Odimo Announces Fourth Quarter and Fiscal Year 2005 Results and Receipt of Going Concern Qualification in Fiscal Year 2005 Audit Report
2 April 2006
Odimo Incorporated (Nasdaq: ODMO), an online retailer that offers high quality diamonds, fine jewelry, brand name watches and luxury goods through three websites ( http://www.diamond.com , http://www.ashford.com, and http://www.worldofwatches.com ), today announced financial results for the fourth quarter and fiscal year ended December 31, 2005.
The Company also announced that its independent registered public accountings firm's report on its financial statements for the fiscal year ended December 31, 2005 includes an explanatory paragraph regarding the Company's ability to continue as a going concern. The going concern qualification reflects the uncertainty that the Company will generate sufficient cash flows to meet its cash flow and working capital needs. The Company requires additional financing to continue its operations, meet its operational goals and to pursue its long term strategy. The Company is currently implementing strategies that include: (i) reducing costs, (ii) seeking equity and debt financing, and (iii) exploring the sale of the Company or certain assets. There is no assurance that the Company will be able to successfully implement any of these strategies. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As part of its strategy to reduce costs, the Company has converted its diamond sourcing strategy from a mix of an inventory and online model to a completely virtual online model and has entered into an agreement to terminate its Supply Agreement with SDG Marketing, Inc. In connection with this termination, the Company returned to SDG Marketing approximately $3.7 million of diamond inventory to satisfy a $3.7 million payable and $700,000 of diamond inventory as payment in kind to satisfy a $700,000 payable.
For The Three Months Ended December 31, 2005
* Net sales were $18.5 million, as compared to $21.5 million in the fourth quarter of fiscal 2004;
* Loss from operations was $13.9 million, which includes a $9.8 million non-cash charge for goodwill impairment, as compared to a $1.7 million loss from operations in the fourth quarter of fiscal 2004; and
* Net loss attributable to common stockholders was $13.9 million, or $(1.95) per share on 7,162,000 average shares, as compared to a net loss attributable to common stockholders of $3.4 million, or $(5.44) per share on 629,000 average shares in the fourth quarter of fiscal 2004.
Gross profit for the fourth quarter of fiscal 2005 was $4.4 million, 23.9% of net sales compared to $6.4 million, or 29.6% of net sales for the fourth quarter 2004. The decline in gross margin was primarily due to an increased proportion of sales of diamonds, which carry lower gross margin versus watches and luxury goods, as well as to higher promotional activity associated with the decision to discontinue offering brand name handbags.
Fulfillment expenses for the fourth quarter of fiscal 2005 were $1.3 million, or 7.3% of net sales as compared to $1.5 million, or 7.0% of net sales for the fourth quarter 2004. The increase in fulfillment expenses reflected higher shipping costs associated with diamonds and fine jewelry.
Marketing expenses for the fourth quarter of fiscal 2005 were $3.0 million, or 16.1% of net sales as compared to $2.8 million, or 13.2% of net sales in the fourth quarter of fiscal 2004. The higher marketing expense reflects significantly higher online advertising costs.
General and administrative expenses were $3.3 million, or 18.1% of net sales for the fourth quarter of fiscal 2005, as compared to $3.0 million, or 13.8% of net sales for the fourth quarter of fiscal 2004. This increase was primarily attributable to public company expenses, including legal and professional fees, coinciding with our initial public offering in the first quarter of 2005.
For the Fiscal Year Ended December 31, 2005
Net sales declined slightly to $51.8 million, as compared to $52.2 million in fiscal 2004. The number of orders for the year decreased 2.7% to 151,700, as compared to 155,840 in fiscal 2004. Average order value increased by 3.4% to $387 from $374 in fiscal 2004, which reflected increased sales of diamonds and jewelry in 2005, which have greater average order values than watches and luxury goods.
Gross profit was $12.5 million, or 24.2% of net sales compared to $15.1 million, or 28.9% of net sales in fiscal 2004. The decrease in gross profit as a percentage of net sales for the year was primarily the result of an increased proportion of net sales being derived from diamonds which have a lower gross margin than luxury goods, as well as increased promotions and offers on the Company's ashford.com website.
Total operating expenses were $36.0 million, or 69.3% of net sales compared to $27.0 million, or 52.3% of net sales in fiscal 2004. Total operating expenses included the following:
* Fulfillment expenses for fiscal 2005 were $3.6 million, or 7.0% of net sales, as compared to $3.5 million, or 6.7% of net sales in fiscal 2004. The increase in fulfillment expenses was due to the shift in mix toward diamonds and jewelry, which have higher shipping costs per order.
* Marketing expenses for fiscal 2005 were $7.6 million, or 14.7% of net sales, as compared to $6.6 million, or 12.7% of net sales in fiscal 2004. The increase in marketing expense for the year was driven by a significant rise in online advertising costs.
* General and administrative expenses were $11.3 million in fiscal 2005, or 21.9% of net sales, as compared to $14.1 million, or 27.1% of net sales in fiscal 2004. General and administrative expenses in fiscal 2004 include $4.7 million in stock-based compensation expense. Excluding this, general and administrative expenses as a percentage of net sales for the fiscal 2004 year would have been 18.1% of net sales. In fiscal 2005, the Company incurred higher levels of public company costs and professional fees, as well as insurance costs.
* Additionally, in fiscal 2005, the Company recorded a non-cash charge of $9.8 million for the impairment of goodwill.
Loss from operations was $23.4 million, inclusive of a $9.8 million non cash charge to record the impairment of goodwill, as compared to a loss from operations of $11.9 million, inclusive of a $4.7 million expense for stock based compensation.
Net loss attributable to common stockholders decreased to $24.3 million, or $(3.86) per share on 6,302,000 average shares, as compared to a net loss attributable to common stockholders of $27.9 million, or $(44.35) per share on 629,000 average shares in fiscal 2004.
Balance Sheet
At December 31, 2005, cash and cash equivalents were $3.8 million compared to $1.7 million at December 31, 2004. Inventories declined by $4.1 million to $10.2 million compared to $14.3 million at December 31, 2004. Capital expenditures for fiscal 2005 totaled $3.4 million compared to $3.7 million in fiscal 2004.
Other Fiscal 2005 Financial Highlights
* Diamond sales were 31% of gross sales in fiscal 2005, as compared to 27% of gross sales in fiscal 2004;
* Jewelry sales were 20% of gross sales, as compared to 17% of gross sales in 2004;
* Luxury goods sales were 11% of gross sales, as compared to 16% of gross sales in 2004;
* Watch sales were 38% of gross sales, as compared to 40% of gross sales in 2004
Forward-Looking Statements
All statements made in this release, other than statements of historical fact, are or will be forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "will," "would," "should," "guidance," "potential," "continue," "project," "forecast," "confident," "prospects," and similar expressions typically are used to identify forward-looking statements. Forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the business of Odimo and the industries and markets in which Odimo operates. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Factors which may affect Odimo's business, financial condition and operating results include the effects of the uncertainty of Odimo continuing as a going concern, changes in the economy, consumer spending, the financial markets, changes affecting the Internet and e-commerce, the ability of Odimo to develop and maintain relationships with suppliers, the ability of Odimo to timely and successfully develop, maintain and protect its technology, confidential information and product offerings and execute operationally and the ability of Odimo to attract and retain qualified personnel. More information about potential factors that could affect Odimo can be found in its reports and statements filed by Odimo with the SEC. Odimo expressly disclaims any intent or obligation to update these forward-looking statements, except as otherwise specifically stated by Odimo.
About Odimo
Odimo is an online retailer of current season high quality diamonds, fine jewelry, brand name watches and luxury goods. The Company operates three websites, http://www.diamond.com , http://www.ashford.com and http://www.worldofwatches.com and seeks to create long-term relationships with its customers by offering a broad selection of appealing merchandise. The Company's websites collectively showcase over 2,000 watch styles; a large assortment of luxury goods, such as designer handbags and fashion accessories, fragrances and sunglasses; more than 25,000 independently certified diamonds; and a wide range of precious and semi-precious jewelry. The Company sells brand name goods at discounts to suggested retail prices, and diamonds and fine jewelry at competitive prices. The Company features many of the branded items available in leading department and specialty stores, as well as diamonds certified by the Gemological Institute of America (GIA). Odimo is headquartered in Sunrise, Florida.
ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
December 31,
2005 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,831 $1,663
Deposits with credit card processing company 755 813
Accounts receivable 308 476
Inventories 10,244 14,321
Deposits with vendors -- 660
Prepaid expenses and other current assets 657 961
Total current assets 15,795 18,894
PROPERTY AND EQUIPMENT - net 6,927 5,320
GOODWILL -- 9,792
INTANGIBLE AND OTHER ASSETS - net 2,008 6,504
TOTAL $24,730 $40,510
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $7,883 $10,833
Accounts payable to related parties 3,329 5,691
Accrued liabilities 2,170 3,499
Bank credit facility -- 9,282
Total current liabilities 13,382 29,305
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value, 50,000
and 2,370 shares authorized, 0 and 2,370 shares
issued and outstanding at December 31, 2005 and
2004, respectively (liquidation value of $0 and
$139,271 at December 31, 2005 and 2004, respectively) -- 3
Common stock, $0.001 par value, 300,000 and 4,800
shares authorized at December 31, 2005 and December
31, 2004; 7,162 shares and 629 shares issued and
outstanding at December 31, 2005 and 2004 7 1
Additional paid-in capital 103,705 80,074
Accumulated deficit (92,364)(68,873)
Total stockholders' equity 11,348 11,205
TOTAL $24,730 $40,510
ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three months ended Year Ended
December December December December
31, 2005 31, 2004 31, 2005 31, 2004
NET SALES $18,474 $21,504 $51,841 $52,244
COST OF SALES 14,050 15,131 39,310 37,141
Gross profit 4,424 6,373 12,531 15,103
OPERATING EXPENSES:
Fulfillment 1,347 1,512 3,620 3,516
Marketing 2,968 2,845 7,625 6,629
General and administrative 3,337 2,962 11,343 14,140
Depreciation and amortization 910 764 3,576 2,749
Goodwill impairment charge 9,792 -- 9,792 --
Total operating expenses 18,354 8,083 35,956 27,034
LOSS FROM OPERATIONS (13,930) (1,710) (23,425) (11,931)
INTEREST INCOME (EXPENSE), Net (24) (162) (66) (585)
NET LOSS (13,954) (1,872) (23,491) (12,516)
DIVIDENDS TO PREFERRED
STOCKHOLDERS -- (1,550) (832) (15,378)
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(13,954) $(3,422) $(24,323) $(27,894)
Net loss per common share
attributable to common
stockholders:
Basic and diluted $(1.95) $(5.44) $(3.86) $(44.35)
Weighted average number of shares:
Basic and diluted 7,162 629 6,302 629
ODIMO INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Year Ended
December 31,
2005 2004
OPERATING ACTIVITIES:
Net loss $(23,491) $(12,516)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,576 2,749
Goodwill impairment charge 9,792 --
(Gain) loss on disposal of property and equipment -- (3)
Stock-based compensation -- 4,689
Amortization of supply agreement 144 84
Amortization of discount on stockholder notes -- 174
Changes in operating assets and liabilities:
(Increase) Decrease in operating assets:
Deposits with credit card processing company 58 (168)
Accounts receivable 169 (104)
Inventories 4,077 (8,315)
Deposits with vendors 660 (434)
Prepaid expenses and other current assets 304 (192)
Other assets -- (2,625)
Increase (Decrease) in operating liabilities:
Accounts payable (2,950) 2,909
Accounts payable to related parties (2,362) 4,636
Accrued liabilities (1,327) 180
Net cash (used in) provided by operating activities (11,350) (8,936)
INVESTING ACTIVITIES -
Purchase of property and equipment (3,387) (3,698)
FINANCING ACTIVITIES:
Proceeds from stockholder notes -- --
Payments on stockholder notes -- (2,870)
Net borrowings (repayments) under bank credit
facility (9,282) 9,282
Proceeds from issuance of convertible preferred
stock and warrants -- 2,750
Proceeds from exercise of warrants 1,349 --
Proceeds from issuance of common stock, net of
offering costs 24,838 --
Net cash provided by (used in) financing activities 16,905 9,162
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,168 (3,472)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,663 5,135
CASH AND CASH EQUIVALENTS, END OF YEAR $3,831 $1,663
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Interest paid $101 $372
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Offering costs recorded as other assets during 2004
reclassed and netted against IPO proceeds during 2005 $2,556 $--
Issuance of warrants to purchase convertible preferred
stock $-- $--
Exchange of stockholder notes (including accrued
interest of $211) for convertible preferred stock
and warrants $-- $2,996
Fair value of supply agreement $-- $433
Source: prnewswire
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