SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to
Commission file number 000-23740
INNOTRAC CORPORATION
| Georgia | 58-1592285 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) | |
| 6655 Sugarloaf Parkway Duluth, Georgia | 30097 | |
| (Address of principal executive offices) | (Zip Code) | |
| Registrant’s telephone number, including area code: | (678) 584-4000 | |
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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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Outstanding at November 12, 2002 | |||
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| Common Stock at $.10 par value | 11,674,595 Shares |
INNOTRAC CORPORATION
INDEX
| Page | |||||||||||||
| Part I. Financial Information | |||||||||||||
| Item 1. | Financial Statements: |
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Condensed Consolidated Balance Sheets – September 30, 2002 and December 31, 2001 (Unaudited) |
3 | ||||||||||||
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and 2001 (Unaudited) |
4 | ||||||||||||
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and 2001 (Unaudited) |
5 | ||||||||||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (Unaudited) |
6 | ||||||||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
7 | ||||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | |||||||||||
| Item 3. | Quantitative and Qualitative Disclosure About Market Risks |
20 | |||||||||||
| Item 4. | Controls and Procedures |
20 | |||||||||||
| Part II. Other Information | |||||||||||||
| Item 6. | Exhibits and Reports on Form 8-K |
21 | |||||||||||
Signatures |
22 | ||||||||||||
Certifications |
23 | ||||||||||||
1
Part I – Financial Information
Item 1 – Financial Statements
The following condensed consolidated financial statements of Innotrac Corporation, a Georgia corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America. In the opinion of management, all adjustments are of a normal and recurring nature, except those specified otherwise, and include those necessary for a fair presentation of the financial information for the interim periods reported. Results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of the results for the entire year ending December 31, 2002. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2001 Annual Report on Form 10-K.
2
INNOTRAC CORPORATION
| September 30, 2002 | December 31, 2001 | ||||||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 198 | $ | 9,413 | |||||||
Accounts receivable, net |
16,677 | 13,662 | |||||||||
Inventories, net |
19,990 | 27,264 | |||||||||
Deferred income taxes |
— | 2,736 | |||||||||
Prepaid expenses and other |
1,854 | 5,018 | |||||||||
Total current assets |
38,719 | 58,093 | |||||||||
Property and equipment: |
|||||||||||
Rental equipment |
1,513 | 2,003 | |||||||||
Computer software and equipment |
25,398 | 19,715 | |||||||||
Furniture, fixtures and leasehold improvements |
4,394 | 4,005 | |||||||||
| 31,305 | 25,723 | ||||||||||
Less accumulated depreciation and amortization |
(12,116 | ) | (11,223 | ) | |||||||
| 19,189 | 14,500 | ||||||||||
Goodwill, net |
25,118 | 25,213 | |||||||||
Deferred income taxes |
9,040 | 438 | |||||||||
Intangibles,
net |
640 | 958 | |||||||||
Other assets |
497 | 191 | |||||||||
Total assets |
$ | 93,499 | $ | 99,393 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 9,220 | $ | 8,581 | |||||||
Line of credit |
13,407 | — | |||||||||
Accrued earn-out payment |
— | 15,275 | |||||||||
Accrued expenses and other |
8,365 | 11,861 | |||||||||
Total current liabilities |
30,992 | 35,717 | |||||||||
Total noncurrent liabilities |
2,276 | 393 | |||||||||
Total liabilities |
33,268 | 36,110 | |||||||||
Commitments and contingencies |
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Shareholders’ equity: |
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Common
stock, $.10 par value, 50,000,000 shares authorized, 11,674,595
shares issued and outstanding |
1,167 | 1,136 | |||||||||
Additional paid-in capital |
62,596 | 61,023 | |||||||||
Retained earnings (accumulated deficit) |
(2,829 | ) | 1,201 | ||||||||
Accumulated other comprehensive income |
— | 178 | |||||||||
Less: Treasury stock |
(703 | ) | (255 | ) | |||||||
Total shareholders’ equity |
60,231 | 63,283 | |||||||||
Total liabilities and shareholders’ equity |
$ | 93,499 | $ | 99,393 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Financial Statements-Continued
INNOTRAC CORPORATION
| Three Months Ended September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Revenues, net |
$ | 17,292 | $ | 22,406 | ||||||||
Reimbursable costs |
2,772 | 6,176 | ||||||||||
Total revenues |
20,064 | 28,582 | ||||||||||
Cost of revenues |
8,857 | 9,592 | ||||||||||
Reimbursable costs |
2,772 | 6,176 | ||||||||||
Total cost of revenues |
11,629 | 15,768 | ||||||||||
Gross margin |
8,435 | 12,814 | ||||||||||
Operating expenses: |
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Selling, general and administrative expenses |
12,422 | 9,712 | ||||||||||
Impairment
and special charges, net |
3,123 | — | ||||||||||
Depreciation and amortization |
1,352 | 1,162 | ||||||||||
Total operating expenses |
16,897 | 10,874 | ||||||||||
Operating income (loss) |
(8,462 | ) | 1,940 | |||||||||
Other expense (income), net |
66 | (126 | ) | |||||||||
Income (loss) before income taxes |
(8,528 | ) | 2,066 | |||||||||
Income tax provision (benefit) |
(3,220 | ) | 802 | |||||||||
Net income (loss) |
$ | (5,308 | ) | $ | 1,264 | |||||||
Earnings per share: |
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Basic |
$ | (0.46 | ) | $ | 0.11 | |||||||
Diluted |
$ | (0.46 | ) | $ | 0.11 | |||||||
Weighted average shares outstanding: |
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Basic |
11,506 | 11,319 | ||||||||||
Diluted |
11,506 | 11,828 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Financial Statements-Continued
INNOTRAC CORPORATION
| Nine Months Ended September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Revenues, net |
$ | 49,848 | $ | 73,352 | |||||||
Reimbursable costs |
10,616 | 21,804 | |||||||||
Total revenues |
60,464 | 95,156 | |||||||||
Cost of revenues |
23,028 | 33,182 | |||||||||
Reimbursable costs |
10,616 | 21,804 | |||||||||
Special charges |
(293 | ) | — | ||||||||
Total cost of revenues |
33,351 | 54,986 | |||||||||
Gross margin |
27,113 | 40,170 | |||||||||
Operating expenses: |
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Selling, general and administrative expenses |
27,760 | 33,722 | |||||||||
Impairment
and special charges, net |
1,802 | — | |||||||||
Depreciation and amortization |
3,841 | 3,550 | |||||||||
Total operating expenses |
33,403 | 37,272 | |||||||||
Operating income (loss) |
(6,290 | ) | 2,898 | ||||||||
Other expense (income), net |
110 | (537 | ) | ||||||||
Income (loss) before income taxes and minority interest |
(6,400 | ) | 3,435 | ||||||||
Income tax provision (benefit) |
(2,371 | ) | 1,507 | ||||||||
Net income (loss) before minority interest |
(4,029 | ) | 1,928 | ||||||||
Minority interest, net of income tax benefit |
— | 871 | |||||||||
Net income (loss) |
$ | (4,029 | ) | $ | 2,799 | ||||||
Earnings per share: |
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Basic |
$ | (0.35 | ) | $ | 0.25 | ||||||
Diluted |
$ | (0.35 | ) | $ | 0.24 | ||||||
Weighted average shares outstanding: |
|||||||||||
Basic |
11,548 | 11,319 | |||||||||
Diluted |
11,548 | 11,694 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Financial Statements-Continued
INNOTRAC CORPORATION
| Nine Months Ended September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Cash flows from operating activities: |
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Net income (loss) |
$ | (4,029 | ) | $ | 2,799 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
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Depreciation and amortization |
3,841 | 3,550 | |||||||||
Loss on disposal of fixed assets |
1,378 | 206 | |||||||||
Impairment of long-lived assets |
2,185 | — | |||||||||
Deferred income taxes |
(5,109 | ) | 458 | ||||||||
Minority interest in subsidiary |
— | (871 | ) | ||||||||
Amortization of deferred compensation |
54 | 100 | |||||||||
Changes
in operating assets and liabilities: |
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(Increase) decrease in accounts receivable |
(3,016 | ) | 9,024 | ||||||||
(Increase) decrease in inventories |
7,273 | (17,230 | ) | ||||||||
Decrease in prepaid expenses and other |
1,812 | 1,042 | |||||||||
Increase (decrease) in accounts payable and accrued expenses |
(1,061 | ) | 2,946 | ||||||||
Net cash provided by operating activities |
3,328 | 2,024 | |||||||||
Cash flows from investing activities: |
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Capital expenditures |
(11,592 | ) | (4,979 | ) | |||||||
Earn-out
payments |
(14,087 | ) | (6,057 | ) | |||||||
Sale of marketable securities |
435 | — | |||||||||
Net cash (used in) investing activities |
(25,244 | ) | (11,036 | ) | |||||||
Cash flows from financing activities: |
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Borrowings under line of credit |
13,407 | — | |||||||||
Repayment of capital lease obligations |
(208 | ) | (75 | ) | |||||||
Purchase of treasury stock |
(448 | ) | (46 | ) | |||||||
Loan fees paid |
(50 | ) | — | ||||||||
Net cash provided by (used in) financing activities |
12,701 | (121 | ) | ||||||||
Net decrease in cash and cash equivalents |
(9,215 | ) | (9,133 | ) | |||||||
Cash and cash equivalents, beginning of period |
9,413 | 18,334 | |||||||||
Cash and cash equivalents, end of period |
$ | 198 | $ | 9,201 | |||||||
Supplemental cash flow disclosures: |
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