INNOTRAC CORPORATION | ||
(Exact name of registrant as specified in its charter) |
Georgia | 58-1592285 | |||
(State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification Number) |
6465 East Johns Crossing, Johns Creek, Georgia | 30097 | |||
(Address of principal executive offices) | (Zip Code) |
Outstanding at August 13, 2013 | |
Common Stock $.10 par value per share (1) | 13,245,440 Shares (includes 910,637 restricted shares) |
Page | ||||
Part I. Financial Information | ||||
Item 1. | Financial Statements: | 2 | ||
Condensed Consolidated Balance Sheets at | ||||
June 30, 2013 (Unaudited) and December 31, 2012 | 3 | |||
Condensed Consolidated Statements of Operations for the | ||||
Three Months Ended June 30, 2013 and 2012 (Unaudited) | 4 | |||
Condensed Consolidated Statements of Operations for the | ||||
Six Months Ended June 30, 2013 and 2012 (Unaudited) | 5 | |||
Condensed Consolidated Statements of Cash Flows for the | ||||
Six Months Ended June 30, 2013 and 2012 (Unaudited) | 6 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 21 | ||
Item 4. | Controls and Procedures | 21 | ||
Part II. Other Information | ||||
Item 6. | Exhibits | 22 | ||
Signatures | 23 |
1 |
2 |
June 30, 2013 | December 31, 2012 | |||||||
ASSETS | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 4,382 | $ | 4,005 | ||||
Accounts receivable (net of allowance for doubtful accounts of $134 at June 30, 2013 and $136 at December 31, 2012) | 21,084 | 23,216 | ||||||
Inventories, net | 820 | 740 | ||||||
Prepaid expenses and other | 1,493 | 1,107 | ||||||
Total current assets | 27,779 | 29,068 | ||||||
Property and equipment: | ||||||||
Computers, machinery and equipment | 45,953 | 42,877 | ||||||
Furniture, fixtures and leasehold improvements | 10,319 | 10,055 | ||||||
56,272 | 52,932 | |||||||
Less accumulated depreciation and amortization | (40,994 | ) | (39,089 | ) | ||||
15,278 | 13,843 | |||||||
Other assets, net | 1,408 | 1,281 | ||||||
Total assets | $ | 44,465 | $ | 44,192 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 10,261 | $ | 10,409 | ||||
Line of credit | - | - | ||||||
Accrued salaries | 2,532 | 2,854 | ||||||
Equipment lease payable | 446 | 421 | ||||||
Accrued expenses and other | 3,594 | 3,088 | ||||||
Equipment loan | - | 1,620 | ||||||
Total current liabilities | 16,833 | 18,392 | ||||||
Noncurrent liabilities: | ||||||||
Deferred compensation | 908 | 837 | ||||||
Equipment lease payable | 389 | 544 | ||||||
Other noncurrent liabilities | 786 | 963 | ||||||
Total noncurrent liabilities | 2,083 | 2,344 | ||||||
Commitments and contingencies (see Note 5) | - | - | ||||||
Shareholders’ equity: | ||||||||
Preferred stock: 10,000,000 shares authorized, $0.10 par value, no shares issued or outstanding | - | - | ||||||
Common stock: 50,000,000 shares authorized, $0.10 par value, 13,245,440 shares issued and outstanding at June 30, 2013 13,155,440 shares issued and outstanding at December 31, 2012 | 1,325 | 1,316 | ||||||
Additional paid-in capital | 66,876 | 66,784 | ||||||
Accumulated other comprehensive loss | (2 | ) | (2 | ) | ||||
Accumulated deficit | (42,664 | ) | (44,656 | ) | ||||
Total Innotrac shareholders’ equity | 25,535 | 23,442 | ||||||
Noncontrolling interest | 14 | 14 | ||||||
Total shareholders’ equity | 25,549 | 23,456 | ||||||
Total liabilities and shareholders’ equity | $ | 44,465 | $ | 44,192 | ||||
3 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2013 and 2012
(in thousands, except per share amounts)
Three Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
(unaudited) | (unaudited) | |||||||
Service revenues | $ | 25,997 | $ | 20,449 | ||||
Freight revenues | 3,275 | 2,497 | ||||||
Total revenues | 29,272 | 22,946 | ||||||
Cost of service revenues | 12,831 | 9,624 | ||||||
Freight expense | 3,193 | 2,411 | ||||||
Selling, general and administrative expenses | 11,209 | 9,508 | ||||||
Depreciation and amortization | 955 | 891 | ||||||
Total operating expenses | 28,188 | 22,434 | ||||||
Operating income | 1,084 | 512 | ||||||
Other expense (income): | ||||||||
Interest expense | 77 | 69 | ||||||
Other (income) expense | (1 | ) | 3 | |||||
Total other expense | 76 | 72 | ||||||
Income before income taxes | 1,008 | 440 | ||||||
Income taxes | 30 | - | ||||||
Net income | 978 | 440 | ||||||
Net loss attributable to noncontrolling interest | - | 1 | ||||||
Net income attributable to Innotrac | $ | 978 | $ | 441 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.07 | $ | 0.03 | ||||
Diluted | $ | 0.07 | $ | 0.03 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 13,245 | 13,010 | ||||||
Diluted | 13,263 | 13,010 |
4 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2013 and 2012
(in thousands, except per share amounts)
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
(unaudited) | (unaudited) | |||||||
Service revenues | $ | 51,465 | $ | 41,769 | ||||
Freight revenues | 7,126 | 5,347 | ||||||
Total revenues | 58,591 | 47,116 | ||||||
Cost of service revenues | 25,448 | 19,958 | ||||||
Freight expense | 6,889 | 5,176 | ||||||
Selling, general and administrative expenses | 22,172 | 19,257 | ||||||
Depreciation and amortization | 1,905 | 1,716 | ||||||
Total operating expenses | 56,414 | 46,107 | ||||||
Operating income | 2,177 | 1,009 | ||||||
Other expense (income): | ||||||||
Interest expense | 155 | 122 | ||||||
Other expense | - | 2 | ||||||
Total other expense | 155 | 124 | ||||||
Income before income taxes | 2,022 | 885 | ||||||
Income taxes | 30 | - | ||||||
Net income | 1,992 | 885 | ||||||
Net loss attributable to noncontrolling interest | - | 1 | ||||||
Net income attributable to Innotrac | $ | 1,992 | $ | 886 | ||||
Earnings per share: | ||||||||
Basic | $ | 0.15 | $ | 0.07 | ||||
Diluted | $ | 0.15 | $ | 0.07 | ||||
Weighted average shares outstanding: | ||||||||
Basic | 13,175 | 13,020 | ||||||
Diluted | 13,188 | 13,020 |
5 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2013 and 2012
(in thousands)
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
(unaudited) | (unaudited) | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 1,992 | $ | 885 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,905 | 1,716 | ||||||
Provision for bad debts | (1 | ) | 5 | |||||
Stock compensation expense-restricted stock | 102 | 68 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, gross | 2,133 | 1,243 | ||||||
Inventory | (80 | ) | 138 | |||||
Prepaid expenses and other | (342 | ) | (294 | ) | ||||
Long-term assets | 41 | (68 | ) | |||||
Accounts payable | (1,503 | ) | (2,499 | ) | ||||
Accrued expenses, accrued salaries and other | 183 | 157 | ||||||
Long-term liabilities | (178 | ) | (105 | ) | ||||
Net cash provided by operating activities | 4,252 | 1,246 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (1,896 | ) | (3,753 | ) | ||||
Net change in noncurrent assets and liabilities | (9 | ) | - | |||||
Net cash used in investing activities | (1,905 | ) | (3,753 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings on equipment loan | - | 1,800 | ||||||
Payments on equipment loan | (1,620 | ) | - | |||||
Capital lease payments | (219 | ) | (216 | ) | ||||
Loan commitment fees | (131 | ) | (37 | ) | ||||
Net cash (used in) provided by financing activities | (1,970 | ) | 1,547 | |||||
Net increase (decrease) in cash and cash equivalents | 377 | (960 | ) | |||||
Cash and cash equivalents, beginning of period | 4,005 | 3,283 | ||||||
Cash and cash equivalents, end of period | $ | 4,382 | $ | 2,323 | ||||
Supplemental cash flow disclosures: | ||||||||
Cash paid for interest | $ | 123 | $ | 83 | ||||
Non-cash investing and financing activities: | ||||||||
Capital lease for warehouse and computer equipment | $ | 89 | $ | 862 | ||||
Capital expenditures in accounts payable | $ | 1,355 | $ | 216 |
6 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013 and 2012
(Unaudited)
1. | THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES |
7 |
Fair Value Measurements. The Company accounts for fair value in accordance with ASC topic No. 820-Fair Value Measurements and Disclosuresfor all financial and non-financial assets and liabilities accounted for at fair value on a recurring basis. ASC topic No. 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements.
The Company determined the fair values of certain financial instruments based on the fair value hierarchy established in ASC topic No. 820. ASC topic No. 820 requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the market participants would use.
ASC topic No. 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The carrying value of our cash, accounts receivable, accounts payable and other debt instruments approximates fair value since our debt instrument consists of a revolving credit line, which under certain conditions can mature within one year of June 30, 2013, and because of its short term nature. The interest rate is equal to the market rate for such instruments of similar duration and credit quality.
8 |
The Company’s assets measured at fair market value on a recurring basis are as follows:
As of June 30, 2013 | ||||||||||||||||
Fair Value Measurements Using (in 000’s) | ||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Deferred Compensation plan assets held in Rabbi Trust (1) | $ | 908 | $ | — | $ | — | $ | 908 | ||||||||
Total | $ | 908 | $ | — | $ | — | $ | 908 | ||||||||
As of December 31, 2012 | ||||||||||||||||
Fair Value Measurements Using (in 000’s) | ||||||||||||||||
Description | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Deferred Compensation plan assets held in Rabbi Trust (1) | $ | 837 | $ | — | $ | — | $ | 837 | ||||||||
Total | $ | 837 | $ | — | $ | — | $ | 837 | ||||||||
(1) This is an executive deferred compensation plan for certain employees, as designated by the Company’s Board of Directors. The Company invests contributions to this plan in employee-directed marketable equity securities which are recorded in other assets on the accompanying consolidated balance sheets at quoted market prices. The contributions are fully invested in five different mutual funds having various growth, industry and geographic characteristics.
There were no significant transfers into and out of any level of the fair value hierarchy for assets measured at fair value for the three months ended June 30, 2013 or the year ended December 31, 2012.
All transfers, if any, are recognized by the Company at the end of each reporting period.
Transfers between Levels 1 and 2 generally relate to whether a market becomes active or inactive. Transfers between Levels 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurement in their entirety.
9 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013 and 2012
(Unaudited)
2. | FINANCING OBLIGATIONS |
10 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013 and 2012
(Unaudited)
3. | EARNINGS PER SHARE |
Three Months | Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Diluted earnings per share: | ||||||||||||||||
Weighted average shares outstanding | 13,245 | 13,010 | 13,175 | 13,020 | ||||||||||||
Employee and director stock options | 18 | - | 13 | - | ||||||||||||
Weighted average shares assuming dilution | 13,263 | 13,010 | 13,188 | 13,020 |
11 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013 and 2012
(Unaudited)
4. | INCOME TAXES |
12 |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013 and 2012
(Unaudited)
5. | COMMITMENTS AND CONTINGENCIES |
6. | RELATED PARTY TRANSACTION |
13 |
● | sophisticated warehouse management technology |
14 |
● | integration to leading ERP and Web Platforms |
● | automated shipping solutions with freight optimization |
● | real-time inventory tracking and order status |
● | purchasing and inventory management |
● | channel development |
● | zone skipping and freight optimization modeling for shipment cost reduction |
● | packaging solutions |
● | back-order management |
● | returns management |
● | kitting, lot tracking and gift wrapping |
● | inventory optimization |
● | continuity and drop ship management |
● | eCommerce consulting and integration |
● | inbound customer support services |
● | seamless order and payment processing |
● | technical support and order status |
● | returns and refunds processing |
● | call center integrated into fulfillment platform |
● | cross-sell/up-sell services |
● | collaborative chat |
● | e-mail response |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Business Line/Vertical | 2013 | 2012 | 2013 | 2012 | ||||||||||||
eCommerce / Direct to Consumer | 81.7 | % | 74.1 | % | 80.2 | % | 71.8 | % | ||||||||
Direct Marketing | 9.8 | 15.2 | 11.2 | 17.1 | ||||||||||||
Telecommunications products | 5.9 | 8.6 | 6.2 | 8.9 | ||||||||||||
Business-to-Business (“B2B”) | 2.6 | 2.1 | 2.4 | 2.2 | ||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
15 |
(in millions) | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Service Revenues | $ | 26.0 | $ | 20.4 | $ | 51.5 | $ | 41.8 | ||||||||
Cost of Service Revenues | 12.8 | 9.6 | 25.4 | 20.0 | ||||||||||||
Service Gross Profit | $ | 13.2 | $ | 10.8 | $ | 26.0 | $ | 21.8 | ||||||||
Service Gross Margin | 50.6 | % | 52.9 | % | 50.6 | % | 52.2 | % |
16 |
(in millions) | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Freight Revenue | $ | 3.3 | $ | 2.5 | $ | 7.1 | $ | 5.4 | ||||||||
Freight Expenses | 3.2 | 2.4 | 6.9 | 5.2 | ||||||||||||
Freight Gross Profit | $ | 0.1 | $ | 0.1 | $ | 0.2 | $ | 0.2 | ||||||||
Freight Gross Margin | 2.5 | % | 3.4 | % | 3.3 | % | 3.2 | % |
(in millions) | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
SG&A | $ | 11.2 | $ | 9.5 | $ | 22.2 | $ | 19.3 | ||||||||
SG&A as a % of Revenue | 38.3 | % | 41.4 | % | 37.8 | % | 40.9 | % |
17 |
18 |
19 |
20 |
21 |
101* | The following financial information from Innotrac Corporation’s Quarterly Report on Form 10-Q for the Quarterly Period ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012, (iii) Consolidated Statements of Cash Flows for the three and six months ended June 30, 2013 and 2012 and (iv) the Notes to Consolidated Financial Statements |
22 |
INNOTRAC CORPORATION | |||||
(Registrant) | |||||
Date: | August 13, 2013 | By: | /s/ Scott D. Dorfman | ||
Scott D. Dorfman | |||||
President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) | |||||
Date: | August 13, 2013 | By: | /s/ Stephen G. Keaveney | ||
Stephen G. Keaveney | |||||
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |