements included in the
Annual Report for more information about segment information for 1997, 1998
and 1999 and refer to the Management's Discussion and Analysis section of
the Annual Report for additional discussion on this topic.
Identifiable assets are attributable entirely to domestic operations. There
are no foreign operations, but Concepts Direct has advertised in Canada.
Export sales to Canada were immaterial for the years 1997, 1998 and 1999,
respectively. Export sales excluding Canada are insignificant.
Concepts Direct
Strategic Focus
The strategic focus of Concepts Direct is to steadily increase revenues and
earnings through the successful operation of its catalogs and related
Internet sites. It may also launch or acquire additional catalogs when
timing and capital make it appropriate to do so. The principal strategies
for achieving current goals are as follows:
* Concepts Direct employs an analytical approach to prospecting for new
customers which emphasizes list testing and segment analysis, adherence to
list performance guidelines and the recognition of the long-term value of a
customer.
* Concepts Direct seeks to maximize effective use of its proprietary
database. In addition to recency, frequency of purchase and other monetary
data typically used in database direct marketing, Concepts Direct also
collects information concerning the types and themes of merchandise
purchased by its customers. The use of this data, in conjunction with
purchase history data such as latest order date and order size, facilitates
selections from the database and product offerings which are suited to the
styles and tastes of customers. This information is used to determine which
names from Concepts Direct's database are to be selected for subsequent
marketing contacts.
* Concepts Direct plans to effectively manage the circulation of its
catalogs and marketing offers. Concepts Direct believes that its list
testing strategy, evaluation of performance data and recognition of the
long-term value of a new customer have been significant contributing factors
to its success in expanding and contracting circulation in various business
environments. As response rates allow, Concepts Direct will attempt in 2000
to increase circulation and enlarge its proprietary database more rapidly
than in 1999.
* Concepts Direct believes that it enjoys strong brand recognition and
customer loyalty for its catalogs. As a result, Concepts Direct intends to
leverage its proprietary database and understanding of product preferences
of its primary audience by introducing new complementary catalog offers
under existing catalog brand names. Colorful Images and other Concepts
Direct catalogs have produced a database comprised in part of customers who
have purchased many different product types. This database provides an
opportunity to launch new marketing programs under the umbrella of the
various catalog titles, targeted to address these particular interests.
* Concepts Direct plans to leverage its fulfillment infrastructure, its
direct marketing expertise and the technological expertise of iConcepts,
Inc. to market products via e- commerce sites. Concepts Direct believes
that it can use certain e-commerce advantages such as ease of ordering,
constant availability to the consumer and cost effective means of offer
presentation to achieve a significant retailing presence via electronic
media.
* Concepts Direct may seek to acquire catalog assets that have a
strategic fit with its long term plans. Such efforts will only occur when
market timing and the availability of capital make it appropriate to do so.
Customer Database
The Concepts Direct proprietary database stores information on each
customer. The information is derived primarily from customer transactions
and is updated as new transactions are recorded. Concepts Direct also
conducts prospect mailings to rented and exchanged mailing lists obtained
from other companies and sources. The use of rented and exchanged mailing
lists is expected to be a component of future efforts to obtain new
customers and add them to the proprietary database. During 1999, Concepts
Direct mailed over 41 million copies of its catalog titles.
At the end of 1999, the proprietary database contained approximately 11.3
million customers, catalog requesters, catalog referrals and gift
recipients, approximately 1.3 million of whom had placed orders during the
last fiscal year. The database has grown substantially during the past three
years, increasing from 5.6 million names at the end of 1996 to 11.3 million
names at the end of 1999. The 1999 acquisition of the assets of the Music
Stand catalog added approximately 2.1 million names to the database.
Information contained in the customer database assists in determining which
offers customers are to receive and the frequency of those offers.
Concepts Direct selects from its database the individuals it believes are
most likely to respond to a particular merchandise offer, thus maximizing
sales while managing costs as a percent of sales. Concepts Direct believes
that its ability to analyze its database and select recipients for a
particular direct marketing campaign are significant factors in its growth.
Various indicators, including frequency and size of order, date of last
order, and style and theme of products purchased are utilized to direct
specific catalog mailings to those most likely to purchase its merchandise.
The customer database is updated in a real time environment.
Marketing and Product Lines
Concepts Direct not only markets to its customer database but also exchanges
lists with and rents lists from other direct marketers in order to gain new
customers. Concepts Direct is also developing an extensive Internet
presence that makes its products available to customers and prospects.
Concepts Direct currently markets its products primarily under five catalog
titles:
1. Colorful Images
Colorful Images is the trade name under which Concepts Direct markets its
line of personalized labels, personalized notepads, various other
personalized paper products and general merchandise such as T-shirts and
collectibles. Colorful Images creates its own designs, purchases styles
and designs from outside sources and licenses certain images on a royalty
basis.
The Colorful Images line of personalized self-adhesive labels is one of the
largest assortments of such products available from any company. There are
over 900 different label choices appropriate to popular interests as well as
most regions of the country, many hobbies, professions and lifestyles. In
addition, labels are available with popular licensed characters such as
Snoopy, other PEANUTS characters and Boyds Bears.
The primary marketing vehicle utilized to sell Colorful Images products is
a digest- sized catalog (measuring approximately 5" x 7.5") with price
points typically ranging from $6.95 to about $60.00, excluding shipping and
handling. The catalog features photographs of labels and other products
Although certain segments of the Colorful Images customer database may
prefer one product line or the other, all customers receive the same
version. During 2000, the Company plans to mail the primary Colorful
Images catalog to customers and prospects seven times, identical to the
seven times it was mailed in 1999.
In addition, Colorful Images plans to send smaller versions of the catalog
with more narrowly focused product selection to carefully targeted and
selected customers and prospects. This strategy was tested in the fall of
1999 with the release of the "Colorful Christmas" version of the catalog and
a special Gift version of the catalog mailed in November. Results from both
mailings exceeded management's expectations and will be expanded in 2000. In
addition, Concepts Direct plans to extend this strategy of mailing smaller
versions of the catalog in 2000. The first such offering, "Colorful
Spring," is expected to be mailed to customers in late March. Additional
small, focused mailings may follow if the positive response to these
marketing efforts is repeated.
Colorful Images has been a successful catalog for several years. It is
normal for catalogs to mature at certain points in their life cycle and not
grow at the same rate as at points earlier in their life cycle. During
1999, revenue declined primarily as a result of less catalog circulation.
During 2000, Colorful Images expects to produce modest growth in both sales
and catalog circulation above 1999 levels. Management anticipates that
Colorful Images will continue to produce a significant contribution to
profitability and general and administrative costs.
An Internet retailing site featuring an extensive array of Colorful Images
products is in development and is expected to launch late in the second
quarter of 2000 or shortly thereafter. This site will be built and
supported by iConcepts.
2. Linda Anderson
Linda Anderson markets an assortment of gifts, home decorative merchandise
and casual apparel generally at higher price points than Colorful Images.
This merchandise is offered through the Linda Anderson catalog and at
LindaAnderson.com. Price points for Linda Anderson merchandise typically
range from about $9.00 to about $175.00, excluding shipping and handling.
About 185,000 customers placed orders through the Linda Anderson catalog in
the twelve month period ended December 31, 1999, compared to more than
300,000 in 1998. This decrease resulted from a strategic decision to reduce
the level of investment in acquiring new customers by reducing the
prospecting loss per mail cycle. Although this decision reduced the number
of new customers acquired during 1999 and reduced overall sales for the
catalog, it significantly increased the contribution to profitability and
general and administrative costs from this catalog. Linda Anderson plans
to continue to limit prospecting in 2000. Seven unique editions of Linda
Anderson are planned for 2000, compared to six plus one remailed edition in
1999.
In the spring of 1999, a test of a targeted catalog version called "Linda's
Lawn & Garden" was conducted. Results from this offer led to a decision to
defer further testing of similar offerings, at least temporarily. Management
may decide to renew this or similar efforts sometime in the future, but has
no plans to do so in 2000.
New customers of the Linda Anderson catalog have responded to our other
catalogs at a favorable rate. Because of this, during 1998 and the first
half of 1999, Linda Anderson invested heavily in prospecting for new
customers. While this effort produced a significant number of new
customers, the financial investment was substantial. During the second half
of 1999, Linda Anderson reduced prospecting volumes by limiting the
prospecting investment per mail cycle. This action resulted in a decline in
the rate of revenue and database growth from 1998 levels, but significantly
improved the overall financial performance of the catalog in 1999
particularly during the second half of the year. Linda Anderson plans to
continue this strategy of limiting prospecting investment per cycle in 2000.
LindaAnderson.com was launched in June of 1999. It offers a wide range of
current and past products from the Linda Anderson catalog and the Linda
Anderson's Collectiblesr catalog. Approximately five percent of total sales
of Linda Anderson and Linda Anderson Collectibles were generated through
the Internet site during the fourth quarter of 1999. Most of these sales
were to existing customers. Management is pleased with these results and
will attempt to increase Internet sales to customers and prospects in a
profitable manner. The site was built and is maintained by iConcepts.
3. Linda Anderson's Collectibles
Linda Anderson's Collectibles was launched in 1997 featuring an extensive
line of collectible merchandise and information about collecting and the
lines represented. The catalog was mailed four times in 1999 and the number
of customers climbed to over 176,000, compared to about 112,000 as of
December 31, 1998.
During 1999, a strategic decision to reduce the level of investment in
acquiring new customers by reducing the prospecting loss per mail cycle was
implemented. As a result, volume fell during the later part of the year but
contribution to profitability and general and administrative costs improved
significantly. It is anticipated that Linda Anderson's Collectibles will be
mailed four times during 2000 as compared to four times in 1999.
During 1999, a number of "microniche" collectible offers were mailed. These
offers are tightly targeted marketing offers mailed to a limited number of
carefully selected customers with known affinity for the featured product
lines, based on prior purchasing history. Although these microniche offers
had limited circulation quantities, response rates and contribution to
profitability and general and administrative costs generated by the 1999
microniche offers were extremely encouraging. An increased number of such
mailings is planned for 2000 with the focus being on contribution
optimization.
An Internet site for Linda Anderson's Collectibles is not planned because
the LindaAnderson.com site offers current and past products from the Linda
Anderson's Collectibles catalog. Catalog mailings are intended to direct
consumers to LindaAnderson.com.
4. Snoopy etc., A catalog with character
Operating under an agreement with United Feature Syndicate, Concepts Direct
has developed a catalog consisting exclusively of merchandise featuring
Snoopy and the other PEANUTS characters. The merchandise in the catalog
is a combination of items from licensed manufacturers and items designed
exclusively for the catalog. A royalty on sales generated by the catalog is
paid to United Feature Syndicate.
Snoopy etc., a catalog with character was issued five times in 1999 with
products generally priced between $7.95 and $940.00 per item. Since 1996,
Concepts Direct has had a license to feature PEANUTS characters on
personalized label products and has accumulated information on its
proprietary database concerning buyers of PEANUTS personalized label
products and other PEANUTS merchandise sold in its catalogs. Consistent with
Concept Direct's overall strategy to develop its catalogs into a profitable
status, beginning in September, 1999, Concepts Direct curtailed mail volume
to prospect names and focused on improving contribution from Snoopy etc.
Management was pleased with the results of these efforts, and response to
the catalog was further increased due to the demand created by the status of
PEANUTS creator, Charles M Schulz.
In late 1999, Mr. Schulz, announced his planned retirement for early 2000.
This was followed by another announcement that Mr. Schulz was ill and by Mr.
Schulz's death in early 2000. We do not expect our relationship with United
Feature Syndicate to change significantly.
Six editions of the catalog are planned for 2000 as compared to five in
1999. Circulation quantities per cycle will likely be lower during the
first half of 2000 than in 1999, with slight increases possible during the
fall season as compared to the same period in 1999.
5. the Music Stand
In June 1999, Concepts Direct purchased substantially all of the assets of
the Music Stand catalog. The catalog is a well established title with a
loyal following of customers, some of whom have been purchasers for up to
twenty years. The acquisition included primarily the customer database and
inventory of the catalog.
Two editions of the Music Stand catalog were mailed in the fall of 1999.
Results from both mailings were encouraging, generating a postive
contribution to profit and general and administrative costs. During late
1999, theMusicStand.com web site was launched. It was built and is
maintained by iConcepts.
It is planned that six editions of the catalog will be mailed to customers
and prospects in 2000. Strategically, Concepts Direct plans to carefully
test this catalog until we have a full understanding of its database and
seasonality. Management hopes to increase circulation quantities but this
remains uncertain because its experience with this catalog is limited.
Licensing and Service Marks
Federally registered service marks exist for each of the Concepts Direct
catalog titles, except Snoopy, etc. Registered service marks for other
business concepts and catalog titles may be applied for in the future.
Concepts Direct has developed certain artwork used in its labels and other
products. In addition, the Company has purchased or licensed rights to
certain artwork from third parties, generally for a period of at least three
to five years. Certain rights are also licensed on a royalty basis,
including PEANUTS, Boyds Collection Ltd., Dreamsicles and others.
Management anticipates the licenses and royalty arrangements may be renewed
or replaced, as appropriate, with minimal disruption to ongoing operations.
Materials and Inventory
Product inventory is purchased from numerous domestic manufacturers and
several importers and domestic representatives of foreign manufacturers.
Domestic sources supply essentially all of the gift and apparel merchandise.
Purchase arrangements with suppliers are generally for a specified product,
price and quantity of product. While Concepts Direct purchases the base
paper stock for most of its personalized labels from a few vendors,
management believes alternative vendors are available, if needed. The
remainder of the product line and material used in the production of
catalogs are available from many different sources.
Except for a few specialized items that are drop shipped directly from
suppliers, Concepts Direct maintains an inventory of the products it sells.
Most items offered at the Company's Internet sites are from the Concepts
Direct inventory. Concepts Direct analyzes past catalog mailings, evaluates
probable customer buying patterns and projects sales levels for new
products, to try to avoid committing excessive amounts of working capital to
inventory for substantial periods of time. During the fourth quarter of
1997, gift and merchandise backorder levels rose to an unsatisfactory level
primarily as a result of a few vendors' inability to meet Company product
demand in a timely fashion. In the fourth quarter of 1998, the Company was
successful in minimizing the backorder problems that occurred in the fourth
quarter of 1997. In the process of correcting the backorder problem,
inventory levels increased significantly over historic levels. Efforts were
made in 1999 and will continue in 2000 to reduce the level of inventories by
such measures as running these items in catalogs, featuring the items on
appropriate Internet sites, liquidation and returns to vendors.
Gift and apparel inventory liquidation processes include product exchange
agreements with vendors, sale of outdated products through small retail
outlets and discarding of some items. Concepts Direct and iConcepts Internet
retail sites also offer channels to market merchandise not currently offered
in catalogs.
Concepts Direct spends significant amounts on paper used in the production
of its catalogs and paper products. The cost of paper fluctuates. In the
last half of 1996 and early 1997, the cost of paper used to produce Concepts
Direct catalogs was lower than in previous periods. Accordingly, the cost of
doing business during these periods was lower. Paper costs increased during
the latter part of 1997 and in early 1998 and declined near the end of 1998.
Paper costs remained relatively stable in 1999, but some industry analysts
predict costs may rise in 2000. While Concepts Direct cannot predict future
paper cost increases, such increases would have an impact on future
earnings.
Order Fulfillment
Orders for merchandise are received by mail, telephone, the Internet and
facsimile. All orders are received and processed at a single location in
Longmont, Colorado. The ability to timely fulfill orders, especially during
the busy pre-Christmas season, is important to success. This ability
depends, in part, on the availability of part-time employees who have
adequate training before the peak of the holiday season and the efficiency
of the in-house telephone call center. During 1999, approximately 56% of
customer orders were received by telephone and 44% by mail or facsimile.
Less than 1% of orders were received via the Internet during the year,
although Internet sales represented about 2% of orders during the last three
months of 1999.
Order backlog was approximately $506,000 as of December 31, 1998, and
$1,034,000 as of December 31, 1999. Orders represented by this backlog
shipped within approximately nine days in 1999 compared to approximately ten
days in 1998. The level of order backlog fluctuates with seasonal sales
patterns as discussed above.
Customers generally pay in advance for merchandise ordered and associated
shipping and handling. Orders are shipped via the United States Postal
Service (USPS) and other carriers. Priority or express service is available
for an extra charge.
USPS has announced tentative plans for a significant price increase in early
2001. While Concepts Direct cannot predict future postage costs, such
increases could have a material impact upon its future operating and
financial results.
Customer Service
Great emphasis is placed on customer service. A return policy attempts to
guarantee customer satisfaction and to encourage first time and repeat
orders. The retail value of refunds issued under the return policy in 1999
was approximately 3% of net sales. If returned merchandise cannot be
restocked, it is returned to the manufacturer if defective, held for
disposal in inventory liquidation processes described above under "Materials
and Inventory" or discarded. Product and order problem inquiries are
directed to customer service personnel who are trained to resolve most
customer issues.
Seasonality
The Concept Direct business is seasonal. Historically, a substantial
portion of revenues and net income has been realized during the fourth
quarter. Management believes this is the general pattern associated with
the mail order and retail industries. Accordingly, inventory of both paper
products and gift and apparel merchandise is typically increased during the
Christmas holiday season to accommodate anticipated increases in sales.
Competition
Direct marketing is highly competitive. Thousands of companies offer
products via catalog, direct mail, newspaper inserts, television, the
Internet and other media. Concepts Direct competes on the basis of the
quality, diversity and price of merchandise offered, customer service and
effectiveness of customer targeting.
Management believes that, although many companies offer personalized labels,
note pads and note cards, there are only a few companies that offer a broad
variety of personalized labels comparable to that offered by Colorful Images
which management believes is a competitive advantage. Other merchandise
product lines face greater competition in the marketplace than paper
products. A substantial number of competitors distribute catalogs that
contain portions of the merchandise contained in Concepts Direct's catalogs.
In addition, certain merchandise sold in the catalogs is available through
retail stores and other sources.
Management believes that e-commerce is becoming a significant force in the
marketplace in which it operates. iConcepts is continuing to develop
e-commerce infrastructure. Concepts Direct plans to launch
ColorfulImages.com in 2000, with the assistance of iConcepts. Many
competitors are also establishing and operating Internet sites.
Certain current and potential competitors have significantly greater
development, order fulfillment, marketing and capital resources and name
recognition than Concepts Direct.
Employees
As of December 31, 1999, in the business units of the Company which were not
transferred to either iConcepts or BOTWEB, there were approximately 520
employees, 376 of whom were part-time. Of the 144 full-time employees, 28
supported creative and marketing functions, 95 supported fulfillment
operations and 21 supported 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
Each company must comply with federal, state and local laws that affect its
business. In particular, they are subject to Federal Trade Commission
regulations governing advertising and trade practices. While each of the
companies believes it is currently in compliance with such regulations, in
the event of noncompliance, they may be subject to injunctive proceedings,
cease and desist orders, civil fines and other penalties.
Concepts Direct has historically collected and remitted sales and similar
taxes only in those states in which it operates a location. In recent
years, a number of states have asserted that advertising by a corporation
within their borders provides sufficient nexus to require the collection and
remittance of such taxes. In a decision rendered on May 26, 1992, the
United States Supreme Court held that application of North Dakota's use tax
statute against an out-of-state mail order house with neither sales
representatives nor outlets in the state placed an unconstitutional burden
on interstate commerce. However, the Court also noted that Congress may be
better equipped to resolve the issue presented by the case. If Congress
should pass applicable legislation, it could have an impact on the future
operations of Concepts Direct and iConcepts. The actual impact would depend
on the specifics of any such legislation.
Some states also require residents of the state who purchase products by
mail order to remit to the state the state sales tax that would be collected
by the merchant if the product was sold from a location within the state. To
date, this type of legislation has not had a material impact.
iConcepts
Strategic Focus
The strategic focus of iConcepts will be to create shareholder value by
providing excellent technology support services to Concepts Direct, BOTWEB
and other entities, developing significant Internet site hosting and
development capabilities and developing its Internet retail sites into sites
of choice for many consumers. Certain significant strategies in achieving
iConcepts goals are as follows:
* iConcepts plans to enhance its database management, Internet site
development and hosting software and utilize its technology background to
provide excellent support to Concepts Direct and BOTWEB and successfully
market these services to other entities.
* iConcepts will increase the product depth at its recently launched
Internet retailing sites and then implement marketing activity designed to
drive significant traffic to the sites.
* iConcepts will develop other Internet businesses by leveraging its
expertise and experience with database management, technology and Internet
site development.
Internet Infrastructure and Database Management Software
A key asset of iConcepts is its database management, fulfillment management
and Internet infrastructure software known as Enable. This software has
been developed and enhanced over several years and iConcepts plans to
continue its development and add significant new features. iConcepts now
licenses the software to Concepts Direct and plans to eventually license the
software to other entities. The current release of Enable is fully
integrated with our established order fulfillment software. The software is
stable, proven and designed to serve many companies. Purchasing, general
ledger, receiving, warehousing, order fulfillment, shipping, marketing
reporting, Internet site development and hosting are all integrated in
Enable. iConcepts plans to gradually add a variety of new features.
Products and Services
iConcepts will market its products and services in the following areas.
1. Technology Services - iConcepts will provide database management, order
fulfillment processing, Internet site hosting and development services.
iConcepts will maintain a staff of employees with experience and expertise
in technical and customer service areas. Initially the emphasis will be on
providing support to the various systems and processes used by Concepts
Direct and BOTWEB in performing their missions and developing additional
sites and improving existing sites for these companies as requested.
Service agreements specifying certain services to be provided have been
executed with Concepts Direct and BOTWEB. iConcepts has successfully
developed several Internet sites using its Internet infrastructure software
component of the Enable software as the platform. In the future, as
additional capital becomes available, iConcepts plans to offer its services
to other entities. Service agreements will also be negotiated for these
services and revenue from this service area will be recorded as the services
are performed.
2. Software Licensing - In addition to providing support services,
iConcepts plans to provide software development services and license the
Enable software to third parties. Any development of requested software
will be managed and coordinated by iConcepts employees and appropriate
licenses and fees for the software development will be negotiated.
Currently, iConcepts has only licensed the Enable software to Concepts
Direct. Sales to third parties are expected to be minimal in the near
future.
3. New Internet Retailing Brands - iConcepts currently has four Internet
retailing sites. iConcepts does not currently plan any new sites until the
current sites are further developed and marketing efforts to bring traffic
to the sites have been tested. The current sites are:
a. iGift.com - The first Internet retailing site of iConcepts, iGift.com,
was launched in December 1999. This site is intended to provide a broad
array of gift items for women, men and children for many different gift
occasions. The site includes special features such as a Gift Finder
designed to provide appropriate gift suggestions after a series of questions
are answered by the consumer. Also a Reminder Service feature is available
that provides free email reminders about important gift occasions and
events. No significant marketing activities have yet occurred for the site.
iConcepts plans to increase the diversity of price points for gifts and
increase the selection of gifts for men and children prior to increasing
marketing activity. In December 1999 there was $4,000 in sales at the site.
iConcepts will own some of the inventory for this site. Concepts Direct
will supply other inventory for this site and provide warehousing and
fulfillment services to iConcepts under provisions of an intercompany
Service Agreement.
b. NewBargains.com - This Internet retailing site was launched in January
2000. It currently has over 3,000 products available at prices ranging from
25% to 85% off of the original retail price. Products offered at the site
are first quality and generally in the original packaging from the vendor.
The site encourages bargain seeking consumers to visit the site often by
providing new items on a regular basis at a bargain price. Each day at
least some items have their price lowered. Consumers are encouraged to
review the "daily specials", "deepest discount" and other featured products.
Initially, all products available at NewBargains are excess inventory items
of Concepts Direct. If this site is successful, iConcepts will consider
offering other retailers and catalog companies the opportunity to sell their
excess inventory at the site. Concepts Direct provides warehousing and
fulfillment services for this site under provisions of an intercompany
Service Agreement.
c. TheBearHouse.com - This site, launched in February 2000, includes a
selection of collectibles merchandise from the Boyds Collection and Judith
G. items. This site is designed to appeal to consumers who have special
interest in these particular product lines. Concepts Direct provides
inventory, warehousing and fulfillment services under provisions of an
intercompany Service Agreement.
d. YourCountryStore.com - This site launched in March 2000 and features
over 2,000 country style products. Most of this merchandise is from
Concepts Direct, although some items have been added to diversify the
product selection. Although YourCountryStore.com will appeal to a broader
market than TheBearHouse.com, it is still best classified as a niche site.
4. Other Internet Opportunities - iConcepts has rights to several hundred
registered URL's covering a wide range of industries, subjects and interests
and may develop additional sites using these URL's. iConcepts plans to
develop new Internet businesses after appropriate test marketing of the
current sites is completed and after sufficient capital is obtained to
develop and market new businesses.
Licensing and Proprietary Rights
Federally registered service marks are pending for each of iConcepts'
Internet retailing sites. iConcepts anticipates that it will register
service marks for other business concepts it develops in the future.
iConcepts' success and ability to compete depends partly on its internally
developed technology, the technical, creative, marketing and merchandising
skills of its employees, new product development, product enhancements and
reliable product maintenance. iConcepts generally enters into
confidentiality agreements or license agreements with its employees,
consultants and vendors, and generally controls access to and distribution
of its software, documentation and other proprietary information.
Essentially all of the confidentiality and license agreements that iConcepts
possesses have been transferred by Concepts Direct as a condition of the
creation of the subsidiary, iConcepts. iConcepts has licensed the software
to Concepts Direct and anticipates licensing the software to third parties
in the future as part of its marketing of technology services.
iConcepts relies on technology that is licensed from third parties,
including software integrated with internally developed software and used in
iConcepts software to perform key functions. These third party licenses may
not continue to be available on commercially reasonable terms or in some
cases the assignment from Concepts Direct to iConcepts may not be approved.
The loss of any of these technology licenses could delay iConcepts'
expansion plans until similar technology could be licensed and integrated.
Any such delay could negatively effect iConcepts' business and operating
results.
Competition
iConcepts believes that the market for software and services related to the
Internet is relatively new, intensely competitive, rapidly changing and
subject to significant technological change. Competitive factors in this
market include technology, product feature breadth, product quality,
marketing resources, and customer service and support. iConcepts expects
competition in this area to continue and increase in the future. Such
competition could materially adversely affect iConcepts' business and
operating results.
Many Internet sites compete for the consumer's attention and spending.
iConcepts expects competition for the market its Internet sites serve to
increase. iConcepts' ability to compete depends upon such factors as
success of marketing efforts for its sites and development of products and
services at our sites that are superior to others. iConcepts may not be
able to compete successfully and competitive pressures may materially
adversely affect our Internet site businesses.
iConcepts is just starting in its businesses. While it has much management,
technology and service expertise and experience in its business areas, there
are many competitors who have access to much more expertise, experience and
capital resources than does iConcepts and this could materially adversely
affect our business and operating results.
Employees
iConcepts did not exist as a separate corporation at December 31, 1999.
However, as of that date, in the business units of Concepts Direct that were
transferred to iConcepts in February 2000, there were approximately 41
employees all of whom were full-time employees. Of these 41 employees, 32
supported information technology functions while 9 supported other marketing
and administrative functions.
Certain Factors Affecting iConcepts' Business and Financial Condition
In addition to other information in this Form 10-K, the following factors
may have significant impact on iConcepts' businesses, operating results and
financial condition.
iConcepts expects to derive significant portions of its revenues from
licensing its software and selling associated Internet development and
support services. iConcepts' future success will depend significantly upon
its ability to design, develop, test and support new software features and
enhancements that meet changing customer needs on a timely and
cost-effective basis. iConcepts may not successfully develop new software
features and enhancements in a timely or cost-effective manner. The failure
of iConcepts' product development efforts could have a material adverse
effect on iConcepts' business, operating results and financial condition.
iConcepts' performance depends substantially on the performance of its
officers and its ability to hire, train and retain other highly qualified
technical and managerial personnel, especially software developers.
Competition for such personnel is intense, and iConcepts may not be able to
attract or retain other highly qualified technical personnel in the future.
The inability to attract and retain the necessary technical and managerial
personnel could materially adversely affect iConcepts' business, operating
results and financial condition.
iConcepts' performance will depend significantly upon the growth of Internet
usage and acceptance of the Internet as an effective medium for commerce.
Such factors as lack of adequate Internet infrastructure to support
increased use, concerns about transaction security, lack of continued growth
in the number of users of the Internet or lack of continued development of
cost-effective technological infrastructure could prove detrimental to
iConcepts' success with its Internet businesses.
iConcepts believes that current available working capital and existing lines
of credit are not sufficient to permit full implementation of its business
plans. In order to fully realize the potential of its various businesses,
iConcepts must raise additional capital from third parties or otherwise
secure additional financing. There can be no assurance that iConcepts will
be able to raise additional capital or secure other financing, or that such
funding will be available on terms that are favorable to iConcepts.
Pursuant to certain agreements of the transaction creating iConcepts,
certain leases, licenses and agreements were conditionally assigned to
iConcepts by Concepts Direct. The condition on the assignment was necessary
as several of these agreements and licenses include a provision for vendor
approval of assignment. Many of the approvals of assignment on licenses and
agreements of significant importance to the operations of iConcepts have not
yet been granted. iConcepts is working diligently to obtain these
assignment approvals, however, if the approvals are not obtained, the
operations and financial results of iConcepts could be materially adversely
impacted.
BOTWEB
Strategic Focus
BOTWEB was formed to operate, enhance and market the services of BOTWEB.com.
BOTWEB is an acronym for Best Of The Web. The strategic focus of this
company is to:
a. Add features and enhance current features that will lead consumers to
adopt BOTWEB as their portal of choice. b. Build a large volume of traffic
to the site. c. Become one of the leading portals on the Internet by
providing superior service to a large, loyal base of consumers and
advertisers.
Internet Portal
BOTWEB.com is similar to other Internet portals in that it offers free
services such as search the Internet, maps, driving directions, free email,
local movie listings, headline news, stock quotes, weather, national yellow
pages and more. Most Internet portals return search results that are
massive and include too many sites for review and include unwanted sites
near the top of the search. BOTWEB.com plans to reduce search clutter and
provide desirable sites at the top of search results. The portal organizes
its information presentation flow into twenty-seven major categories and
displays sites in three classifications as follows:
Best Of The Web: These sites have been identified by employees of BOTWEB as
among the best on the Internet in their category. Each site includes a
custom description written by employees or representatives of BOTWEB.
Advertisers are allowed to have multiple site descriptions associated with
specific product lines or merchandise categories. User Suggested: These
sites suggested by BOTWEB.com users have passed an initial review by
employees of BOTWEB, received a score based on site load time, graphic
appeal, ease of use and depth of content and have a custom description
written by the user and edited by BOTWEB employees. Unrated: This is a
large database of unreviewed Internet sites with short descriptions.
A beta version of BOTWEB.com was launched in December 1999 and included over
10,000 Best Of The WEB sites. More sites are added each day. Since the
site is so new and little advertising has occurred, there are only a few
user suggested sites. The Unrated site database is approximately 700,000
sites and is not yet available at the beta site.
The beta version of BOTWEB.com lacks site depth and users may be
disappointed by the shortage of sites in certain categories. BOTWEB
anticipates expanding the site database over a period of time to improve the
search universe.
The beta version of BOTWEB.com does not include a retail store but this
feature is planned for the future. The iConcepts Internet infrastructure
is available with certain modifications to support the store structure.
BOTWEB is licensing certain site content from third parties and currently
uses a third party to host the site. BOTWEB anticipates using iConcepts to
host the site beginning sometime in 2000.
Target Market And Site Features
The primary BOTWEB.com target market is quality oriented consumers, many of
whom have traditionally preferred catalog shopping. Management believes
that this large market is active on the Internet and expanding. Management
believes that BOTWEB.com is designed to appeal to this market because it has
attractive graphics, less clutter than other portals and includes features
such as the following:
Filters are provided to exclude pornography, hate and violence sites from
our database.
Sites believed to be particularly appealing to women and shoppers have been
identified and are being classified. Special emphasis is being given to
shopping sites.
Custom descriptions of each Best Of The WEB site are written so a user will
know where they are going before they click on the site.
Software has been incorporated to search daily for dead links and block them
from users.
A large homework help directory is being developed to assist mothers,
teachers and children.
A long list of additional site features and enhancements to current features
is planned. Management believes that BOTWEB's goals cannot be achieved until
significant progress has been made on these development projects. Additional
capital will be needed to complete the development projects.
Site Traffic
The key factor in the success of an Internet portal is the amount of traffic
and/or page views that are achieved. BOTWEB plans to bring traffic to its
portal by placing banner advertising at other sites, advertising via the
BOTWEB printed directory and eventually through other media. Significant
testing has been done on advertising campaigns designed to drive traffic to
the site. The printed directory was first issued in December 1999 and was
organized into forty categories. Each category had a separate page in the
directory with a feature ad at the top of the page and many URL's listed on
the page of sites in the category. Management believes that consumers will
use the directory as a handy reference source for desired Internet sites.
Additional capital will be needed to implement advertising campaigns to
attract users.
Revenue
As currently configured, BOTWEB may derive revenue from the following
sources:
The BOTWEB.com home page and other pages will include advertising spaces
including direct links to shopping sites. Agreements may be negotiated at a
price per ad display for advertising in these spaces. Affiliate agreements
will be set up with other sites and BOTWEB will receive revenue from
consumers clicking through to these sites from BOTWEB.com and purchasing the
site's product or service. BOTWEB.com would receive an agreed upon
percentage (generally 5-20%) of the sale that occurs. BOTWEB will sell
advertising feature ad space and receive fees for URL listing in its printed
directory. In December 1999, BOTWEB had printed directory sales of $64,000.
BOTWEB marketing activity is currently minimal, as is revenue. Substantial
expansion of efforts to produce revenue will be deferred until site traffic
increases
Licensing and Service Marks
A Federally registered mark exists for BOTWEB.
Competition
BOTWEB believes that the market for Internet portals is relatively new,
becoming quite competitive and is rapidly evolving. Competitors such as
Yahoo.com, GoTo.com and About.com have significantly more resources and
much greater name recognition than does BOTWEB.com. BOTWEB expects
competition to increase in the future. Such competition could materially
adversely affect BOTWEB's business, operating results and financial
condition.
Employees
BOTWEB did not exist as a separate corporation at December 31, 1999.
However, as of that date in the business units of Concepts Direct that were
transferred to BOTWEB in February 2000 there were approximately 12 employees
all of whom were full-time employees. Of these 12 employees, 11 supported
site content and operations functions and 1 provided executive direction.
Certain Factors Affecting BOTWEB's Business and Financial Condition
In addition to other information in this Form 10-K, the following factors
may have significant impact on BOTWEB's business, operating results and
financial condition.
* BOTWEB's performance will depend significantly upon the growth of
Internet usage and acceptance of its portal, BOTWEB.com, as a portal of
choice. Such factors as lack of adequate Internet infrastructure to support
increased use, concerns about transaction security, lack of significant
growth in the number of users of the Internet and BOTWEB.com or lack of
development of portal features that appeal to consumers could prove
detrimental to BOTWEB's success.
* BOTWEB's performance will depend significantly upon the development in
the near future of a sales function or organization to successfully market
advertising at the BOTWEB.com site and in the printed directory. If this
sales function is not performed effectively, BOTWEB's operating results and
financial condition will experience a material adverse impact.
* BOTWEB believes that current available working capital and existing lines
of credit are not sufficient to permit implementation of its business plans.
In order to fully realize the potential of its Internet portal, BOTWEB must
raise additional capital from third parties or otherwise secure additional
financing. There can be no assurance that BOTWEB will be able to raise
additional capital or secure other financing, or that such funding will be
available on terms that are favorable to BOTWEB.
ITEM 2. PROPERTIES
Real Property
The Company's corporate headquarters, administrative offices and operations
are located in Longmont, Colorado, approximately 40 miles from downtown
Denver. The Company believes that the facilities it occupies are well
maintained and in excellent operating condition. The Company purchased
approximately 139 acres of undeveloped land in January 1997 and developed
and constructed the current headquarters on approximately 11 acres of the
site. 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. In late August 1997, the Company moved essentially all of its
operations to the new facility.
iConcepts and BOTWEB lease their office facilities in the corporate
headquarters building from Concepts Direct under provisions of intercompany
leases. Such relationship is expected to continue throughout 2000.
The following table sets forth the primary real property which the Company
owns and leases.
Location Function Lease Expiration 2000 Rent Square Feet
Longmont, CO Headquarters Owned Owned 117,000
Longmont, CO Retail Outlet Month-to-month $2,628 1,700
Loveland, CO Retail Outlet 9/30/02 $38,400 2,400
Mead, CO Warehouse 8/31/00 $63,000 15,750
Longmont, CO Warehouse 5/31/00 $75,000 27,500
Fulfillment Hardware and Software
Substantially all of Concepts Direct's order fulfillment hardware is located
at its headquarters facility, and except for certain computer and telephone
hardware, is owned by Concepts Direct. At the time of the move to the new
facility in 1997, certain changes and additions to order fulfillment
hardware were made. Concept Direct believes these changes and minor
modifications and additions should accommodate near-term growth strategy.
Support, computer systems, hardware and software required for fulfillment
operations of Concepts Direct are provided under provisions of intercompany
service agreements with iConcepts. Fulfillment support for sales from the
iConcepts Internet sites are provided by Concepts Direct.
iConcepts provides the computer and telephone hardware and software systems
and infrastructure required for Concepts Direct's operations. The primary
computer hardware is manufactured by Sun Microsystems, Inc, Cisco
Corporation and Data General Corporation. iConcepts currently uses an
internally developed order processing system and Internet infrastructure
developed using Oracle as the primary software platform. iConcepts
personnel are working on further improvements to the software. iConcepts
anticipates that the current software with minor additions and modifications
should accommodate Concepts Direct's and BOTWEB's near-term growth
strategy. Marketing of iConcepts' site hosting capabilities to third
parties will require additional computer hardware and additional
enhancements to the software systems.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation which management believes is
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information concerning the current executive officers of the
Company is included in this report pursuant to General Instruction G (3) of
Form 10-K. No person other than those identified below has been chosen to
become an executive officer of the Company. The executive officers serve at
the pleasure of the Board of Directors. No family relationships exist among
the executive officers of the Company.
Phillip A. Wiland, 53, Chairman of the Board of Directors of Concepts Direct
and Chairman of the Board and Chief Executive Officer of iConcepts and
BOTWEB since February 24, 2000. Chief Executive Officer and Chairman of the
Board of Directors of Concepts Direct from December 18, 1992 to February 24,
2000.
J. Michael Wolfe, 41, Chief Executive Officer and President of Concepts
Direct since February 24, 2000. President and Chief Operating Officer of
Concepts Direct from December 18, 1992 to February 24, 2000. Member of the
Board of Directors since December 1998.
H. Franklin Marcus, Jr., 54, Secretary-Treasurer of Concepts Direct and
Chief Financial Officer of iConcepts and BOTWEB since February 24, 2000.
Secretary-Treasurer and Chief Financial Officer of Concepts Direct from
September 30, 1992 to February 24, 2000.
David H. Haddon, 41, Vice President of Finance and Chief Financial Officer
of Concepts Direct since February 24, 2000. Vice President of Concepts
Direct since August 1998 and Controller of Concepts Direct from April 1995
to August 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market and Price Information
The Company's common stock, par value $.10 (the "Common Stock"), is
currently traded on the Nasdaq National Market under the symbol CDIR. The
following table sets forth the high and low sale prices per share of the
Company's Common Stock for the periods indicated.
Quarter and Year High Low
Calendar 1998
1st Quarter $20.500 $12.125
2nd Quarter 16.813 13.500
3rd Quarter 15.000 10.625
4th Quarter 17.875 7.750
Calendar 1999
1st Quarter 11.500 6.500
2nd Quarter 11.000 6.875
3rd Quarter 9.500 4.500
4th Quarter 14.125 5.500
Number of Shareholders
As of March 6, 2000, there were approximately 630 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, no cash dividends have been paid
on the Common Stock. Earnings will be retained for use in the business and
Management does not anticipate paying any cash dividends in the foreseeable
future. Payment of dividends is within the discretion of the Board of
Directors, which periodically reviews the dividend policy, considering the
Company's earnings, capital requirements, and financial condition, among
other factors.
ITEM 6. SELECTED FINANCIAL DATA
December 31,
1999 1998 1997 1996 1995
(amounts in thousands except per share data)
INCOME STATEMENT DATA
Net sales $55,539 $84,773 $78,489 $51,126 $42,147
Operating income (loss) (4,169) (1,979) 2,075 2,562 638
Income (loss) before
income taxes (4,544) (2,030) 2,490 2,808 937
Net income (loss) (3,628) (1,378) 1,615 1,937 843
Basic earnings (loss)
per share $(0.73) $(0.28) $0.36 $0.46 $0.20
Diluted earnings (loss)
per share $(0.73) $(0.28) $0.33 $0.44 $0.19
Weighted average common shares 4,977 4,959 4,528 4,233 4,211
Weighted average common
shares and dilutive
stock options 4,977 4,959 4,828 4,439 4,398
BALANCE SHEET DATA
Current assets $9,680 $19,237 $28,223 $13,443 $8,722
Current liabilities 7,487 8,554 15,079 7,518 4,833
Total assets 26,193 32,073 40,378 14,487 9,924
Long-term liabilities 4,818 6,079 6,486 - 67
Stockholders' equity 13,888 17,440 18,813 6,969 5,024
Earnings per share data and weighted average common shares and dilutive
stock options outstanding has been restated to reflect the 1997
two-shares-for-one-share stock split.
The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion of earnings per share and the impact of
Statement No. 128, see the notes to the financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
The period from 1997-1999 has been a time of transition for the Company. We
began 1997 as a direct marketing business with a single significant catalog
title, Colorful Images, and several catalogs in the formative stages. During
this period, we acquired property and constructed a larger headquarters and
operations facility, developed three catalog titles, acquired a catalog and
launched significant Internet initiatives. At the end of this period,
excluding a $2.2 million one- time inventory obsolescence charge in the
fourth quarter of 1999, we have five catalog titles providing positive
contribution to general and administrative expenses and profits in the
fourth quarter of 1999 and have developed Internet businesses with several
Internet sites. We consider a catalog title's contribution to be revenue
from the catalog minus advertising expenses and certain product, delivery
and catalog related general and administrative expenses which management
believes would be eliminated if the catalog title was discontinued.
During 1997 and 1998, Concepts Direct, Inc. emphasized the development of
the catalogs Linda Anderson, Linda Anderson's Collectibles and Snoopy etc.
Circulation to customer lists and to comparatively large quantities of
prospects led to significant losses associated with new customer
acquisition. During 1999, we made the decision to limit our planned
prospecting losses in order to improve catalog contribution. As a
consequence, we decreased catalog circulation quantities. This reduction in
catalog circulation improved contribution, but it also led to a decrease in
sales in 1999. In 1999, we experienced a 47% reduction in catalog
circulation resulting in a 34% decline in annual revenue in comparison to
1998. During 1999, we purchased certain assets of the Music Stand catalog.
As a result of this action, the customer database has grown significantly.
During the latter part of 1998 and in 1999, we engaged in significant
development costs with respect to Internet initiatives. Additional
employees, equipment and services were added to accommodate these new
business initiatives. The costs associated with these efforts contributed
substantially to the 1999 losses. In early 2000, we moved certain of our
Internet assets and activities to two subsidiary corporations to provide the
best opportunity for investors to understand our Internet strategy and
benefit from assets that have been created to support our Internet
initiatives. One subsidiary, iConcepts, Inc., will provide technology
support to Concepts Direct Inc., BOTWEB, Inc. and at an appropriate time,
third parties. Other services and development directions of iConcepts Inc.
are planned to include Internet site hosting and development, online order
processing, database management and the establishment of new Internet
retailing brands. The other subsidiary, BOTWEB Inc., will operate the
Internet portal, BOTWEB.com, with a plan to focus on developing superior
portal features and services and building significant traffic to the site.
Concepts Direct Inc. will focus on obtaining profitable results for the
catalog business and the related Internet sites associated with the catalog
titles.
Business Segments
We manage our operations in a manner that requires disclosure of three
business segments - the Concepts Direct segment ("Concepts Direct"), the
iConcepts segment ("iConcepts") and the BOTWEB segment ("BOTWEB"). Concepts
Direct includes our catalog business including the five catalog titles as
well as the Internet sites associated with those catalog titles. iConcepts
includes the non-catalog Internet retailing sites, site hosting operations,
site development operations and database management operations. BOTWEB
includes the BOTWEB.com Internet portal and its related operations. When we
use the term "the Consolidated Company" we refer to all of the segments
combined.
Net Sales
Consolidated. Net sales decreased $29.3 million, or 34%, to $55.5 million
for 1999 from $84.8 million in 1998 and increased $6.3 million, or 8%, in
1998 from $78.5 million in 1997. In 1999, the sales decreased primarily
because of a reduction in total catalog circulation as compared to the prior
year as we achieved our objective of reducing prospecting losses per mail
cycle. In 1998, the sales increase came from the new catalogs, Linda
Anderson, Linda Anderson's Collectibles and Snoopy, etc. Sales from our
largest catalog, Colorful Images, declined in 1998 as compared to 1997
primarily because fewer catalogs were circulated to prospects and customer
response rates were lower for certain mailings. Gift, home decor and other
merchandise products increased as a percentage of total sales from 52% in
1997 to 66% in 1998 and then declined to 59% in 1999. The increase in 1998
occurred primarily because of the advertising and sale of a greater number
of gift, home decor and other merchandise items as a percentage of total
products advertised and sold. The decrease in 1999 occurred primarily
because of a reduction in circulation of catalogs that primarily sold gift,
home decor and other merchandise.
By Segment. All of the net sales in 1997 and 1998 and substantially all of
the net sales in 1999 occurred in the Concepts Direct segment. The first
Internet retailing site of iConcepts was launched in December 1999 and had
sales in 1999 of $4,000. During 1999, two Internet sites were developed by
iConcepts and launched for Concepts Direct. The Internet portal of the
BOTWEB segment, BOTWEB.com, was launched in test stage in December 1999 and
had sales of $64,000 for 1999.
Cost of Product and Delivery and Gross Profit
Consolidated. Cost of product and delivery as a percentage of sales was 66%
in 1999, compared to 56% in 1998 and 53% in 1997. Gross profit decreased by
$18.3 million, or 49%, to $19.0 million in 1999 from $37.3 million in 1998
and increased $700,000, or 2%, in 1998 from $36.6 million in 1997. Gross
profit as a percentage of net sales was 34% in 1999, 44% in 1998 and 47% in
1997. The decrease in gross profit in 1999 resulted primarily from the
increase in the inventory obsolescence allowance in the fourth quarter to
reflect more accurately the net realizable value of inventory, lower sales
over which to spread fixed costs of fulfillment such as facilities and
equipment and additional costs in the form of labor, equipment and services
to accommodate the e-commerce business initiative.
The development of catalogs that primarily sell gift and merchandise items
produced a greater need to increase inventory of those items. During 1998,
Concepts Direct acquired more inventory of certain items than has been
required. Efforts to dispose of the excess inventory were not as successful
as hoped, resulting in the fourth quarter 1999 increase in the inventory
allowance by $2.2 million to more accurately reflect the inventory carrying
value at an appropriate net realizable value. The decrease in gross profit
in 1998 and 1997 resulted primarily from increased sales of gift, home decor
and other merchandise items, which generally have higher product costs as a
percentage of sales than personalized paper products. In 1999, 1998 and
1997, personalized paper product costs were generally less than 15% of sales
price compared to gift and merchandise products whose costs were generally
in excess of 30% of sales price. In addition, but to a lesser degree,
higher fixed costs of operations contributed to the decrease in gross profit
as a percentage of sales. These higher fixed costs included facility and
equipment costs, both of which are higher due to the move in the third
quarter of 1997 to our new facilities and the new equipment acquired at that
time.
By Segment. The expenses of iConcepts were primarily product and delivery
in nature, including certain hardware, software, labor and other expenses
directed at developing Internet business opportunities. BOTWEB product and
delivery costs of approximately $200,000 were directed at BOTWEB.com site and
directory development.
Selling, General and Administrative Expense
Consolidated. Selling, general and administrative expenses decreased $16.1
million, or 41%, to $23.2 million in 1999 from $39.3 million in 1998 and
increased $4.8 million, or 14%, in 1998 from $34.5 million in 1997. Selling,
general and administrative costs as a percentage of sales were 42% in 1999,
46% in 1998 and 44% in 1997. The decrease in 1999 occurred primarily
because of a reduction of total catalog circulation during 1999 as compared
to 1998 and to a lesser degree to limits placed on planned prospecting
losses per mail cycle. The increase in 1998 resulted primarily from the
more than 125% increase in circulation of the new catalogs in 1998 as
compared to 1997, increased creative costs associated with the development
of the new catalogs, higher fixed general and administrative costs including
additional merchandise and creative personnel hired to produce the new
catalogs and decreased response rates from Colorful Images prospecting
efforts. Prospect marketing generally has higher marketing costs as a
percentage of sales than customer marketing because customers tend to be
more responsive to marketing offers than prospects.
By Segment. Approximately $250,000 of the $755,000 expenses attributed to
BOTWEB for 1999 primarily related to marketing costs of the BOTWEB printed
directory issued for the first time in December 1999. iConcepts advertising
costs were minimal in 1999 because the e- commerce sites were launched late
in 1999.
Other income (expense)
Consolidated. Other income (expense), consisting primarily of interest
expense, interest income and vendor payment discounts, was an expense of
$375,000 for 1999, $51,000 for 1998, and income of $415,000 for 1997. An
increase in interest expense was the most significant cause of the expense
for 1999 and 1998. Interest expense was $530,000 for 1999, $507,000 for
1998 and $182,000 for 1997. The increase in interest expense resulted
primarily from the financing of the new facilities.
By Segment. Other income (expense) is attributed only to Concepts Direct.
Income taxes
The Consolidated Company had an income tax benefit of $916,000 in 1999,
$652,000 in 1998 and provision for income taxes of $875,000 in 1997. The
income tax benefit rate in 1999 was approximately 20% because of the
reduction of the deferred tax asset attributable to net operating losses to
a value anticipated by management to be realizable in the near future. The
income tax rate in 1998 was approximately 32% and the income tax rate in
1997 was approximately 35%. These income tax rates were lower than the
statutory federal and state tax rates, because of the availability of
certain state income tax credits. Management anticipates the income tax rate
in 2000 will be approximately 0%, principally because of anticipated losses
in iConcepts and BOTWEB, which will increase the net operating loss
carryforward available but not utilized.
Outlook
During 2000, Concepts Direct will continue to operate its catalog business
and the Internet sites associated with its catalogs focused on providing
strong profitability with modest growth in sales. A major objective will be
to produce improved catalog contribution and performance and continue
certain controls such as prospecting loss limits on the quality of catalog
performance. This may restrict the development of new catalogs until
earnings are consistent at levels management believes are appropriate to
support development costs. During 2000, Concepts Direct does plan to extend
its microniche marketing program and to test narrowly niched catalogs under
its existing brands.
iConcepts will focus on enhancing its database management and Internet site
hosting and development capabilities and improving its existing Internet
retailing sites. iConcepts' main emphasis for 2000 will be to provide
technology, support and site development service to Concepts Direct and
BOTWEB. Management's intention is for iConcepts to increase the depth of
product line and increase marketing activities for its existing Internet
retailing sites and develop other Internet retailing sites and businesses.
Management anticipates financial losses from iConcepts' operation during
2000.
BOTWEB will continue development of the Internet portal, BOTWEB.com.
Development efforts will focus on enhancing site features, adding new
features, expanding the site database and building traffic. Significant
levels of various types of marketing activity may be required to build
traffic to make BOTWEB.com competitive with other portal sites. Management
anticipates financial losses from BOTWEB's operations in 2000 and until
significant traffic is built for the site.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $2,839,000 in 1999, decreased by
$9,703,000 in 1998 and increased by $7,349,000 in 1997. Activity in several
significant areas had the greatest impact on cash and cash equivalents as
described below.
The decrease in the number of catalogs distributed in 1999 as compared to
1998 and the production and distribution of January 2000 catalogs later than
occurred in January 1999 were the primary reasons for the decrease in
deferred advertising cost of $2,341,000 in 1999. A decrease in the number
of catalogs distributed near the end of the fourth quarter of 1998 as
compared to the same period in 1997, and reduced costs incurred for
distribution of a lesser number of catalogs in the first quarter of 1999 as
compared to the same period in 1998 were the primary factors resulting in a
$3,162,000 decrease in deferred advertising costs in 1998. Increased
advertising over 1996 levels, the forward buying of approximately $1.7
million of paper for catalogs, the distribution of a greater number of
catalogs and the distribution of a significant number of catalogs near the
end of the fourth quarter of 1997 and very early in January 1998 were the
primary factors in the increase of deferred advertising by $3,797,000 in
1997. In 1999, the decreases in inventories of $2,389,000 and accounts
payable of $1,421,000 primarily related to reduced levels of sales in 1999
as compared to 1998. The increase in inventories of $5,427,000 in 1998
primarily related to increased inventory purchasing to avoid backorder
problems and the increase in sales as a percentage of total Concepts Direct
sales of the gift, home decor and other merchandise items which generally
have higher unit cost than paper products. The decrease in accounts payable
of $3,867,000 in 1998 related primarily to the timing of payment of
advertising costs and inventories. The increase in accounts payable of
$4,514,000 in 1997 primarily related to the incurring of significant
advertising costs for January mailings of the subsequent year and timing of
payments for inventory. Improvement in inventory backorder and fulfillment
function efficiency were the main factors in a decrease of customer
liabilities (primarily unshipped customer orders and reserve for future
customer warranty costs and product returns) in 1998 by $1,221,000. During
the fourth quarter of 1997, the increase in customer liabilities of $953,000
related primarily to an increase in customer order backlog caused by
inventory backorder and a lack of capacity in certain fulfillment functions.
The net losses of $3,628,000 and $1,378,000 contributed significantly to the
decrease in cash in 1999 and 1998, respectively, and net income of
$1,615,000 in 1997 contributed significantly to increased cash in that year.
In 1999, depreciation and amortization of $1,466,000 and an increase in the
provision for losses in inventory values of $3,226,000 were significant
non-cash expenses.
Significant items of investment of cash during the periods were capital
expenditures of $3,743,000, $1,252,000 and $11,653,000 in 1999, 1998 and
1997, respectively, the use of $500,000 to collateralize a letter of credit
during 1997 and the acquisition of the assets of the Music Stand catalog of
$1,924,000 during 1999. The 1999 and 1998 capital expenditures related
primarily to purchases of software and assets relative to development of
e-commerce infrastructure and Internet sites. A significant amount of the
1999 and 1998 capital expenditures represented Internet infrastructure and
site development costs that were transferred to the subsidiaries, iConcepts
and BOTWEB. The 1997 capital expenditures related primarily to the purchase
of undeveloped land and costs of a newly constructed facility that the
Consolidated Company moved into in the third quarter of 1997. The cash
collateralizing the letter of credit which was released in 1997 and 1998
related to certain obligations in connection with improvements to the
building site.
In early July 1997, the Consolidated Company completed a secondary offering
of 1.5 million shares of its common stock. As part of the offering, 471,404
shares were issued and sold. The underwriters also elected to exercise their
over-allotment option for 225,000 additional shares. Net proceeds from this
transaction were approximately $10,213,000.
During 1997, the Consolidated Company closed on credit facilities with Bank
One, Colorado, N.A. ("Bank One") for long-term financing on its new facility
and a land development loan for the portion of property held for expansion
or sale. Facility mortgages of $4,233,000 with a variable interest rate
equal to Bank One's prime rate, plus approximately 1% in bank fees and
$925,000 with interest at 9.0% are available. The land development loan is
$804,000 with a variable interest rate equal to Bank One's prime rate plus
1.5% (10.0% at December 31, 1999). The Consolidated Company also has
available through Bank One a revolving line of credit for $3.0 million for
general purposes. The revolving line of credit expires in May 2000. The
$2,992,000 and $6,996,000 increase in debt during 1999 and 1997,
respectively, primarily represented draws on these credit facilities. The
$3,763,000 in principal payments of debt and lease obligations in 1999
primarily represented payments on these credit facilities.
The Consolidated Company had $1,231,000 of cash and cash equivalents at
December 31, 1999. Management believes that results of operations, continued
operational planning, current cash balances and existing lines of credit
will produce funds necessary to meet the operating capital requirements of
Concepts Direct for the current year. However, Concepts Direct also has
certain loan arrangements and commitments to provide operating funds to
iConcepts and BOTWEB, and these commitments may negatively impact business
plans.
iConcepts' and BOTWEB's plans, in connection with development and enhancement of
their Internet sites, development of Internet site hosting capabilities and
implementing marketing plans and adding enhancements to BOTWEB.com during
2000 are extensive and require significant cash. Currently, it is
anticipated that this cash is available from Concepts Direct cash, cash from
operations and lines of credit. Substantial additional capital is needed
for iConcepts and BOTWEB to fully implement their plans. Management plans
to finance its working capital and capital expenditure needs through a
combination of existing cash, funds from operations, existing bank line of
credit and by securing additional capital resources through the issuance of
debt or equity securities. There can be no assurance that the companies
will be able to negotiate an extension of the bank revolving line of credit,
secure additional capital to meet their needs or secure such capital on
terms favorable to the companies. A failure to extend the bank line of
credit or obtain additional capital may be detrimental to the companies and
cause them to reduce or eliminate their growth and development initiatives.
YEAR 2000 ISSUE
The Year 2000 issue was the result of computer programs being written using
two digits rather than four to define the applicable year. Computer
equipment and software and other devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations
causing a disruption of operations, including, among other things, a
temporary inability to process transactions, fulfill orders, or engage in
similar normal business activities.
Vendor modifications for the information and fulfillment systems for
compliance were converted and installed by late 1999. Since December 31
1999, the Consolidated Company has not experienced any significant problems
with its information and fulfillment systems or in receiving inventory
product shipments from its vendors.
The total cost of achieving Year 2000 compliance was approximately $400,000
over the cost of normal software and equipment upgrades and replacements.
Approximately $100,000 was incurred in 1998, the remainder was incurred in
1999.
FORWARD-LOOKING STATEMENTS
The provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") provide companies with a "safe harbor" when making forward-looking
statements. This "safe harbor" encourages companies to provide prospective
information about their companies without fear of litigation. Statements
that are not historical facts, including statements about management's
expectations, beliefs, plans and objectives for fiscal year 2000 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
Consolidated 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
Concepts Direct offers in its catalogs;
* changes in Concepts Direct's merchandise product mix or changes in
Concepts Direct's customer response to advertising offers;
* competitive factors including name recognition, the relative newness
to the mail-order catalog business of several of Concepts Direct's catalogs
and the Consolidated Company's limited e-commerce operating history;
* lack of availability/access to capital or sources of supply for
appropriate inventory;
* lack of availability/access to capital to fund the growth plans for
its Internet initiatives;
* lack of effective performance of third party suppliers with respect
to production and distribution of catalogs;
* state tax issues relating to the taxation of out of state mail-order
companies and out of state Internet companies with neither sales
representatives nor outlets in a particular state seeking to impose sales
and similar taxes;
* inability to hire and retain sufficient numbers of qualified software
developers to develop required software products and Internet sites;
* inability to hire sufficient numbers of employees to maintain
acceptable levels of customer satisfaction with catalog order fulfillment
services;
* lack of effective performance of customer service and the
Consolidated Company's order fulfillment systems;
* lack of effective performance of the iConcepts' e-commerce
infrastructure, retailing sites and the BOTWEB search engine;
* inability to increase the level of traffic on BOTWEB.com and the
amount of purchases on the Consolidated Company's e-commerce sites;
* inability to effectively advertise the Consolidated Company's
Internet sites; and
* changes in strategy and timing related to testing and rollout of new
catalogs and those catalogs still in the test stage of development.
ITEM 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, 1999 and 1998
Income Statements for the years ended December 31, 1999, 1998 and 1997
Statements of Stockholders' Equity for the years ended December 31, 1999,
1998 and 1997
Statements of Cash Flows for the years ended December 31, 1999, 1998 and
1997
Notes to Financial Statements - December 31, 1999
The financial statement schedules of Concepts Direct, Inc. are set forth
below:
Schedule II - Valuation and Qualifying Accounts xx
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, 1999 and 1998, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999. Our audits also included the financial
statement schedule II. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Concepts Direct, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Denver, Colorado
February 25, 2000
CONCEPTS DIRECT, INC.
BALANCE SHEETS
December 31,
1999 1998
ASSETS
Current assets
Cash and cash equivalents $1,230,900 $4,070,369
Accounts receivable, less allowances 640,531 391,280
Deferred advertising costs 2,114,902 4,454,553
Inventories, less allowances 5,220,566 10,053,406
Prepaid expenses and other 473,291 267,107
Total current assets 9,680,190 19,236,715
Property and equipment, net 12,484,016 11,542,841
Capitalized software costs, net 2,238,839 729,600
Trademark and other intangibles, net 1,240,615 -
Other assets 549,193 563,591
TOTAL ASSETS $26,192,853 $32,072,747
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $4,614,129 $5,969,535
Current maturities of debt and
capital lease obligations 1,503,399 779,685
Accrued employee compensation 590,437 547,691
Customer liabilities 779,053 494,428
Interest payable - 29,348
Deferred income taxes payable - 732,980
Total current liabilities 7,487,018 8,553,667
Debt and capital lease obligations 4,817,585 6,078,620
Commitments and contingencies
Stockholders' equity
Common stock, $.10 par value,
authorized 7,500,000 and
6,000,000 shares, issued and
outstanding 4,985,618 and 4,967,286
in 1999 and 1998, respectively 498,562 496,729
Additional paid-in capital 14,397,577 14,323,773
Retained earnings (deficit) (1,007,889) 2,619,958
Total stockholders' equity 13,888,250 17,440,460
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $26,192,853 $32,072,747
See notes to financial statements.
CONCEPTS DIRECT, INC.
INCOME STATEMENTS
Year Ended December 31,
1999 1998 1997
Net sales $55,538,873 $84,773,205 $78,488,903
Operating costs and expenses
Cost of product and delivery 36,557,700 47,493,436 41,899,656
Selling, general and
administrative 23,150,172 39,258,944 34,513,972
Total operating costs and expenses 59,707,872 86,752,380 76,413,628
Operating income (loss) (4,168,999) (1,979,175) 2,075,275
Other income (expense), net (374,630) (50,512) 414,614
Income (loss) before income taxes (4,543,629) (2,029,687) 2,489,889
Provision (benefit) for income taxes (915,782) (652,076) 875,000
Net income (loss) $(3,627,847) $(1,377,611) $1,614,889
Basic earnings (loss) per share $(0.73) $(0.28) $0.36
Diluted earnings (loss) per share $(0.73) $(0.28) $0.33
Weighted average number of
common shares 4,976,819 4,959,286 4,528,486
Weighted average number of
common shares and dilutive
stock options 4,976,819 4,959,286 4,827,561
See notes to financial statements.
CONCEPTS DIRECT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
Balance at December
31, 1996 2,121,108 $212,111 $4,374,455 $2,382,680 $6,969,246
Net income - - - 1,614,889 1,614,889
Stock split 2,125,441 212,544 (212,544) - -
Exercise of stock
options 14,333 1,433 14,394 - 15,827
Sale of common
stock 696,404 69,641 10,143,033 - 10,212,674
Balance at December
31, 1997 4,957,286 495,729 14,319,338 3,997,569 18,812,636
Net loss - - - (1,377,611) (1,377,611)
Exercise of stock
options 10,000 1,000 4,435 - 5,435
Balance at December
31, 1998 4,967,286 496,729 14,323,773 2,619,958 17,440,460
Net loss - - - (3,627,847) (3,627,847)
Exercise of stock
options 18,332 1,833 73,804 - 75,637
Balance at December
31, 1999 4,985,618 $498,562 $14,397,577 $(1,007,889)$13,888,250
See notes to financial statements.
CONCEPTS DIRECT, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1999 1998 1997
OPERATING ACTIVITIES
Net income (loss) $(3,627,847) $(1,377,611) $1,614,889
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Provision for losses on accounts
receivable 23,563 12,220 16,000
Provision for losses in inventory
values 3,226,243 541,168 168,506
Depreciation 1,156,241 1,015,678 597,089
Amortization 310,211 - -
Increase (decrease) in current
and deferred income taxes payable (732,980) (1,075,076) 1,020,413
Loss (gain) on disposals of property
and equipment - 60,271 (410)
Changes in operating assets and liabilities:
Accounts receivable (247,814) (144,281) (109,386)
Deferred advertising costs 2,340,651 3,161,585 (3,797,311)
Inventories 2,389,477 (5,426,845) (2,552,236)
Income taxes recoverable - 373,000 (373,000)
Prepaid expenses and other (206,184) 637,174 (655,361)
Accounts payable (1,421,407) (3,867,493) 4,513,750
Accrued employee compensation 42,746 (554,281) 517,104
Customer liabilities 284,625 (1,221,347) 953,284
Interest payable (29,348) 8,368 126,973
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,508,177 (7,857,470) 2,040,304
INVESTING ACTIVITIES
Cash restricted as collateral - - (500,000)
Release of cash restricted as collateral - 128,403 371,597
Capital expenditures (3,742,711) (1,251,649) (11,652,622)
Acquisition of assets (1,924,318) - -
Sales of property, equipment
and investments - - 410
Other investing activities, net 14,399 (269,329) (55,417)
NET CASH USED IN INVESTING ACTIVITIES (5,652,630) (1,392,575) (11,836,032)
FINANCING ACTIVITIES
Principal payment on debt and
capital lease obligations (3,762,808) (574,241) (79,947)
Issuance of debt obligations 2,992,155 115,405 6,995,852
Sale of common stock - - 10,212,674
Exercise of common stock options 75,637 5,435 15,827
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (695,016 (453,401) 17,144,406
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,839,469) (9,703,446) 7,348,678
Cash and cash equivalents at
beginning of year 4,070,369 13,773,815 6,425,137
Cash and cash equivalents at
end of year $1,230,900 $4,070,369 $13,773,815
See notes to financial statements.
NOTE 1. Significant Accounting Policies
Organization: In this document, the following terms and definitions are
used:
The Company refers to Concepts Direct, Inc. and subsidiaries, which includes
the Concepts Direct catalogs, associated Internet sites and related
operations, the iConcepts Internet retailing sites, hosting equipment and
software and related operations and the BOTWEB.com Internet portal and
related operations.
Concepts Direct refers to the branded catalogs and associated Internet sites
of the parent company, Concepts Direct, Inc.
iConcepts refers to the non-catalog Internet retailing sites, technology,
site hosting and related operations of iConcepts, Inc.
BOTWEB refers to the BOTWEB.com Internet portal and related operations of
BOTWEB, Inc.
Concepts Direct markets various products directly to individual consumers,
including personalized paper products, gift items, home decorative items and
other merchandise under various catalog titles and Internet sites associated
with the catalog titles. Concepts Direct's corporate and operations
facilities are primarily located in Longmont, Colorado and it sells
its products nationwide and in Canada.
iConcepts was formed on February 24, 2000 as a wholly owned subsidiary of
Concepts Direct and certain assets and liabilities of Concepts Direct were
transferred to iConcepts in exchange for common stock. iConcept's will
provide database management, Internet site development and hosting and other
technological support services for Concepts Direct, another subsidiary,
BOTWEB and other third parties. iConcepts will also operate certain
non-catalog associated Internet retailing sites.
BOTWEB was formed on February 24, 2000 as a wholly owned subsidiary of
iConcepts and certain assets and liabilities of Concepts Direct were
transferred to BOTWEB in exchange for common stock. BOTWEB will develop and
operate the Internet portal, BOTWEB.com.
Both iConcepts and BOTWEB will lease office space for their respective
headquarters from Concepts Direct. Each of the three companies
will provide certain services to the other companies under the
provisions of certain service agreements and licenses.
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
immaterial during the years ended December 31, 1999, 1998 and 1997.
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.
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
$16,721,000, $34,729,000 and $30,202,000 in 1999, 1998 and 1997,
respectively.
Property and Equipment: Such assets are stated on the basis of cost.
Buildings and purchased and leased computer software is depreciated using
the straight-line method. Interest capitalized during the 1997 construction
of the Company's new facility was $6,000.
Inventories: Inventories of products, net of valuation allowances of
$4,488,000 and $740,000 at December 31, 1999 and 1998, respectively, are
stated at the lower of cost (first-in, first-out method) or market.
During the fourth quarter of 1999, the Company increased its inventory
obsolescence by approximately $2.2 million to more accurately reflect the
net realizable value of inventory.
Capitalized Software Costs: Costs of developing new software applications
are capitalized and are being amortized over five years. Amortization of
capitalized software costs totaled $236,056, $342 and $0 in 1999, 1998 and
1997, respectively.
Trademark and Other Intangibles: Trademarks and other intangibles are
carried at cost less accumulated amortization which is calculated on a
straight-line basis over 20 and 5 years, respectively.
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
or benefit is recorded by applying the rate change to the cumulative
temporary differences.
Earnings Per Share: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (Statement No. 128). Statement No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options. Diluted earnings per share is
very sililar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement No. 128
requirements.
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.
Reclassifications: Certain amounts in the 1998 financial statements have
been reclassified to conform to the 1999 presentation.
NOTE 2. Acquisition of the Music Stand Assets
On June 2, 1999, the Company acquired the trademark, customer list,
inventory and certain other assets of the Music Stand for approximately $2.1
million. The purchase price was allocated based on estimated fair values at
the date of acquisition. the Music Stand is a catalog marketer of assorted
music-related gifts, awards and collectibles. Accumulated amortization of
the Music Stand trademark and customer list was $74,000 in 1999.
NOTE 3. Statements of Cash Flows
Following is supplemental information to the statements of cash flows:
Year Ended December 31,
1999 1998 1997
Non-cash investing and
financing activities:
Debt refinanced $- $- $3,842,427
Interest financed as debt - 12,710 105,993
Equipment financed through
capital leases 121,832 235,787 -
Cash - flow data:
Cash paid during the year for:
Interest $561,455 $485,766 $60,486
Income taxes - - 227,587
NOTE 4. Property and Equipment
Following is a summary of property and equipment at:
Principal
December 31, Estimated
1999 1998 Useful Lives
Data processing equipment $2,101,268 $1,673,995 3-5 years
Computer software and
website development 2,109,388 736,458 2-5 years
Furniture and equipment 2,210,950 1,993,554 3-5 years
Building 7,293,702 7,214,643 30 years
Land used in operations 1,110,915 1,110,915 N/A
Land held for sale or expansion 1,950,270 1,914,343 N/A
16,776,493 14,643,908
Less accumulated depreciation (4,292,477) (3,101,067)
$12,484,016 $11,542,841
In January, 1997, the Company purchased approximately 139 acres of
undeveloped land in Longmont, Colorado. The Company used approximately
eleven acres of this land for a new facility and intends to hold the
remaining land for sale or expansion.
NOTE 5. Letter of Credit
On March 25, 1997, an irrevocable standby letter of credit for $500,000 was
issued by a regional bank. The letter of credit relates to certain
obligations in connection with improvements to the Company's land. In 1997,
the letter of credit was collateralized by restricted cash held on deposit
in an interest bearing account at the issuing bank. In 1998, this collateral
was not required to be maintained. As of December 31, 1999 and 1998,
$60,842 and $126,468, respectively, was available under this letter of
credit.
NOTE 6. Lines of Credit, Debt and Capital Lease Obligations
Debt and capital lease obligations consist of the following at December 31:
1999 1998
Mortgage loan payable to bank, principal and
interest payable monthly through 2005 at prime
(8.50% and 7.75% at December 31, 1999 and 1998,
respectively). $4,233,000 $4,401,000
Mortgage loan payable to bank, principal and
interest payable monthly through 2002,
with interest at 7.875% at December 31,
1999 and 1998. 924,821 1,224,685
Note payable to bank, principal and interest
payable monthly, balance due in 2000 with
interest at prime plus 1.5% (10.0% and 9.25%
at December 31,1999 and 1998, respectively. 803,790 1,063,906
Note payable to bank, principal and interest
payable monthly through 2002, with interest at
prime. 124,846 -
Liabilities connected with acquisition of assets,
balance due in 2000. 66,667 -
Capital lease obligation, principal and interest
payable monthly through 2001, with interest at
8.56% 167,860 168,714
Total debt and capital lease obligations 6,320,984 6,858,305
Less current maturities 1,503,399 779,685
Long-term debt obligations $4,817,585 $6,078,620
The estimated aggregate debt and capital lease maturities as of December 31,
1999 are:
2000 $1,503,399
2001 633,963
2002 541,622
2003 231,000
2004 231,000
Thereafter 3,180,000
Long-term debt obligations $6,320,984
The carrying amounts of the mortgages and note payable borrowings
approximate their fair market value as all borrowings have interest rates
which approximate the current market rates for such borrowings.
In September, 1998, the Company entered into a $300,000 credit facility with
a bank, bearing interest at a variable rate equal to the bank's prime rate
and expiring February, 2002. As of December 31, 1999 and 1998, $124,846 and
$0 were outstanding under this agreement. After February, 1999, borrowings
under the credit facility were not allowed.
In May, 1997, the Company entered into a $3,700,000 credit facility with a
bank. In connection with the Company's permanent mortgage financing of its
new facility, $1,700,000 of the credit facility was cancelled. In May,
1999, the Company increased the credit facility from $2,000,000 to
$4,500,000. The credit facility expires in May 2000 and bears interest at
prime plus 1%. In September 1999, the Company reduced its credit facility
to $3,000,000. At December 31, 1999, the Company had $3,000,000 available
under this credit facility.
All debt obligations and available lines of credit outstanding as of
December 31, 1999 are secured by the Company's cash, inventories, accounts
receivable, and property and equipment. The Company must comply with
certain financial and performance covenants, including a minimum current
ratio, a minimum tangible net worth and a maximum total debt to equity
ratio. In addition, capital expenditures and net losses are also restricted.
The Company must also maintain it primary deposit accounts with the bank.
At December 31, 1999, the Company was not in compliance with certain
financial covenants of itscredit facility and mortgage loan payable. The
Company has received a waiver from the bank of its current ratio through May
1, 2000 and of its net losses through December 31, 2000.
NOTE 7. Operating Lease Obligations
Future minimum lease payments for all non-cancelable operating leases are
as follows at December 31, 1999:
2000 $1,279,167
2001 803,227
2002 290,071
2003 1,582
2004 -
Thereafter -
Total future minimum lease payments $2,374,047
The Company leases various equipment used in operations under agreements
which expire at various dates through January 2003, excluding various
renewal options available, some of which are subject to annual adjustments
for cost escalation. Total rental expense for all operating leases amounted
to $1,340,000, $1,281,000 and $1,327,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
NOTE 8. Other Income (Expense), Net
Following is a summary of the Company's other income (expense):
Year Ended December 31,
1999 1998 1997
Interest income $91,816 $363,390 $343,550
Interest expense (529,603) (506,844) (181,538)
Vendor payment discounts 57,008 153,644 244,791
Other, net 6,149 (60,702) 7,811
$(374,630) $(50,512) $414,614
NOTE 9. Income Taxes
The differences between federal statutory income tax rates and the Company's
effective tax rates are as follows:
Year Ended December 31,
1999 1998 1997
Federal tax expense (benefit)
at statutory rate $(1,545,000) $(690,000) $847,000
Valuation allowance $674,000 - -
Effect of permanent differences 2,000 2,000 3,000
State income tax less federal
tax benefits - - 5,000
Revision of prior year estimates (46,782) 35,924 20,000
$(915,782) $(652,076) $875,000
The income tax expense (benefit) consists of the following:
Year Ended December 31,
1999 1998 1997
Current Deferred Current Deferred Current Deferred
Federal $(54,782) $(861,000) $422,924 $(1,075,000) $(202,000) $1,069,000
State - - - - 30,000 (22,000)
$(54,782) $(861,000) $422,924 $(1,075,000) $(172,000) $1,047,000
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets consist of
the following:
December 31,
1999 1998 1997
Deferred tax liabilities:
Deferred advertising costs $(410,000) $(1,167,000) $(2,589,000)
Property and equipment (1,153,000) (254,000) -
Deferred tax liabilities (1,563,000) (1,421,000) (2,589,000)
Deferred tax assets:
Allowance for doubtful accounts 24,000 14,000 19,000
Inventory differences 1,819,000 470,000 308,000
Property and equipment - - 92,000
Other nondeductible accruals 187,000 204,000 206,000
Net operating loss
carryforwards/carrybacks 335,000 - 156,000
Deferred tax assets 2,365,000 688,000 781,000
Valuation allowance (674,000) - -
Net deferred tax assets
(liabilities) $128,000 $(733,000) $(1,808,000)
NOTE 10. Stockholders' Equity
On July 2, 1997, the Company completed a stock offering for 1.5 million
shares of common stock. As part of the offering, the Company issued 471,404
shares of stock. The remaining 1,028,596 shares were sold by certain
existing shareholders of the Company. An underwriters' overallotment option
for an additional 225,000 shares was also exercised on July 9, 1997. The
Company received approximately $10,213,000 net proceeds, after deducting its
pro-rata percentage of the costs of the offering. The Company's pro-rata
costs of the offering were $929,790.
On February 25, 1997, the Board of Directors approved a two-for-one stock
split, effected in the form of a stock dividend, payable March 31, 1997 to
shareholders of record on March 14, 1997. Accordingly, December 31, 1997
balances reflect the split with an increase in common stock and a reduction
in additional paid-in capital of $212,544. Stock option, share and per share
data have been retroactively adjusted to reflect the split, except where
noted as pre-split.
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
355,000 and 360,000 shares of common stock reserved for issuance under the
plan as of December 31, 1999 and 1998.
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 37,334 and
50,666 shares of common stock reserved for issuance under the plan as of
December 31, 1999 and 1998, respectively. No additional options may be
granted under this plan.
Under the terms of the Concepts Direct, Inc. 1998 Non-Employee Directors
Stock Option Plan, the outside directors 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 52,000 shares
of common stock reserved for issuance under the plan as of December 31, 1999
and 1998.
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 Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123), requires use of option valuation models
that were not developed for use in valuing the stock options. Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement No. 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions:
1999 1998 1997
Risk-free interest rate 5.5% 5.5% 5.5%
Dividend yields 0.0% 0.0% 0.0%
Volatility factors of the expected
market price of the Company's
common stock 0.560 0.563 0.573
Weighted-average expected life of
the employee stock options 5.5 years 5.5 years 5.5 years
Weighted-average expected life of
the non-employee stock options 2 years 2 years 2 years
The weighted-average fair value of options granted were as follows:
1999 1998 1997
Employee Plan $5.14 $5.50 $12.72
Non-Employee Plans $ - $3.55 $ -
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows:
1999 1998 1997
Pro forma net income (loss) $(3,858,733) $(1,507,882) $1,520,263
Pro forma basic earnings (loss)
per share $ (0.78) $ (0.30) $ 0.34
Pro forma diluted earnings (loss)
per share $ (0.78) $ (0.30) $ 0.31
Because Statement No. 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
2001.
A summary of the Company's stock option activity, and related information
follows:
Employee Plan Non-Employee Plans
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Outstanding at
December 31, 1996 240,000 $ 2.33 37,332 $ 5.28
Granted at market price 20,000 $21.69 - $ -
Exercised (8,000) $ 0.54 (10,666) $ 1.12
Canceled - $ - - $ -
Outstanding at
December 31, 1997 252,000 $ 3.92 26,666 $ 6.95
Granted at market price 81,000 $ 9.81 22,000 $10.51
Exercised (10,000) $ 0.54 - $ -
Canceled (30,000) $14.64 - $ -
Outstanding at
December 31, 1998 293,000 $ 4.57 48,666 $ 8.56
Granted at market price 25,000 $ 9.19 - $ -
Exercised (5,000) $ 4.06 (13,332) $ 4.15
Canceled - $ - - $ -
Outstanding at
December 31, 1999 313,000 $ 4.94 35,334 $10.22
A summary of outstanding options, by year they become exercisable, follows:
Employee Plan Non-Employee Plans
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Currently exercisable 108,250 $1.01 20,670 $10.02
2000 43,500 $3.00 7,336 $10.51
2001 30,500 $4.06 7,328 $10.51
2002 38,750 $7.79 - $ -
2003 32,750 $9.56 - $ -
2004 26,500 $9.66 - $ -
2005 26,500 $9.66 - $ -
2006 6,250 $9.19 - $ -
Outstanding at
December 31, 1999 313,000 $4.94 35,334 $10.22
Exercise price range of options outstanding:
Employee Plan $0.50-$14.50
Non-Employee Plans $8.94-$14.70
Weighted-average remaining contractual life of options outstanding
Employee Plan 5.98 years
Non-Employee Plans 3.10 years
NOTE 11. Employee Retirement Savings Plan
In May 1985, the Company adopted a Retirement Savings Plan (the "Plan")
under Section 401(k) of the Internal Revenue Code. Participation in the Plan
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. Effective December 1, 1999, the Company amended certain
provisions of the Plan. These amendments included reducing the eligibility
service requirement from one year of service to six months, eliminating the
$10 monthly contribution for each eligible employee and increasing the
Company's matching contribution from 4% to 6% of a participant's eligible
annual compensation. The Company's contributions to employees of the Plan
were $100,000, $90,000 and $57,000 in 1999, 1998 and 1997, respectively.
NOTE 12. Quarterly Financial Information (Unaudited)
Basic Diluted
Income Net Earnings(Loss) Earnings(Loss)
Net (Loss)from Income per Common per Common
Sales Operations (Loss) Share Share
(Dollars in thousands except per share data)
1997:
First $15,952 $951 $673 $0.16 $0.15
Second 14,766 446 368 0.09 0.08
Third 14,630 (1,039) (591) (0.12) (0.12)
Fourth 33,141 1,717 1,165 0.23 0.22
1998:
First $15,480 $(1,045) $(624) $(0.13) $(0.13)
Second 15,855 (286) (193) (0.04) (0.04)
Third 19,495 (1,423) (985) (0.20) (0.20)
Fourth 33,943 775 424 0.09 0.09
1999:
First $12,546 $(605) $(445) $(0.09) $(0.09)
Second 11,068 (1,037) (736) (0.15) (0.15)
Third 11,252 (991) (736) (0.15) (0.15)
Fourth 20,673 (1,536) (1,711) (0.34) (0.34)
The first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
NOTE 13. Segment Disclosure
During 1999, the Company began to pursue several e-commerce business
strategies designed to compliment and enhance its core catalog business. The
initiatives included web service and hosting as well as design of an
Internet portal. As part of this continuing development in late 1999,
management began to assess and evaluate these initiatives as separate
business lines. Consistent with this perspective and to provide better
operational focus, management also at this time initiated a reorganization
process designed to reflect its business as three separate operating
segments. These segments are:
Concepts Direct
Concepts Direct markets various products directly to individual consumers,
including personalized paper products, gift items, home decorative items and
other merchandise under several catalog titles and Internet sites associated
with the catalog titles.
Concepts Direct will also provide back office functions for all segments
such as warehousing, distribution, fulfillment, order entry, inventory
procurement, accounting and human resources.
iConcepts
iConcepts will operate as a business incubator, conceptualizing and
developing new Internet businesses. iConcepts will also provide technology
support to Concepts Direct, BOTWEB and third parties. Services offered by
iConcepts will include site hosting and development, online order processing
and database management. iConcepts currently has three live sites,
iGift.com, NewBargains.com and TheBearHouse.com.
BOTWEB
BOTWEB is a portal whose primary target customers are female catalog or
Internet shoppers. In addition to offering a directory and Internet search
of reviewed sites that BOTWEB has classified Best Of The WEB, BOTWEB offers
a variety of free services, including email, driving directions and maps,
news, weather and sports.
As a result of the reorganization discussed above, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (Statement No. 131). The
Company evaluates the performance of its business segments based on
operating profit (loss). The accounting policies of the Company's segments
are the same as those described in Note 1. The Company is not dependent
upon any single customer or group of customers, the loss of which would not
have a material effect on the Company. As required by Statement No. 131,
the Company has presented the segment information as of and for the years
ended December 31, 1998 and 1997 as if this reorganization had occurred at
January 1, 1997.
Pertinent financial data by operating segment for the three years ended
December 31, 1999 are as follows (in thousands):
Concepts Direct iConcepts BOTWEB Eliminations Total
1999
Net Sales to
Third Parties $55,471 $ 4 $ 64 - $55,539
Net Sales to Related
Parties 10(1) 1,268(2) 19(3) (1,297) -
Total Net Sales 55,481 1,272 83 (1,297) 55,539
Cost of product and
delivery from
Third Parties 35,661 695 202 - 36,558
Cost of product and
delivery from
Related Parties 796 6 52 (854) -
36,457 701 254 (854) 36,558
Selling, general and
administrative from
Third Parties 20,765 1,893 492 - 23,150
Selling, general and
administrative from
Related Parties 425 9 9 (443) -
21,190 1,902 501 (443) 23,150
Total Expenses 57,647 2,603 755 (1,297) 59,708
Operating loss (2,166) (1,331) (672) - (4,169)
Other expense (375) - - - (375)
Loss before income
taxes $(2,541) $(1,331) $(672) $- $(4,544)
Identifiable assets $19,091 $6,403 $699 $- $26,193
Concepts Direct iConcepts BOTWEB Eliminations Total
1998
Net Sales to
Third Parties $84,773 $- $- - $84,773
Net Sales to
Related Parties -(1) 1,266(2) -(3) (1,266) -
Total Net Sales 84,773 1,266 - (1,266) 84,773
Cost of product and
delivery from
Third Parties 46,123 1,370 - - 47,493
Cost of product and
delivery from
Related Parties 1,266 - - (1,266) -
47,389 1,370 - (1,266) 47,493
Selling, general and
administrative from
Third Parties 38,872 387 - - 39,259
Selling, general and
administrative from
Related Parties - - - - -
38,872 387 - - 39,259
Total Expenses 86,261 1,757 - (1,266) 86,752
Operating loss (1,488) (491) - - (1,979)
Other expense (51) - - - (51)
Loss before income
taxes $(1,539) $(491) $- $- $(2,030)
Identifiable assets $27,519 $4,554 $- $- $32,073
Concepts Direct iConcepts BOTWEB Eliminations Total
1997
Net Sales to
Third Parties $78,489 $- $- - $78,489
Net Sales to
Related Parties -(1) 1,261(2) -(3) (1,261) -
Total Net Sales 78,489 1,261 - (1,261) 78,489
Cost of product and
delivery from
Third Parties 40,669 1,231 - - 41,900
Cost of product and
delivery from
Related Parties 1,261 - - (1,261) -
41,930 1,231 - (1,261) 41,900
Selling, general and
administrative from
Third Parties 34,245 269 - - 34,514
Selling, general and
administrative from
Related Parties - - - - -
34,245 269 - - 34,514
Total Expenses 76,175 1,500 - (1,261) 76,414
Operating income (loss) 2,314 (239) - - 2,075
Other income 415 - - - 415
Income (loss) before
income taxes $2,729 $(239) $- $- $2,490
Identifiable assets $36,631 $3,747 $- $- $40,378
(1) Represents intercompany product sales, inventory ordering and
storage fees and product fulfillment charges
(2) Represents Internet site development, production and maintenance
charges
(3) Represents BOTWEB directory advertising charges
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CONCEPTS DIRECT, INC.
Year Ended December 31, 1999
COL. A COL. B COL. C COL. D COL. E COL.F
Charged Charged to
Balance at (Credited) Other Balance at
Beginning to Costs Accounts- Deductions End
DESCRIPTION of Period and Expenses Describe Describe of Period
Year Ended December
31, 1999
Deducted from
asset accounts:
Allowance for
doubtful accounts $42,220 $23,563 $ - $ - $ 65,783
Allowance for
inventory
obsolescence 740,408 3,226,243 756,006(c) (234,492)(b)4,488,165
Totals deducted from
asset account $782,628 $3,249,806 $756,006 $(234,492) $4,553,948
Product warranty
liability $274,005 $ (23,354) $ - $ - $ 250,651
Year Ended December
31, 1998
Deducted from
asset accounts:
Allowance for
doubtful accounts $ 57,000 $ 12,220 $ - $ (27,000)(a) $ 42,220
Allowance for
inventory
obsolescence 394,000 541,168 - (194,760)(b) 740,408
Totals deducted from
asset accounts $451,000 $ 553,388 $ - $(221,760) $782,628
Product warranty
liability $286,297 $ (12,292) $ - $ - $274,005
Year Ended December
31, 1997
Deducted from
asset accounts:
Allowance for
doubtful accounts $ 41,000 $ 16,000 $ - $ - $ 57,000
Allowance for
inventory
obsolescence 400,000 168,506 - (174,506)(b) 394,000
Totals deducted from
asset accounts $441,000 $ 184,506 $ - $(174,506) $451,000
Product warranty
liability $254,124 $ 32,173 $ - $ - $286,297
(a) Uncollectible accounts written off, net of recoveries.
(b) Inventory written off, net of recoveries.
(c) Reserve established pursuant to The Music Stand acquisition of assets.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
N/A
PART III
Certain information required by Part III is omitted from this Report in that
the Company will file a definitive Proxy Statement pursuant to Regulation
14A (the "Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this report and certain information included therein
is incorporated herein by reference.
With the exception of the information incorporated by reference from the
Proxy Statement in Items 10, 11, 12 and 13 of Part III of this Form 10-K,
the Proxy Statement for its annual meeting of stockholders scheduled for May
2, 2000 is not to be deemed filed as a part of this Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information concerning the directors of the Company is incorporated herein
by reference to material contained under the heading "Election of Directors"
and "Section 16(a) compliance in the Proxy Statement for its annual meeting
of stockholders scheduled for May 2, 2000.
Information concerning the executive officers of the Company is set forth
under the heading "Executive Officers of the Registrant" at the end of Part
I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to material contained under the headings "Compensation of
Directors", "Executive Compensation" and "Compensation Committee Interlocks
and Insider Participation" in the Company's Proxy Statementfor its annual
meeting of stockholders scheduled for May 2, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information as to security ownership of certain beneficial owners and
management is incorporated herein by reference to material contained under
the heading "Stock Ownership of Certain Beneficial Owners and Management" in
the Company's Proxy Statement for its annual meeting of stockholders
scheduled for May 2, 2000. Management does not know of any arrangements the
operation of which may at a subsequent date results in a change in control
of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
N\A
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORMS 8-K
(a) Documents filed as part of this report:
1. The financial statements and related Report of Independent Auditors
required by this item are listed and included in Item 8 of this report.
2. The financial statement schedules required by this item are listed and
included in Item 8 of this report.
3. Exhibits required to be filed by Item 601 of Regulation S-K: SEE INDEX
TO EXHIBITS.
(b) No Reports on Form 8-K have been filed during the last quarter of the
year ended December 31, 1999.
INDEX TO EXHIBITS
(3) Articles of incorporation and bylaws.
3(a) Registrant's Amended and Restated Certificate of Incorporation filed as
Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 is expressly incorporated herein by this reference.
3(a)(i) Registrant's Amendment of Amended and Restated Certificate of
Incorporation filed as Exhibit 3(i)(b) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999, is expressly
incorporated herein by this reference.
3(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.
4(a) See the Seventh Article of Exhibit 3(a) and Articles I, IV, V, VI and
VII of Exhibit 3(b).
10(a) Loan Agreement between Registrant and Bank One, Colorado, N.A. as
lender, dated May 1, 1997, in connection with a $3.7 million credit
facility. This agreement was previously filed as exhibit 10.12 to
Registrant's Amendment No. 1 to Form S-1 filed on June 4, 1997 and is
expressly incorporated herein by reference.
10(b) Land Development Loan Agreement dated July 10, 1997 between registrant
and Bank One, Colorado, NA. This agreement was previously filed as exhibit 1
to registrant's Quarterly Report on Form 10-Q for the year ended June 30,
1997 and is expressly incorporated herein by this reference.
10(c) Construction Loan Agreement dated July 10, 1997 between registrant and
Bank One, Colorado, NA. This agreement was previously filed as exhibit 2 to
registrant's Quarterly Report on Form 10-Q for the year ended June 30, 1997
and is expressly incorporated herein by this reference.
**10(d) 2000 Incentive Compensation Plan for officers of the registrant is
filed herewith.
**10(e) 1992 Stock Option Plan was previously filed as Exhibit A to
registrant's definitive proxy statement dated June 29, 1993 for the Annual
Meeting of Shareholders held on July 30, 1993, and is expressly incorporated
herein by this reference.
**10(f) 1992 Non-Employee Director Stock Option Plan was previously filed as
Exhibit B to the registrant's definitive proxy statement dated June 29, 1993
for the Annual Meeting of Shareholders held on July 30, 1993, and is
expressly incorporated herein by this reference.
**10(g) First Amendment to the 1992 Stock Option Plan was previously filed
as Exhibit A to registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998 and is expressly incorporated herein by
reference.
**10(h) 1998 Non-Employee Directors Stock Option Plan was previously filed
as Exhibit A to the Company's Definitive Proxy Statement dated March 10,
1998 for the Annual Meeting of Stockholders on April 24, 1998 is expressly
incorporated by reference.
**10(j) 2000 Incentive Compensation Plan for officers of the registrant is
filed herewith.
(21) Subsidiaries of the Company
(23) Consent of Experts and Counsel.
23(a) The Consent of Ernst & Young LLP is filed herewith.
(27) Financial Data Schedule
27(a) The financial data schedule is included in the electronic Edgar filing
only.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CONCEPTS DIRECT, INC.
Date: March 30, 2000 By: /s/ J. Michael Wolfe
J. Michael Wolfe
Chief Executive Officer
Date: March 30, 2000 By: /s/ David H. Haddon
David H. Haddon
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 30, 2000 /s/ Michael T. Buoncristiano
Michael T. Buoncristiano, Director
Date: March 30, 2000 /s/ Robert L. Burrus, Jr.
Robert L. Burrus, Jr., Director
Date: March 30, 2000 /s/ Stephen R. Polk
Stephen R. Polk, Director
Date: March 30, 2000 /s/ Phillip D. White
Phillip D. White, Director
Date: March 30, 2000 /s/ Virginia B. Bayless
Virginia B. Bayless, Director
Date: March 30, 2000 /s/ Phillip A. Wiland
Phillip A. Wiland, Director
Date: March 30, 2000 /s/ J. Michael Wolfe
J. Michael Wolfe, Director
Exhibit 21
Subsidiaries of the Company
Subsidiary Jurisdiction of Incorporation
iConcepts, Inc. Virginia
BOTWEB, Inc. Virginia
Exhibit 23(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 follows.
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.
33-66261) dated October 28, 1998 pertaining to the Amendment to the
Registant's 1992 Stock Option Plan follows.
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.
33-66263) dated October 28, 1998 pertaining to the registrant's 1998
Non-Employee Director Stock Option Plan follows.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1230900
<SECURITIES> 0
<RECEIVABLES> 640531
<ALLOWANCES> 0
<INVENTORY> 5220566
<CURRENT-ASSETS> 2588193
<PP&E> 16776493
<DEPRECIATION> 4292477
<TOTAL-ASSETS> 26192853
<CURRENT-LIABILITIES> 7487018
<BONDS> 4817585
0
0
<COMMON> 498562
<OTHER-SE> 13389688
<TOTAL-LIABILITY-AND-EQUITY> 26192853
<SALES> 55538873
<TOTAL-REVENUES> 55538873
<CGS> 36557700
<TOTAL-COSTS> 59707872
<OTHER-EXPENSES> (154973)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 529603
<INCOME-PRETAX> (4543629)
<INCOME-TAX> (915782)
<INCOME-CONTINUING> (3627847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3627847)
<EPS-BASIC> (.73)
<EPS-DILUTED> (.73)
</TABLE>
CONCEPTS DIRECT,INC.
2000 INCENTIVE COMPENSATION PLAN
CATALOG BUSINESS UNIT
Effective January 1, 2000
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 year 2000 Incentive Compensation Plan.
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 2000 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.
For purposes of making the final calculations of amounts due under the plan
set forth herein, Average Shareholders' Equity and the number of shares
outstanding for purposes of calculating "Diluted EPS" will be determined by
the external auditors in the course of audits.
For illustration herein ..... $20,500,000 is used for Shareholders Equity.
5,200,000 is used for shares outstanding.
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.
EPS calculations will be made based on "Diluted EPS" as defined by FASB.
In order to participate in the Incentive Compensation Plan, a person must
be an employee on both the 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 of January, 2000 and on December 31,
2000. 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 2000, 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 2000 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.
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 Annual Salaries:
Name Department Job Title** Plan Actual as Proposed
of 12/1/99 for 2000
Haddon, David Executive VP, Assistant to the
President A $87,444 $112,500
Wiland, Phillip Executive Chairman of
the Board A N/A $25,000
Wolfe, Mike Executive President A $210,000 $225,000
The incentive compensation plan is divided into Plans A, B and C. The
participants of these plans are defined as follows:
1. The Participants of Plan A consist of all Executive Officers of the
Company and all Officers who report directly to the President and/or CEO.
Individuals hired or promoted into positions eligible to participate in Plan
A subsequent to adoption of this plan by the Board of Directors shall become
members of Plan A, in accordance with all other rules associated with this
plan.
2. Annual Bonus Based on Companywide Return on Average Equity (ROAE) for
2000.
TOTAL
ROAE
THRESHOLD Annual Bonus As % of Annual Base ANNUAL
PLAN B
ROAE RANGE NET PROFIT PLAN A PLAN C ROAE Based Goal Based* BONUSES
100.00% up 20,500,000 60.00% 20.00% 10.00% 10.00% 597,940
85.00% to 99.99% 17,425,000 58.00% 19.75% 9.88% 9.88% 582,122
75.00% to 84.99% 15,375,000 56.00% 19.50% 9.75% 9.75% 566,304
65.00% to 74.99% 13,325,000 54.00% 19.00% 9.50% 9.50% 548,018
55.00% to 64.99% 11,275,000 52.00% 18.50% 9.25% 9.25% 529,732
45.00% to 54.99% 9,225,000 50.00% 18.00% 9.00% 9.00% 511,446
35.00% to 44.99% 7,175,000 45.00% 16.00% 8.00% 8.00% 458,327
25.00% to 34.99% 5,125,000 35.00% 12.00% 6.00% 6.00% 352,089
21.00% to 24.99% 4,305,000 25.00% 8.00% 4.00% 4.00% 245,851
16.00% to 20.99% 3,280,000 15.00% 5.00% 2.50% 2.50% 149,485
12.00% to 15.99% 2,460,000 5.00% 2.00% 1.00% 1.00% 53,119
8.00% to 11.99% 1,640,000 2.00% 0.50% 0.25% 0.25% 18,286
BELOW 8% 0.00% 0.00% 0.00% 0.00% 0
3. Quarterly Bonus Based on "Diluted EPS" as defined by FASB:
Qrtly Bonus As % of Annual Base Annual
PLAN A PLAN C PLAN B Group
EPS this Qtr. vs.
Prior Record Same Qtr. EPS Based EPS Based EPS Based Goal Based *Total**
EPS 300% or More of
Prior Record 25.0% 6.25% 3.13% 3.13% 914,300
EPS 250% - 299% of
Prior Record 24.0% 6.00% 3.00% 3.00% 877,728
EPS 225% - 249% of
Prior Record 23.0% 5.50% 2.75% 2.75% 831,284
EPS 200% - 224% of
Prior Record 22.0% 5.25% 2.63% 2.63% 794,712
EPS 176% - 199% of
Prior Record 18.0% 5.00% 2.50% 2.50% 678,040
EPS 150% - 175% of
Prior Record 14.0% 4.50% 2.25% 2.25% 551,496
EPS 140% - 149% of
Prior Record 12.0% 3.50% 1.75% 1.75% 458,608
EPS 130% - 139% of
Prior Record 10.0% 3.00% 1.50% 1.50% 385,464
EPS 121% -129% of
Prior Record 8.0% 2.25% 1.13% 1.13% 302,448
EPS 115% - 120% of
Prior Record 6.0% 2.00% 1.00% 1.00% 239,176
EPS 101% -114% of
Prior Record 4.0% 1.40% 0.70% 0.70% 162,083
EPS 90% - 100% of
Prior Record 2.5% 0.80% 0.40% 0.40% 98,340
EPS 80% - 89% of
Prior Record 2.0% 0.70% 0.35% 0.35% 81,042
EPS 60% - 79% of
Prior Record 1.5% 0.60% 0.30% 0.30% 63,743
EPS 40% - 59% of
Prior Record 1.0% 0.35% 0.18% 0.18% 40,521
EPS 10% - 39% of
Prior Record 0.5% 0.10% 0.05% 0.05% 17,299
EPS Less than 10% of
Prior Record 0.0% 0.00% 0.00% 0.00% 0
The following are the record earnings per share and the years in which each
was set; 1st QTR: $.15 (1997); 2nd Qtr: $.08 (1997): 3rd Qtr: $.09 (1994);
4th Qtr: $.38 (1996). (Note: a new fourth quarter record may be set in
1999.)
Exhibit 23 (a)
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
on Form S-8 pertaining to the 1998 Non-Employee Director Stock Option Plan,
the 1992 Non-Employee Director Stock Option Plan and 1992 Stock Option Plan
of Concepts Direct, Inc. of our report dated February 25, 2000, with respect
to the financial statements and schedule II of Concepts Direct, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31,
1999.
/s/ Ernst & Young
Denver, Colorado
March 30, 2000
