UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE QUARTERLY PERIOD ENDED JULY 3, 2004.
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE TRANSITION PERIOD FROM TO .
Commission File Number 0-16611
GSI COMMERCE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-2958132 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 1075 First Avenue, King of Prussia, PA | 19406 | |
| (Address of principal executive offices) | (Zip Code) | |
610-265-3229
(Registrant’s telephone number, including area code)
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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 2, 2004:
| Common Stock, $.01 par value |
41,039,535 | |
| (Title of each class) | (Number of Shares) |
FOR THE QUARTER ENDED JULY 3, 2004
TABLE OF CONTENTS
| Page | ||||
| Item 1. |
||||
| Condensed Consolidated Balance Sheets as of January 3, 2004 and July 3, 2004 (Unaudited) |
1 | |||
| 2 | ||||
| 3 | ||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
4 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 | ||
| Item 3. |
31 | |||
| Item 4. |
31 | |||
| Item 1. |
32 | |||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
32 | ||
| Item 3. |
32 | |||
| Item 4. |
33 | |||
| Item 5. |
33 | |||
| Item 6. |
33 | |||
| Item 7. |
33 | |||
| 34 | ||||
For all years prior to 1999, our fiscal year ended on December 31. Effective for 1999, we changed our fiscal year from the last day of December to the Saturday nearest the last day of December. Accordingly, references to fiscal 1999, fiscal 2000, fiscal 2001, fiscal 2002, fiscal 2003 and fiscal 2004 refer to the years ended January 1, 2000, December 30, 2000, December 29, 2001, December 28, 2002, January 3, 2004 and the year ending January 1, 2005.
Although we refer to the retailers, branded manufacturers, entertainment companies and professional sports organizations for which we develop and operate e-commerce businesses as our “partners,” we do not act as an agent or legal representative for any of our partners. We do not have the power or authority to legally bind any of our partners. Similarly, our partners do not have the power or authority to legally bind us. In addition, we do not have the types of liabilities for our partners that a general partner of a partnership would have.
Certain financial information is presented on a rounded basis, which may cause minor differences.
i
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
| January 3, 2004 |
July 3, 2004 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 57,558 | $ | 32,975 | ||||
| Marketable securities |
11,912 | 15,268 | ||||||
| Accounts receivable, net of allowance of $709 and $718, respectively |
4,898 | 7,283 | ||||||
| Inventory |
22,910 | 22,031 | ||||||
| Current portion – notes receivable |
1,377 | 900 | ||||||
| Prepaid expenses and other current assets |
1,848 | 1,502 | ||||||
| Total current assets |
100,503 | 79,959 | ||||||
| Property and equipment, net |
44,840 | 63,269 | ||||||
| Goodwill, net |
13,453 | 13,453 | ||||||
| Notes receivable |
2,356 | 1,293 | ||||||
| Other equity investments |
2,159 | 2,847 | ||||||
| Other assets, net of accumulated amortization of $2,644 and $3,352, respectively |
12,272 | 11,745 | ||||||
| Total assets |
$ | 175,583 | $ | 172,566 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 27,677 | $ | 22,215 | ||||
| Accrued expenses and other |
22,538 | 21,344 | ||||||
| Deferred revenue |
14,998 | 11,769 | ||||||
| Current portion – note payable |
— | 150 | ||||||
| Total current liabilities |
65,213 | 55,478 | ||||||
| Note payable |
— | 12,850 | ||||||
| Mandatorily redeemable preferred stock, Series A, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding as of January 3, 2004 and July 3, 2004, respectively |
— | — | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value, 4,990,000 shares authorized; 0 shares issued and outstanding as of January 3, 2004 and July 3, 2004, respectively |
— | — | ||||||
| Common stock, $0.01 par value, 90,000,000 shares authorized; 40,781,036 and 41,011,620 shares issued as of January 3, 2004 and July 3, 2004, respectively; 40,779,826 and 41,010,410 shares outstanding as of January 3, 2004 and July 3, 2004, respectively |
408 | 410 | ||||||
| Additional paid in capital |
287,571 | 288,708 | ||||||
| Accumulated other comprehensive loss |
— | (97 | ) | |||||
| Accumulated deficit |
(177,609 | ) | (184,783 | ) | ||||
| 110,370 | 104,238 | |||||||
| Less: Treasury stock, at par |
— | — | ||||||
| Total stockholders’ equity |
110,370 | 104,238 | ||||||
| Total liabilities and stockholders’ equity |
$ | 175,583 | $ | 172,566 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 28, 2003 |
July 3, 2004 |
June 28, 2003 |
July 3, 2004 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Net revenues from product sales |
$ | 45,722 | $ | 53,131 | $ | 89,895 | $ | 110,009 | ||||||||
| Service fee revenues |
4,626 | 11,558 | 9,332 | 20,948 | ||||||||||||
| Net revenues |
50,348 | 64,689 | 99,227 | 130,957 | ||||||||||||
| Cost of revenues from product sales |
33,307 | 39,564 | 65,160 | 81,072 | ||||||||||||
| Gross profit |
17,041 | 25,125 | 34,067 | 49,885 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing, exclusive of $279, $195, $508 and $689 reported below as stock-based compensation, respectively |
11,095 | 16,787 | 24,219 | 34,236 | ||||||||||||
| Product development, exclusive of $0, $(47), $0 and $2 reported below as stock-based compensation, respectively |
3,418 | 4,498 | 7,117 | 8,981 | ||||||||||||
| General and administrative, exclusive of $125, $5, $184 and $89 reported below as stock-based compensation, respectively |
3,457 | 4,375 | 6,538 | 8,295 | ||||||||||||
| Stock-based compensation |
404 | 153 | 692 | 780 | ||||||||||||
| Depreciation and amortization |
2,734 | 2,646 | 5,432 | 5,245 | ||||||||||||
| Total operating expenses |
21,108 | 28,459 | 43,998 | 57,537 | ||||||||||||
| Other (income) expense: |
||||||||||||||||
| Interest expense |
— | 54 | — | 54 | ||||||||||||
| Interest income |
(290 | ) | (242 | ) | (671 | ) | (532 | ) | ||||||||
| Total other (income) expense |
(290 | ) | (188 | ) | (671 | ) | (478 | ) | ||||||||
| Net loss |
$ | (3,777 | ) | $ | (3,146 | ) | $ | (9,260 | ) | $ | (7,174 | ) | ||||
| Losses per share—basic and diluted: |
||||||||||||||||
| Net loss |
$ | (0.10 | ) | $ | (0.08 | ) | $ | (0.24 | ) | $ | (0.18 | ) | ||||
| Weighted average shares outstanding—basic and diluted |
38,838 | 40,991 | 38,811 | 40,930 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
GSI COMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended |
||||||||
| June 28, 2003 |
July 3, 2004 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net loss |
$ | (9,260 | ) | $ | (7,174 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
5,432 | 5,245 | ||||||
| Stock-based compensation |
692 | 780 | ||||||
| Gain on exchange of note receivable |
— | (6 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
372 | (2,385 | ) | |||||
| Inventory |
4,029 | 879 | ||||||
| Prepaid expenses and other current assets |
(130 | ) | 346 | |||||
| Notes receivable |
(113 | ) | 32 | |||||
| Other assets, net |
— | (182 | ) | |||||
| Accounts payable and accrued expenses and other |
(26,690 | ) | (6,656 | ) | ||||
| Deferred revenue |
1,832 | (3,229 | ) | |||||
| Net cash used in operating activities |
(23,836 | ) | (12,350 | ) | ||||
| Cash Flows from Investing Activities: |
||||||||
| Acquisition of property and equipment, net |
(2,221 | ) | (23,658 | ) | ||||
| Payments received on notes receivable |
450 | 826 | ||||||
| Purchases of marketable securities |
(9,598 | ) | (6,058 | ) | ||||
| Sales of marketable securities |
9,625 | 2,605 | ||||||
| Sales of short-term investments |
891 | — | ||||||
| Net cash used in investing activities |
(853 | ) | (26,285 | ) | ||||
| Cash Flows from Financing Activities: |
||||||||
| Repayments of capital lease obligations |
(78 | ) | — | |||||
| Proceeds from mortgage note |
— | 13,000 | ||||||
| Proceeds from sales of common stock |
211 | — | ||||||
| Proceeds from exercises of common stock options |
102 | 1,052 | ||||||
| Net cash provided by financing activities |
235 | 14,052 | ||||||