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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 000-23741
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 No.)
6655 SUGARLOAF PARKWAY, DULUTH, GEORGIA 30097
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (678) 584-4000
Securities registered pursuant to Section 12(b) of the Act: None.
Name of each exchange on which registered: The Nasdaq National Market.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par
Value $.10 Per Share.
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 checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes | | No |X|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 nonaffiliates
(which for purposes hereof are all holders other than directors, executive
officers and holders of 10% or more of the Registrant's outstanding Common
Stock) of the Registrant as of June 30, 2003, the last business day of the
Registrant's most recently completed second fiscal quarter was $23,214,338 based
on the closing sale price of the Common Stock as reported by the Nasdaq National
Market on such date. See Item 12.
At February 29, 2004, there were 11,754,780 shares of Common Stock, par
value $0.10 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2003 Annual Report to Shareholders, filed as
an exhibit hereto, are incorporated by reference into Part II of this Annual
Report on Form 10-K for the year ended December 31, 2003 (the "Report").
Portions of the Registrant's Proxy Statement for the 2004 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission (the
"Commission" or the "SEC"), are incorporated by reference into Part III of this
Report.
INNOTRAC CORPORATION
TABLE OF CONTENTS
PAGE
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PART I ................................................................... 2
ITEM 1. BUSINESS ................................................ 2
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS .... 8
EXECUTIVE OFFICERS OF REGISTRANT ........................ 13
ITEM 2. PROPERTIES .............................................. 14
ITEM 3. LEGAL PROCEEDINGS ....................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..... 15
PART II .................................................................. 15
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS ..................................... 15
ITEM 6. SELECTED FINANCIAL DATA ................................. 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................... 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK .................................................... 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............. 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ..................... 17
ITEM 9A. CONTROLS AND PROCEDURES ................................. 17
PART III ................................................................. 18
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...... 18
ITEM 11. EXECUTIVE COMPENSATION .................................. 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS .............. 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......... 19
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES .................. 19
PART IV .................................................................. 20
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K ................................................ 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO
SCHEDULES ............................................... S-1
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ......... S-2
PART I
ITEM 1. BUSINESS
Innotrac Corporation ("Innotrac" or the "Company"), founded in 1984 and
headquartered in Atlanta, Georgia, provides order processing, order fulfillment
and call center services to large corporations that outsource these functions.
In order to perform call center and fulfillment functions in-house, a company
may be required to develop expensive, labor-intensive infrastructures, which may
divert its resources and management's focus from its principal or core business.
By assuming responsibility for these tasks, Innotrac strives to improve the
quality of the non-core operations of our clients and to reduce their overall
operating costs.
Innotrac receives most of their clients' orders either through inbound call
center services, electronic data interchange ("EDI") or the internet. On a same
day basis, depending on product availability, the Company picks, packs, verifies
and ships the item, tracks inventory levels through an automated, integrated
perpetual inventory system, warehouses data and handles customer support
inquiries.
Innotrac's core competencies include:
- Fulfillment Services:
- sophisticated warehouse management technology
- automated shipping solutions
- real-time inventory tracking and order status
- purchasing and inventory management
- channel development
- zone skipping for shipment cost reduction
- product sourcing and procurement
- packaging solutions
- back-order management
- returns management
- Customer Support Services:
- inbound call center services
- technical support and order status
- returns and refunds processing
- call centers integrated into fulfillment platform
- cross-sell/up-sell services
- collaborative chat
- intuitive e-mail response
The Company is a major provider of fulfillment and customer support services to
the telecommunications industry. In spite of a significant contraction and
consolidation in this industry in the past several years, the Company continues
to provide customer support services and fulfillment of consumer telephones and
wireless pager equipment ("Telecommunications products") and Digital Subscriber
Line and Cable Modems ("Modems") for clients such as BellSouth Corporation
("BellSouth"), Qwest Communications International, Inc. ("Qwest") and Comcast
Corporation ("Comcast") and their customers.
The Company also provides a variety of these services for a significant number
of retail, catalog and direct marketing companies such as The Coca-Cola Company,
Ann Taylor Retail, Inc., Smith & Hawken, Ltd., Tactica International, Inc.,
Porsche Cars North America, Inc., Nordstrom.com LLC, Wilsons Leather Direct,
Inc., Martha Stewart Living Omnimedia, Inc., and Thane International. We take
orders for our
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retail, catalog and direct marketing clients via the internet, through a
customer service representative at our Pueblo and Reno call centers or through
direct electronic transmission from our clients. These orders are processed
through one of our order management systems and then transmitted to one of our
seven fulfillment centers located across the country and are shipped to the end
consumer or retail store location, as applicable, typically within 24 hours of
when the order is received. Inventory is held on a consignment basis, with minor
exceptions, and includes items such as shoes, clothing, accessories, books and
outdoor furniture.
The Company also provides these services for business-to-business ("B2B")
clients including Books are Fun, Ltd. (a subsidiary of Readers' Digest), NAPA
and The Walt Disney Company.
The following table sets forth the percentage of revenues generated by the
Company's various business lines during 2003 and 2002:
2003 2002
Telecommunications products 23.0% 26.5%
Modems 19.4 19.3
Retail/Catalog 27.4 20.2
Direct Marketing 18.0 27.0
B2B 12.2 7.0
----- -----
100.0% 100.0%
===== =====
In order to reduce our industry and client concentration and to expand our
national presence, in December 2000, we acquired Universal Distribution Services
("UDS"). Our UDS division provides integrated order processing, order
management, fulfillment and customer relationship management services. UDS's
customer base comprises traditional direct marketing companies including Thane
International and Tactica International, Inc. It is located in a 275,000 square
foot facility in Reno, Nevada. During 2001, we expanded UDS's business by taking
advantage of our East Coast capabilities. Under the terms of Innotrac's merger
agreement with UDS, the former shareholders of UDS could receive, as part of the
consideration paid for their shares, annual contingent payments based on the
operating income generated by our UDS division over a three-year period that
commenced December 1, 2000. For the first year of the earn-out period, UDS's
stockholders received approximately $13.7 million in cash and 310,000 shares of
our common stock pursuant to this arrangement. No earnout amounts were earned in
the second and third years.
In July 2001, to further our strategy to diversify our industry and client
concentration, we acquired iFulfillment, Inc. ("iFulfillment"). Our iFulfillment
subsidiary specializes in fully integrated, automated, order fulfillment
services for multi-channel retailers and catalogers including such clients as
Nordstrom.com LLC, Wilsons Leather Direct, Inc. and Martha Stewart Living
Omnimedia, Inc. It is located in a 354,000 square foot leased facility in
Bolingbrook, Illinois. Due to the addition of a sizable new client in September
2002, we leased an additional 150,204 square feet in a nearby facility, which
was expanded by 54,103 square feet in April 2003. This new facility has
expansion space of an additional 51,254 square feet that we have an option to
lease in the future. There are no immediate plans to exercise that option.
In August 2002 we leased a 396,000 square foot fulfillment center near
Cincinnati, in Hebron, Kentucky. This facility provides fulfillment for Smith &
Hawken, Ltd. Capital expenditures associated with this facility were
approximately $4.6 million and were funded through our bank line of credit.
With our national footprint virtually complete, we are committed to deeper
penetration within our existing business lines and continued diversification of
our client base. Our long-term goal is to have our business mix spread evenly
across a higher number of clients in diverse industries. We will continue to
seek new clients and may open additional facilities in other geographic
locations to service these needs.
3
FULFILLMENT SERVICES
Providing effective turnkey fulfillment solutions for our clients' products is
our primary business. Our capabilities in this area are described below:
FULFILLMENT. We are committed to delivering our clients' products to their
customers on a timely and accurate basis. Our personnel pick, pack, verify and
ship product orders and requests for promotional, technical and educational
literature, shoes, clothing, electronic equipment, accessories, books and
outdoor furniture for our clients. We use several custom-designed,
semi-automated packaging and labeling lines to pack and ship products as well as
highly automated, conveyorized systems utilizing RF scanning and pick-to-light
technologies. By utilizing these technologies, we are able to reduce labor costs
and provide more timely shipments to our clients' customers. We streamline and
customize the fulfillment procedures for each client based upon the client
request and the tracking, reporting and inventory controls necessary to
implement that client's marketing support program. We also offer comprehensive
product return services whereby our personnel receive, log, test, repackage and
dispose of products that are returned from end-users.
Our Atlanta operations earned ISO 9001:2000 certification in 2002 and our
Hebron, Kentucky operations earned ISO 9001:2000 certification in 2003. We are
dedicated to providing quality service to our clients at every step in the
fulfillment process. To ensure order accuracy, shipment inspection and system
driven validation are performed to prove the contents exactly match the order
prior to shipment. In addition, we have highly sensitive scales at the end of
our packaging lines that also assist in ensuring the accuracy of every order.
Our 2003 order accuracy rate exceeded 99.5%.
INVENTORY MANAGEMENT. An integral part of our fulfillment services is the
monitoring and control of a client's inventory. We provide automated inventory
management and reporting to assure real-time stock counts of a client's
products, literature and other items. Our inventory systems enable us to provide
management information to maintain consistent and timely reorder levels and
supply capabilities and also enable the client to quickly assess stock balances,
pricing information, reorder levels and inventory values. We offer this
information to the client on a real-time basis through our internet gateway or
direct system integration. Inventory management data is also utilized in our
reporting services. We utilize bar coding equipment in our inventory management
systems, which improves the efficiency of stock management and selection. We
also perform cycle counts throughout the year to check system-maintained item
balances against physical item balances. Our facilities have several layers of
security. When necessary, we dispose of clients' products utilizing established
guidelines. Disposal procedures vary depending on the product and client
business rules.
PURCHASING MANAGEMENT. For certain clients, we place orders for products we
fulfill with vendors chosen by those clients. Our purchasing management services
include assisting a client in negotiating product pricing with the vendor,
arranging returns and credits as well as forecasting product quantities required
for normal business programs or promotions.
PRODUCT CONSIGNMENT AND WAREHOUSING. For substantially all of our clients, we
warehouse products on a consignment basis and fulfill orders on behalf of our
customers for a fee. In certain cases (primarily BellSouth), we may purchase and
own inventory, but on a significantly reduced risk basis as a result of client
guarantees and contractual indemnifications.
CUSTOMER SUPPORT SERVICES. Another of our core competencies is providing
customer support services. We believe these services are critical to a
comprehensive order processing and order fulfillment solution. Our customer
support services are described below.
INBOUND CALL CENTER SERVICES. Our customer service representatives take orders
for certain clients and resolve questions regarding shipping, billing and order
status as well as a variety of other questions. From time to time they may sell
equipment, other products and telephone company services to customers who call
us. To properly handle the call, Innotrac's automated call distributor
identifies each inbound call by the toll-free number dialed and immediately
routes the call to the interactive voice response ("IVR") system
4
or an Innotrac customer service representative. If the caller is placing an
order they are immediately transmitted to a customer service representative
trained to take the order and enter it into our systems for transmittal to the
appropriate fulfillment center. If the customer has a question, complaint or
needs return information, the IVR system attempts to resolve these issues by
guiding the customer through a series of interactive questions. If IVR automatic
resolution cannot solve the problem, the call is routed to one of our customer
service representatives who are specially trained in the applicable client's
business and products and answer using the client's name. Our customer service
representatives can enter customer information into our call-tracking system,
listen to a question and quickly access a proprietary network database using a
graphical interface to answer a customer's question. A senior representative is
available to provide additional assistance for complex or unique customer
questions. Customer service representatives are also trained to handle
introductory level technical support issues. Customer requests are generally
resolved with a single call, whether answered by a trained representative or our
automated systems.
RETURNS AND REFUNDS PROCESSING. The representatives respond to customer calls
about product returns and refunds and obtain information about customer service
problems. They facilitate a customer's return of a product by providing a
bar-coded label to the customer. When the returned item is processed and entered
into our system, it automatically triggers a pre-set action for reshipment of a
product or refund to the customer.
TECHNOLOGY
Our use of technology enables us to design and deliver services for each
client's fulfillment and customer support needs. Our information technology
group, or IT Group, has developed our database marketing support and management
systems. Innotrac has a technical integration platform written in Java over an
Oracle database, which contains a complete web interface and XML-based APIs that
allows clients to transact with us electronically. We deploy the solution
running on Sun Solaris and utilizing Veritas cluster server software, which
provides a high availability computing environment. Veritas backup software, DLT
tape libraries and Oracle Hot backup capabilities allow us to backup our
production Oracle databases online without interruption to the business unit.
Our burstable bandwidth allows us to quickly increase data capacity. Our EMC
storage solutions provide rapid access to data and the ability to scale quickly
depending on business demands. Network connectivity is achieved with Cisco
routers and local directors.
The open architecture of our computer system permits us to seamlessly interact
with many different types of client systems. Our IT Group uses this platform to
design and implement application software for each client's program, allowing
clients to review their programs' progress on-line to obtain real-time
comprehensive trend analysis, inventory levels and order status and to instantly
alter certain program parameters. As the needs of a client evolve, our IT Group
works with our client services team to modify the program on an ongoing basis.
Information can be exchanged via direct system integration, EDI, internet access
and direct-dial applications. We believe that our technology platform provides
us with the resources to continue to offer leading edge services to current and
new clients and to integrate our systems with theirs. We believe that the
integrity of client information is adequately protected by our data security
system and our off-site disaster back-up facilities.
We utilize two primary warehouse management systems depending on our business
line and our locations. In 2002, we completed the implementation of PKMS for
clients at our Pueblo, Atlanta and Chicago-Romeoville warehouses. PKMS is an
advanced fulfillment warehouse management system designed to support large
volumes of transactions and users, which enable the effective management of high
levels of throughput, from receiving through shipping. PKMS provides
efficiencies in inventory management, outbound distribution and task management.
Our Chicago-Bolingbrook and Cincinnati-Hebron facilities utilize an Optum
warehouse management system, which is a highly configurable fulfillment solution
for fast-moving, high volume, piece-pick operations suitable for our
multi-channel retailers and catalogers. Our Reno facility utilizes an internally
developed system, described below, suitable for its direct marketing customer
base. We believe that these systems allow us to effectively and efficiently
manage our warehouse operations to secure a competitive advantage in the
fulfillment industry.
5
As part of our UDS acquisition in December 2000 we acquired their
internally-developed, customized order management system ("OMS") that is fully
integrated with a customized warehouse management solution and includes
front-end customer relationship management ("CRM") capabilities. In addition to
existing Reno clients, in 2002, we added Martha Stewart Living Omnimedia and
Smith & Hawken to that system. As part of the migration of those two new clients
onto the system we added the requisite functionality and customization. The
customized nature of the system required significant resources to properly scale
the system to meet our clients' needs and resulted in a considerable increase in
IT costs in 2002. These costs returned to normalized levels in 2003.
Our Pueblo call center utilizes the Rockwell Spectrum Automatic Call
Distributor, or ACD, switch to handle call management functions. The ACD system
has the capacity to handle approximately 1,200 call center representatives and
as of December 31, 2003 was supporting approximately 252 representatives.
Additionally, the ACD system is integrated with software designed to enable
management to staff and supervise the call center based on call length and call
volume data compiled by the ACD system. Our call center in Reno employs an
Aspect ACD Enterprise System switch and is currently supporting approximately 50
representatives. Our integrated systems allow the customer service
representatives to enter orders received via telephone into their computer which
transmits the data over T1 lines to one of our seven fulfillment centers' order
management systems where it is processed. Shortly thereafter the product is
picked, packed, verified and shipped to the customer.
PERSONNEL AND TRAINING
Our success in recruiting, hiring and training large numbers of employees and
obtaining large numbers of hourly employees during peak periods for fulfillment
and call center operations is critical to our ability to provide high quality
fulfillment and customer support services. Call center representatives and
fulfillment personnel receive feedback on their performance on a regular basis
and, as appropriate, are recognized for superior performance. Additional
training is provided to all fulfillment center employees quarterly and to our
call center representatives on an as-needed basis. To maintain good employee
relations and to minimize employee turnover, we offer competitive pay and hire
primarily full-time employees who are eligible to receive a full range of
employee benefits.
As of March 1, 2004, we had over 800 full time employees supported by part time
staff on an as-needed basis. Management believes that the demographics
surrounding our facilities and our reputation, stability, compensation and
benefit plans should allow us to continue to attract and retain qualified
employees. Currently, we are not a party to any collective bargaining
agreements. None of our employees are unionized.
COMPETITION
In tailoring services to client needs, we compete on the basis of quality,
reliability of service, scope of locations, efficiency, technical capabilities,
speed and price. We compete with many companies, some of which have greater
resources than us, with respect to various portions of our business. Those
companies include fulfillment businesses and call center operations. We believe
that our comprehensive and integrated services differentiate us from many of
those competitors. We continuously explore new outsourcing service
opportunities, typically in circumstances where clients are experiencing
inefficiencies in non-core areas of their businesses and management believes we
can develop a superior outsourced solution on a cost-effective basis. We
primarily compete with the in-house operations of our current and potential
clients and also compete with certain companies that provide similar services on
an outsourced basis.
GOVERNMENT REGULATION
The Caller ID services offered by our telecommunications clients are subject to
various federal and state regulations. The legality of Caller ID has been
challenged in cases decided under the Electronic Communications Privacy Act, or
the ECPA, and several state statutes. In March 1994, a Federal Communications
Commission, or FCC, report preempted certain state regulation of interstate
calling party number parameter, or CPN, based services, the technology
underlying Caller ID. This report requires
6
certain common carriers to transmit CPN and its associated privacy indicator
(which allows telephone callers to block the display of their phone numbers on
Caller ID display units) on an interstate call to connecting carriers without
charge (the "Free Passage" rule). In connection with this report, the Department
of Justice issued a memorandum which concluded that the installation or use of
interstate Caller ID service is not prohibited by any federal wiretap statute
and that, in general, the FCC has authority to preempt state laws that the FCC
finds would hinder federal communications policy on Caller ID services. Court
decisions since the FCC issued its March 1994 report have consistently held that
Caller ID does not violate any state or federal wiretap statute.
In May 1995, the FCC narrowed its March 1994 preemption of state public
utilities blocking regulations by permitting subscribers to choose per-line
blocking or per-call blocking on interstate calls, provided that all carriers
were required to adopt a uniform method of overriding blocking on any particular
call. At the same time, the FCC specifically preempted a California Public
Utilities Commission, or CPUC, per-line blocking default policy, which required
that all emergency service organizations and subscribers with nonpublished
numbers, who failed to communicate their choice between per-call blocking and
per-line blocking, be served with per-line blocking.
The FCC's revised rules and regulations also require carriers to explain to
their subscribers that their telephone numbers may be transmitted to the called
party and that there is a privacy mechanism (i.e., the "blocking" feature)
available on interstate calls, and explain how the mechanism can be activated.
The CPUC, seeking to protect the caller's privacy, has ruled that a carrier can
offer Caller ID or transmit CPN to interconnecting carriers only upon CPUC
approval of its customer notification and education plan.
The Telecommunications Act of 1996 introduced restrictions on telecommunications
carriers' usage of customer proprietary network information, or CPNI. CPNI
includes information that is personal to customers, including where, when and to
whom a customer places a call, as well as the types of telecommunications
services to which the customer subscribes and the extent these services are
used. The FCC interprets the CPNI restrictions to permit telecommunications
carriers, including BellSouth and Qwest, to use CPNI without customer approval
to market services that are related to the customer's existing service
relationship with his or her carrier. Before carriers may use CPNI to market
services outside a customer's existing service relationships, the carrier must
obtain express customer permission. Because we are dependent upon the efforts of
our clients to promote and market their equipment and services, laws and
regulations inhibiting those clients' ability to market these equipment and
services to their existing customers could have a material adverse effect on our
business, results of operations and financial condition.
Telephone sales practices are regulated at both the federal and state level.
These regulations primarily relate to outbound teleservices, which, in most
cases, we outsource to another company. The few cases where Innotrac does
conduct outbound teleservices are related solely to the support of our clients
with catalog sales programs, and thus are exempt from the regulations most
commonly associated with outbound teleservices. Outbound teleservices are
regulated by the rules of the FCC under the Federal Telephone Consumer
Protection Act of 1991, the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 as amended and various state regulations regarding
telephone solicitations. We believe that we are in compliance with these federal
statutes and the FCC rules thereunder and the various state regulations and that
we would operate in compliance with those rules and regulations if we were to
engage in outbound teleservice operations in the future.
We work closely with our clients, companies we outsource outbound teleservices
to and their respective advisors to ensure that we and our client are in
compliance with these regulations. We cannot predict whether the status of the
regulation of Caller ID services or e-commerce will change and what affect, if
any, this change would have on us or our industry.
7
INTELLECTUAL PROPERTY
We have used the service mark "Innotrac" since 1985 and have registered it and
other marks used by us in our business through the US Patent and Trademark
Office. The "innotrac.com" domain name has been a registered domain name since
1995. We also own several other internet domain names. Due to the possible use
of identical or phonetically similar service marks by other companies in
different businesses, there can be no assurance that our service marks will not
be challenged by other users. Our operations frequently incorporate proprietary
and confidential information. We rely upon a combination of contract provisions
and trade secret laws to protect the proprietary technology we use and to deter
misappropriation of our proprietary rights and trade secrets.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995).
These statements concern the Company's operations, performance and financial
condition, including, in particular, the likelihood that Innotrac will succeed
in developing and expanding its business, among other things. They are based
upon a number of assumptions and estimates that are inherently subject to
significant uncertainties. Many of these uncertainties are beyond Innotrac's
control. Consequently, actual results may differ materially from those expressed
or implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those set forth
below.
WE RELY ON A SMALL NUMBER OF LARGE CLIENTS. IF WE LOSE ONE OR MORE OF OUR
LARGEST CLIENTS, OR IF REVENUES FROM OUR LARGEST CLIENTS DECLINE, OUR BUSINESS
COULD BE ADVERSELY AFFECTED.
Innotrac focuses on developing long-term contractual relationships with large
corporations. A relatively small number of our clients account for a significant
portion of our revenues. If we lose one or more of our largest clients, or if
revenues from our largest clients decline, then our business, results of
operations and financial condition could be materially adversely affected.
Additionally, if one of these large clients is lost, or revenues from our
largest clients decline, we cannot assure you that we will be able to replace or
supplement that client with others that generate comparable revenues or profits.
OUR WRITTEN CONTRACTS GENERALLY DO NOT GUARANTEE SPECIFIC VOLUME LEVELS AND CAN
USUALLY BE TERMINATED ON LITTLE NOTICE.
Although we have written agreements with most of our clients, our agreements
generally do not assure specific volume or revenue levels. In addition, some
agreements provide for termination for any reason on short notice. Our current
agreement with BellSouth may be terminated by BellSouth for any reason upon 90
days notice. Furthermore, we are contractually bound to our facility leases
until their term expires. If a client terminates their contract suddenly, we
will still have an obligation under our leases.
A SIGNIFICANT PORTION OF OUR BUSINESS IS CONCENTRATED IN THE TELECOMMUNICATIONS
INDUSTRY, INCLUDING DSL AND CABLE MODEMS.
Approximately 42% of our revenues in 2003 and approximately 46% of our revenues
in 2002 were attributable to Telecommunications products and Modems clients.
Consequently, we are particularly susceptible to negative changes affecting
these industries in general. The telecommunications industry has suffered a
material downturn since mid-2000 which has had a significant negative impact on
our business. To ameliorate this risk, we have been diversifying our client base
across more industries and clients, including through selective acquisitions. We
cannot guarantee, however, that the telecommunications industry will strengthen
in 2004 or not deteriorate further, or that our diversification strategy will be
successful.
8
A SIGNIFICANT PORTION OF OUR BUSINESS IS CONCENTRATED IN THE DIRECT RESPONSE
INDUSTRY.
Approximately 18% of our revenues in 2003 and approximately 27% of our revenues
in 2002 were attributable primarily to clients in the direct response industry.
Consequently, we are particularly susceptible to negative changes that impact
this industry and our clients in particular, including potential false
advertising product claims and Federal Trade Commission regulation and
enforcement. The direct response industry has suffered a material downturn since
the third quarter of 2001, which has had a significant negative impact on our
business. This general downturn has significantly weakened the financial
strength and wherewithal of companies in this sector which increases our risk
pertaining to future business, growth and the collectibility of accounts
receivable from our existing clients. If any of our existing direct response
clients were to default on their amounts due Innotrac, this would result in a
material charge against earnings. One of theses clients has a material past due
balance, although a significant reserve has been established at December 31,
2003 to help mitigate this risk. Additionally, it has been announced that one of
our direct response clients is for sale. The impact of a change in ownership of
this client could have a material impact on our results of operations in the
future.
COMPETITION MAY HURT OUR BUSINESS.
We operate in highly competitive and price sensitive markets and expect this
environment to persist and intensify in the future. Because our services
comprise marketing and product consultation, sales channel management,
fulfillment and back-end support, including our call center operations and
returns processing, we have many competitors who offer one or more of these
services. Our competitors include:
- in-house marketing support operations of our current and potential
clients;
- other firms offering specific services, like fulfillment and call
center operations; and
- large marketing support services firms.
A number of our competitors have developed or may develop financial and other
resources greater than ours. Additional competitors with greater name
recognition and resources may enter our markets. Our existing or potential
clients' in-house operations are also significant competitors. Our performance
and growth could be negatively impacted if:
- existing clients demand and receive pricing concessions;
- existing clients decide to provide, in-house, services they
currently outsource;
- potential clients retain or increase their in-house capabilities; or
- existing clients consolidate their outsourced services with other
companies.
In addition, competitive pressures from current or future competitors could
result in significant price erosion, which could in turn materially adversely
affect our business, financial condition and results of operations. For more
information about our competition, see "Business--Competition" in this Item 1.
IF WE ARE NOT ABLE TO KEEP PACE WITH CHANGING TECHNOLOGY, OUR BUSINESS WILL BE
MATERIALLY ADVERSELY AFFECTED.
Our success depends significantly upon our ability to:
- integrate new clients in a timely and cost efficient manner;
- enhance existing services;
- develop applications to meet our clients' needs; and
- introduce new services and products to respond to technological
developments.
If we fail to maintain our technological capabilities or respond effectively to
technological changes, our business, results of operations and financial
condition could be materially adversely affected. We cannot assure you that we
will select, invest in and develop new and enhanced technology on a timely basis
in the
9
future in order to meet our clients' needs and maintain competitiveness. Our
Reno systems, which house several of our largest clients, are completely
customized and therefore not supported by third party providers. We are heavily
reliant on a few developers. If these developers leave, it could materially
adversely affect our business. We provide details about our technology in
"Business--Technology" in this Item 1.
OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH MAY CAUSE SIGNIFICANT SWINGS IN THE
MARKET PRICE FOR OUR COMMON STOCK.
Our operating results may fluctuate in the future based on many factors. These
factors include, among other things:
- changes in the telecommunications industry;
- changes in the retail industry;
- changes in the fulfillment and call center services industries;
- changes in the timing and level of client-specific marketing
programs, including the timing and nature of promotions;
- changes in our existing client base;
- pricing pressure or concessions;
- increased competition; and
- changes in customer purchasing patterns for products we fulfill.
Due to these and any other unforeseen factors, it is possible that in some
future quarter our operating results may be below the expectations of public
market analysts and investors. If that variance occurs, our common stock price
would likely decline materially.
OUR COMMON STOCK LACKS LIQUIDITY AND IS HELD BY A SMALL NUMBER OF INVESTORS.
As of December 31, 2003, Innotrac officers and directors owned approximately 55%
of the outstanding common stock. Two institutional shareholders, IPOF Fund and
Dimensional Fund Advisors, held 25.5% and 5.4%, respectively. These ownership
positions have resulted in a lack of liquidity in our common stock.
Additionally, if any of Innotrac's significant shareholders decided to liquidate
its position, our common stock price would likely decline materially.
IF OUR GOODWILL IS DEEMED IMPAIRED AS PART OF OUR ANNUAL (OR EARLIER) IMPAIRMENT
TEST, THE IMPAIRMENT CHARGE WOULD RESULT IN A DECREASE IN OUR EARNINGS AND NET
WORTH.
Current accounting rules require that goodwill no longer be amortized but be
tested for impairment at least annually. We have a significant amount of
goodwill which, based upon a negative outcome of any impairment test in the
future, could result in the write-down of all or a portion of goodwill and a
corresponding reduction in earnings and net worth.
NONCOMPLIANCE WITH ANY OF THE COVENANTS UNDER OUR REVOLVING CREDIT AGREEMENT
ALLOWS THE LENDER TO DECLARE ANY OUTSTANDING BORROWING AMOUNTS TO BE IMMEDIATELY
DUE AND PAYABLE.
Our revolving line of credit agreement contains various restrictive financial
and change of ownership control covenants. Noncompliance with any of the
covenants allows the lender to declare any outstanding borrowing amounts to be
immediately due and payable. At December 31, 2003 we were not in compliance with
the fixed charge coverage ratio of 1.75 to 1.00 or the tangible net worth
covenant of $34 million. However, we have received waivers relating to these
covenants at December 31, 2003. The fixed charge
10
coverage ratio covenant has been reduced to 1.30 to 1.00 in all future periods
and the tangible net worth covenant has been reduced to $24 million.
DUE TO THE NATURE OF OUR BUSINESS WE HAVE A SIGNIFICANT AMOUNT OF UNSKILLED
LABOR AND A HIGH TURNOVER RATE THEREBY INCREASING OUR EXPOSURE TO EMPLOYEE
RELATED LITIGATION.
Our fulfillment and call centers employ a sizable amount of unskilled labor and
generate a high turnover rate. Furthermore, due to the downturn in the economy
and its adverse affects on our business, we have had to terminate employees from
time to time. Our exposure to litigation as a result of employee matters has
recently increased. We are currently involved in litigation associated with
several employee related matters. Management believes this litigation is
currently immaterial, though it could become material in the future.
IF WE ARE NOT ABLE TO CONTINUE TO MANAGE OUR INFRASTRUCTURE AND VOLUME GROWTH,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our operations, number of facilities and volume of packages shipped have grown
significantly in recent years. Our business, results of operations and financial
condition could be materially adversely affected if we cannot effectively manage
our growth. Our continued success depends upon our ability to:
- initiate, develop and maintain existing and new client
relationships;
- respond to competitive developments;
- maintain pricing and margins;
- continue to develop our sales infrastructure;
- attract, train, motivate and retain management and other personnel;
and
- maintain the high quality of our services.
IF THE TREND TOWARD OUTSOURCING DOES NOT CONTINUE, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.
Our business, results of operations and financial condition could be materially
adversely affected if the trend of businesses outsourcing services not directly
related to their principal business activities declines or reverses, or if
corporations bring previously outsourced functions back in-house. Particularly
during general economic downturns, businesses may bring in-house previously
outsourced functions in order to avoid or delay layoffs.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION, WHICH MAY LIMIT OUR ACTIVITIES
OR INCREASE OUR COSTS.
In connection with the limited amount of outbound telemarketing services that we
provide, we must comply with federal and state regulations. These include the
Federal Communications Commission's rules under the Federal Telephone Consumer
Protection Act of 1991 and the Federal Trade Commission's regulations under the
Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, both
of which govern telephone solicitation. When we conduct outbound telemarketing
services, these rules and regulations would apply to that portion of our
business.
Furthermore, there may be additional federal and state legislation or changes in
regulatory implementation. These changes could include interpretations under the
Telecommunications Act of 1996 restricting the ability of telecommunications
companies to use consumer proprietary network information, or CPNI. New
legislation or regulatory implementation in the future may significantly
increase compliance costs or limit our activities, our clients' activities or
the activities of companies to which we outsource outbound telemarketing
functions. Additionally, we could be responsible for failing to comply with
regulations applicable to our clients or companies to which we outsource
telemarketing.
If unfavorable federal or state legislation or regulations affecting Caller ID
service, internet service or other technology related to products we fulfill and
provide customer support for are adopted, our business,
11
financial condition and results of operations could be materially adversely
affected. See "Business -- Government Regulation" in this Item 1 for further
information about government regulation of our business.
IF WE ARE UNABLE TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY AND REALIZE
ANTICIPATED ECONOMIC, OPERATIONAL AND OTHER BENEFITS IN A TIMELY MANNER, OUR
PROFITABILITY MAY DECREASE.
If we are unable to integrate acquired businesses successfully, we may incur
substantial costs and delays in increasing our customer base. In addition, the
failure to integrate acquisitions successfully may divert management's attention
from Innotrac's existing business and may damage Innotrac's relationship with
its key customers and suppliers. Integration of an acquired business may be more
difficult when we acquire a business in a market in which we have little or no
expertise, or with a corporate culture different from Innotrac's.
12
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of Innotrac are as follows:
NAME AGE POSITION
---- --- --------
Scott D. Dorfman ... 46 Chairman of the Board, President and Chief Executive Officer
David L. Gamsey .... 46 Senior Vice President, Chief Financial Officer, Treasurer and Secretary
David L. Ellin ..... 45 Senior Vice President--Sales
Larry C. Hanger .... 49 Senior Vice President--Client Services
Robert J. Toner .... 40 Vice President--Logistics
James R. McMurphy... 44 Vice President--Information Technology
Mr. Dorfman founded Innotrac and has served as Chairman of the Board, President
and Chief Executive Officer since its inception in 1984. Prior to founding
Innotrac, Mr. Dorfman was employed by Paymaster Checkwriter Company, Inc.
(Paymaster), an equipment distributor. At Paymaster, Mr. Dorfman gained
experience in distribution, tracking and inventory control by developing and
managing Paymaster's mail order catalog.
Mr. Gamsey has served as Senior Vice President, Chief Financial Officer and
Secretary since May 2000. In 2001, Mr. Gamsey was appointed to Innotrac's Board
of Directors. Prior to joining Innotrac, from September 1995 to May 2000, he
served as Chief Financial Officer of AHL Services, Inc., a provider of contract
staffing and outsourcing solutions. From 1988 to September 1995, Mr. Gamsey was
a Managing Director of Investment Banking at the accounting firm Price
Waterhouse LLP (now PricewaterhouseCoopers LLP). From 1987 to 1988, he served as
Chief Financial Officer of Visiontech, Inc., a manufacturer of contact lenses,
and from 1979 to 1987, he was a Senior Audit Manager for the accounting firm
Arthur Andersen LLP. Mr. Gamsey is a certified public accountant.
Mr. Ellin joined Innotrac in 1986 and currently serves as Senior Vice
President--Sales. He has been a Director since December 1997. He held the
position of Senior Vice President and Chief Operating Officer from November 1997
to December 2001 and served as Vice President from 1988 to November 1997. From
1984 to 1986, Mr. Ellin was employed by the Atlanta branch of WHERE Magazine,
where he managed the sales and production departments. From 1980 to 1984, Mr.
Ellin was employed by Paymaster, where he was responsible for Paymaster's sales
and collections.
Mr. Hanger joined Innotrac in 1994 and has served as Senior Vice
President--Client Services since April 1999 and as a Director since December
1997. He served as Vice President--Business Development from November 1997
through April 1999. He served as Innotrac's Manager of Business Development from
1994 to November 1997, and was responsible for the management of the
telecommunication equipment marketing and service business. From 1979 to 1994,
Mr. Hanger served as Project Manager--Third Party Marketing at BellSouth
Telecommunications, Inc., a regional telecommunications company, where he
managed the marketing program for BellSouth's network services and was involved
in implementing the billing options program for BellSouth with Innotrac.
Mr. Toner joined Innotrac in June, 2001 as Vice President--Logistics. He brings
16 years of distribution, logistics, and transportation experience; 14 of those
years were with McMaster-Carr Supply Company, a distributor of industrial
supplies. Most recently, Mr. Toner was the General Manager for Webvan Group
Inc., an Internet retailer, where he held the position of General Manager for
East Coast operations.
13
Mr. McMurphy joined Innotrac in April, 2003 as Vice President and Chief
Information Officer. Prior to joining Innotrac, Mr. McMurphy was with Capital
One Financial Corporation, a leading credit card issuer and consumer lender,
from March 2002 to April 2003, where he served as Chief Information Officer for
one of their divisions. Prior to Capital One, from December 1996 through
December 2001, he was Chief Information Officer for Pleasant Company, a division
of Mattel Toys and makers of American Girl Dolls. In addition, prior to Mattel
Toys, he served as a consultant for Price Waterhouse LLP (now Pricewaterhouse
Coopers LLP).
ITEM 2. PROPERTIES
Currently, the Company leases all of its facilities. Our headquarters and
fulfillment facilities are located in 250,000 square feet of leased space in
Duluth, Georgia. Our corporate offices occupy 50,000 square feet of this
facility and the remaining 200,000 square feet is fulfillment space. This site
also includes approximately 3.5 acres that will be available for Innotrac's
expansion requirements, if required. The lease for our Duluth facility commenced
in October 1998 and has a term of 10 years with two five-year renewal options.
The lease provides for an option to purchase the facility at the end of the
first five years of the term or at the end of the first 10 years of the term. We
have not yet determined whether to exercise this purchase option.
In June 1999, we entered into a lease for a facility in Pueblo, Colorado with an
initial term of five years with two five-year renewal options. The facility
provides approximately 87,000 square feet of floor space. Approximately 45,000
square feet is used as a call center, as well as quality assurance,
administrative, training and management space. This call center supports 370
workstations of which we utilized 252 at December 31, 2003. It currently
operates from 5:00am MST to 11:00pm MST seven days per week. The remaining
42,000 square feet is used for fulfillment services. The initial term of this
lease expires in September, 2004. We are currently in discussions with the
landlord pertaining to this renewal. No decision has yet been made regarding
exercising a renewal option.
In October 1999, we entered into a lease for an additional fulfillment facility
in Duluth, Georgia with an initial term of five years with one three-year
renewal option. In August 2000, the Company entered into a lease extension and
modification that expanded the facility space from approximately 52,000 square
feet to 82,000 square feet. This lease expires in January, 2005.
With the acquisition of UDS, located in Reno, Nevada, in December 2000, we
operate a facility that consists of over 275,000 square feet and includes
administrative office space, a 250,000 square foot fulfillment center and a call
center that can support 200 workstations. UDS leases this facility through two
lease agreements, which were initiated in October 2002 and October 2000. These
agreements have lease terms of five years and seven years, respectively.
Currently, the call center is configured with approximately 150 workstations, of
which 50 were being utilized at December 31, 2003. The call center operates from
5:00 am PST to 8:00 pm PST Monday through Friday and 6:00 am PST to 2:30 pm PST
Saturday and Sunday.
With the acquisition of iFulfillment, we operate a 354,000 square foot facility
in Bolingbrook, Illinois. The lease for this facility was initiated at the date
of acquisition in July 2001 and we renewed for an additional five years, at a
lower monthly rental rate, commencing January 1, 2003. This lease contains one
additional five-year renewal option. This facility is used exclusively for
fulfillment services and contains approximately 40,000 square feet of
administrative office space.
In August 2002, we entered into a lease for a new facility in Hebron, Kentucky
with an initial term of five years with two renewal options; the first for one
year and the second for three years. The facility provides approximately 396,000
square feet of fulfillment and warehouse space. This facility is fully occupied
by our client, Smith & Hawken.
14
In September 2002, we entered into a lease for a new facility in Romeoville,
Illinois with an initial term of five years and two months with two five-year
renewal options. The facility provides approximately 204,307 square feet of
fulfillment and warehouse space, of which approximately 175,000 is currently
under lease. This facility is utilized exclusively by our client, Books Are Fun.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceeding. We are, from time to time,
a party to litigation arising in the normal course of our business. Our
fulfillment and call centers employ a sizable amount of unskilled labor and
generate a high turnover rate. Furthermore, due to the downturn in the economy
and its adverse affects on our business, we have had to terminate employees from
time to time. Our exposure to litigation as a result of employee matters has
increased. Although, management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on our
financial position or results of operations, it is possible that such litigation
and the related cost could become material in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the symbol
"INOC". The following table sets forth for the periods indicated the high and
low sales prices of the Common Stock on the Nasdaq National Market.
HIGH LOW
------- ------
2003
First Quarter ............................................ $4.600 $2.150
Second Quarter ........................................... $6.659 $3.950
Third Quarter ............................................ $8.340 $5.760
Fourth Quarter ........................................... $10.490 $7.750
Fiscal Year Ended December 31, 2003 ...................... $10.490 $2.150
2002
First Quarter ............................................ $7.220 $3.400
Second Quarter ........................................... $6.350 $4.119
Third Quarter ............................................ $5.719 $2.200
Fourth Quarter ........................................... $3.140 $1.800
Fiscal Year Ended December 31, 2002 ...................... $7.220 $1.800
The approximate number of holders of record of Common Stock as of March 18, 2004
was 72. The approximate number of beneficial holders of our Common Stock as of
that date was 1,235.
The Company has never declared cash dividends on the Common Stock. The Company
intends to retain its earnings to finance the expansion of its business and does
not anticipate paying cash dividends in the foreseeable future. Any future
determination as to the payment of cash dividends will depend upon such factors
as earnings, capital requirements, the Company's financial condition,
restrictions in financing agreements and other factors deemed relevant by the
Board of Directors. The payment of dividends by the Company is restricted by its
revolving credit facility.
Item 12 of Part III contains information concerning the Company's equity
compensation plans.
15
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the heading "Selected Financial Data" in the
Company's 2003 Annual Report to Shareholders, filed as an exhibit hereto, is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's 2003
Annual Report to Shareholders, filed as an exhibit hereto, is incorporated
herein by reference.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any off balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
AGGREGATE CONTRACTUAL OBLIGATIONS
The following table sets forth the Company's contractual commitments by period.
There are no additional purchase obligations or other long-term liabilities
other than those reflected below. For additional information, see Note 7 to the
consolidated financial statements (in 000's).
Payments Due by Period
------------------------------------------------------------------
Total Less than 1 year 1-3 years 4-5 years After 5 years
------- ---------------- --------- --------- -------------
Capital leases $ 151 $ 95 $ 56 $ -- $ --
Operating leases 27,844 7,779 13,514 6,551 --
Line of credit (1) 11,802 -- 11,802 -- --
(1) The provisions of the revolving line of credit agreement requires that the
Company maintain a lockbox arrangement with the lender and allows the lender to
declare any outstanding borrowing amounts to be immediately due and payable as a
result of noncompliance with any of the covenants. Accordingly, in the event of
noncompliance, these amounts could be accelerated.
CRITICAL ACCOUNTING ESTIMATES OR ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The Company makes estimates each reporting period associated with its reserve
for uncollectible accounts. This estimate is based on the aging of the
receivables. One direct marketing client, with a substantial past due balance at
December 31, 2003, entered into a payment arrangement with Innotrac in February
2004 that would eliminate its past due amounts during the first half of 2004.
Payments of approximately $1 million towards this past due amount were received
during February and March, 2004. In spite of these arrangements and subsequent
payments, and due primarily to the financial condition, payment history and
aging of the receivables of this client, the Company still determined it prudent
to establish a specific reserve of $1.1 million for this account at December 31,
2003. Management will continue to access the level of reserve needed against
this account quarterly.
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred taxes are determined based on the difference
between the financial and tax bases of assets and
16
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. A valuation allowance is recorded against
deferred tax assets if the Company considers it is more likely than not that
deferred tax assets will not be realized. A valuation allowance has been
recognized for the full amount of the $9.9 million deferred tax asset as losses
in recent years create uncertainty about the realization of the tax benefits in
future years. Income taxes associated with future earnings will be offset by
a reduction in the valuation allowance. When, and if, the Company can return to
consistent profitability and management determines that it will be able to
utilize the deferred tax assets prior to their expiration, then the valuation
allowance can be reduced or eliminated. Innotrac has a tax net operating loss
carryforward of $31.5 million at December 31, 2003 that expires between 2020 and
2023.
With the adoption of Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" effective January 1, 2002, the
Company tests goodwill annually for impairment at January 1 or sooner if
circumstances indicate. Under SFAS No. 142, goodwill impairment is deemed to
exist if the net book value of a reporting unit exceeds its estimated fair
value. Upon completion of its analysis for impairment in the first quarter of
2003 and again in the first quarter of 2004 in accordance with SFAS No. 142, no
impairment was determined to exist at those times.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quantitative and
Qualitative Disclosures About Market Risk" in the Company's 2003 Annual Report
to Shareholders, filed as an exhibit hereto, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained under the headings "Report of Independent Auditors"
and "Consolidated Financial Statements and Notes to the Consolidated Financial
Statements" in the Company's 2003 Annual Report to Shareholders, filed as an
exhibit hereto, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 22, 2002 the Board of Directors, upon the recommendation of the Audit
Committee, dismissed its independent accountants, Arthur Andersen LLP, and
appointed Deloitte & Touche LLP as its new independent accountants, effective
April 22, 2002. This matter was previously reported on a Form 8-K filed April
24, 2002.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, with the participation of the Chief Executive and Chief
Financial Officers, evaluated our disclosure controls and procedures (as defined
in federal securities rules) as of December 31, 2003. No system of controls, no
matter how well designed and operated, can provide absolute assurance that the
objectives of the system of controls are met, and no evaluation of controls can
provide absolute assurance that the system of controls has operated effectively
in all cases. Our disclosure controls and procedures however are designed to
provide reasonable assurance that the objectives of disclosure controls and
procedures are met. Based on the evaluation discussed above, our CEO and CFO
have concluded that our disclosure controls and procedures were effective as of
the date of that evaluation to provide reasonable assurance that the objectives
of disclosure controls and procedures are met.
There were no changes in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, Innotrac's
internal control over financial reporting.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the headings "Election of Directors" and
"Compliance With Section 16(a) of the Exchange Act" in the definitive Proxy
Statement used in connection with the solicitation of proxies for the Company's
2004 Annual Meeting of Shareholders, to be filed with the Commission, is hereby
incorporated herein by reference. Pursuant to Instruction 3 to Paragraph (b) of
Item 401 of Regulation S-K, information relating to the executive officers of
the Company is included in Item 1 of this Report.
The Company has a separately designated Audit Committee that consists of Mr.
Martin Blank, Mr. Joel Marks and Mr. Bruce Benator. Both Mr. Marks and Mr.
Benator are financial experts. Mr. Benator is not deemed to be independent under
Item 7(d)(3)(iv). Mr. Marks is independent and will serve as the Company's Audit
Committee financial expert commencing in 2004. Mr. Marks is a seasoned financial
executive and previously served as the Chief Financial Officer of a
Nasdaq-listed company and is a certified public accountant. Mr. Benator will no
longer be a member of the Audit Committee in 2004. He will be replaced effective
March 1, 2004 by Mr. Alston Gardner.
Effective March 1, 2004, the Company adopted a Code of Business Conduct and
Ethics which includes rules of conduct for Senior Officers of the Company. This
Code has been included herein as an exhibit, has been posted to the Company's
website and has been distributed to all of our employees.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation" in the
definitive Proxy Statement used in connection with the solicitation of proxies
for the Company's 2004 Annual Meeting of Shareholders, to be filed with the
Commission, is hereby incorporated herein by reference. The information
contained in the Proxy Statement under the headings "Compensation Committee
Report on Executive Compensation" and "Stock Performance Graph" shall not be
deemed incorporated herein by such reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The information contained under the headings "Voting Securities and Principal
Shareholders" and "Equity Compensation Plans" in the definitive Proxy Statement
used in connection with the solicitation of proxies for the Company's 2004
Annual Meeting of Shareholders, to be filed with the Commission, is hereby
incorporated herein by reference.
For purposes of determining the aggregate market value of the Company's voting
stock held by nonaffiliates, shares held by all current directors and executive
officers of the Company and holders of 10% or more of the Company's Common Stock
have been excluded. The exclusion of such shares is not intended to, and shall
not, constitute a determination as to which persons or entities may be
"affiliates" of the Company as defined by the Commission.
18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Related Party Transactions" in the
definitive Proxy Statement used in connection with the solicitation of proxies
for the Company's 2004 Annual Meeting of Shareholders, to be filed with the
Commission, is hereby incorporated herein by reference.
ITEM 14. PRINCIPAL AUDITOR FEES AND SERVICES
The information contained under the heading "Independent Auditors" in the
definitive Proxy Statement used in connection with the solicitation of proxies
for the Company's 2004 Annual Meeting of Shareholders, to be filed with the
Commission, is hereby incorporated herein by reference.
19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. FINANCIAL STATEMENTS
The following financial statements and notes thereto are
incorporated herein by reference in Item 8 of this Report.
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Operations for the years ended December
31, 2003, 2002 and 2001
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2003, 2002 and 2001
Consolidated Statements of Cash Flows for the years ended December
31, 2003, 2002 and 2001
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Auditors' as to Schedules
Schedule II - Valuation and Qualifying Accounts
3. EXHIBITS
The following exhibits are required to be filed with this Report by
Item 601 of Regulation S-K:
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
2.1 Agreement and Plan of Merger dated December 8, 2000, by and
among the Registrant, UDS, Patrick West, Daniel Reeves and The
Estate of John R. West (incorporated by reference to Exhibit
10.24 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2001 (Commission File No. 000-23741),
filed with the commission on March 28, 2002)
3.1 Amended and Restated Articles of Incorporation of the
Registrant, (incorporated by reference to Exhibit 3.1 to the
Registrant's Amendment No. 1 to Registration Statement on Form
S-1 (Commission File No. 333-42373), filed with the Commission
on February 11, 1998)
3.2 Amended and Restated By-laws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1/A (Commission File No. 333-79929), filed
with the Commission on July 22, 1999)
20
4.1 Form of Common Stock Certificate of the Registrant
(incorporated by reference to Exhibit 4.1 to the Registrant's
Amendment No. 1 to Registration Statement on Form S-1
(Commission File No. 333-42373), filed with the Commission on
February 11, 1998)
4.2(a) Rights Agreement between Company and Reliance Trust
Company as Rights Agent, dated as of December 31, 1997
(incorporated by reference to Exhibit 4.2 to the Registrant's
Amendment No. 1 to Registration Statement on Form S-1
(Commission File No. 333-42373), filed with the Commission on
February 11, 1998)
(b) First Amendment to the Rights Agreement dated as of November
30, 2000 between the Company, Reliance Trust Company and
SunTrust Bank (incorporated by reference to Exhibit 4.2(b) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 (Commission File No. 000-23741), filed with
the Commission on March 30, 2001)
(c) Second Amendment to the Rights Agreement dated as of August
14, 2003 between the Company and SunTrust Bank (incorporated
by reference to Exhibit 4.2 to Amendment No. 1 to the
Registrant's Quarterly Report on Form 10-Q/A for the quarterly
period ended June 30, 2003 (Commission File No. 000-23741),
filed with the Commission on August 20, 2003)
(d) Third Amendment to the Rights Agreement dated as of November
24, 2003 between the Company and SunTrust Bank (incorporated
by reference to Exhibit 4.2(d) to Amendment No. 2 to the
Registrant's Registration of Securities on Form 8-A/A
(Commission File No. 000-23741), filed with the Commission on
November 25, 2003)
10.1+ 2000 Stock Option and Incentive Award Plan and amendment
thereto (incorporated by reference to Exhibit 4.3 and 4.4 to
the Registrant's Form S-8 (Commission File No. 333-54970)
filed with the Commission on February 5, 2001)
10.2(a) Sublease Agreement, dated May 26, 1999, by and between HSN
Realty LLC and Universal Distribution Services, Inc.
(incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
2000 (Commission File No. 000-23741), filed with the
Commission on March 30, 2001)
(b) Lease, dated March 23, 2000 by and between Dermody Industrial
Group and Universal Distribution Services, Inc. (incorporated
by reference to Exhibit 10.2(b) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(Commission File No. 000-23741), filed with the Commission on
March 31, 2003)
10.3(a) Master Lease Agreement and Addendums, dated March 20,
2000, by and between Computer Sales International, Inc. and
the Registrant (incorporated by reference to Exhibit 10.9(a)
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000 (Commission File No. 000-23741), filed
with the Commission on March 30, 2001)
(b) First Amendment to Master Lease Agreement dated June 8, 2000,
by and between Computer Sales International, Inc. and the
Registrant (incorporated by reference to Exhibit 10.9(b) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 (Commission File No. 000-23741), filed with
the
21
Commission on March 30, 2001)
(c) Second Amendment to Master Lease Agreement dated September 28,
2000, by and between Computer Sales International, Inc. and
the Registrant (incorporated by reference to Exhibit 10.9(c)
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000 (Commission File No. 000-23741), filed
with the Commission on March 30, 2001)
(d) Third Amendment to Master Lease Agreement dated October 9,
2002, by and between Computer Sales International, Inc. and
the Registrant (incorporated by reference to Exhibit 10.3(d)
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2002 (Commission File No. 000-23741), filed
with the Commission on March 31, 2003)
10.4(a) Amended and Restated Loan and Security Agreement between the
Registrant and SouthTrust Bank, N.A., dated January 25, 1999
(incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission File No. 0-23741), filed with
the Commission on March 26, 1999)
(b) First Amendment to Amended and Restated Loan and Security
Agreement by and between the Registrant and SouthTrust Bank,
N.A., dated April 29, 1999 (incorporated by reference to
Exhibit 10.14(b) to the Registrant's Registration Statement on
Form S-1 (Commission File No. 333-79929), filed with the
Commission on June 3, 1999)
(c) Letter Modification/Waiver to Amended and Restated Loan and
Security Agreement, as amended, effective August 14, 2000
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000 (Commission File No. 0-23741), filed with
the Commission on November 13, 2000)
(d) Letter of Amendment to Amended and Restated Loan and Security
Agreement by and between the Registrant and SouthTrust Bank,
N.A. effective September 10, 2001 (Incorporated by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2001
(Commission File No. 0-23741) filed with the Commission on
November 13, 2001)
(e) Letter Modification/Waiver to Amended and Restated Loan and
Security Agreement, as amended, effective May 31, 2002
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2002 (Commission File No. 000-23740) filed with the
Commission on August 13, 2002)
(f) Letter Modification/Waiver to Amended and Restated Loan and
Security Agreement, as amended, effective November 13, 2002
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002 (Commission File No. 000-23740) filed with
the Commission on November 19, 2002)
(g) Letter Modification to Amended and Restated Loan and Security
Agreement, dated February 18, 2003, as amended, effective
January 1, 2003 (incorporated by reference to Exhibit 10.4(g)
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2002 (Commission File No. 000-23741), filed
with the Commission on March 31, 2003)
22
(h) Second Amended and Restated Loan and Security Agreement by and
between the Registrant and SouthTrust Bank, N.A., dated April
3, 2003 (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2003 (Commission File No. 000-23740),
filed with the Commission on May 14, 2003)
(i)* Letter Modification/Waiver to Second Amended and Restated Loan
and Security Agreement, as amended, effective February 6, 2004
(j)* Letter Modification to Second Amended and Restated Loan and
Security Agreement, as amended, effective February 26, 2004
(k)* Letter Modification/Wavier to Second Amended and Restated
Loan and Security Agreement, as amended, effective March 26,
2004
10.5+ 2002 Senior Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001 (Commission File No. 000-23741), filed with
the Commission on March 28, 2002)
10.6(a)+ Amended and Restated Employment Agreement dated August 21,
2000, by and between David L. Gamsey and the Registrant
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10Q/A for the quarterly period ended
June 30, 2000 (Commission File No. 0-23741), filed with the
Commission on August 21, 2000)
(b)+ Amendment to Amended and Restated Employment Agreement dated
February 14, 2001, by and between David L. Gamsey and the
Registrant (incorporated by reference to Exhibit 4.2(b) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 (Commission File No. 000-23741), filed with
the Commission on March 30, 2001)
10.7+ Employment Agreement dated August 31, 2000, by and between
Scott D. Dorfman and the Registrant (incorporated by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-23741), filed with the Commission on
November 13, 2000)
10.8+ Employment Agreement dated August 31, 2000, by and between
David L. Ellin and the Registrant (incorporated by reference
to Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-23741), filed with the Commission on
November 13, 2000)
10.9+ Employment Agreement dated August 31, 2000, by and between
Larry C. Hanger and the Registrant (incorporated by reference
to Exhibit 10.4 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2000
(Commission File No. 0-23741), filed with the Commission on
November 13, 2000)
10.10 Operating Agreement dated December 28, 2000, by and among the
Registrant, Return.com Online, LLC, and Mail Boxes Etc., USA,
Inc. (incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 (Commission File No. 000-23741), filed with
the Commission on March 30, 2001)
10.11 Agreement to Discharge Debt, dated April 17, 2001, between
Return.com Online
23
LLC and Mail Boxes Etc., USA, Inc. (incorporated by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2001 (Commission
File No. 0-23741), filed with the Commission on May 14, 2001)
10.12 Agreement to Terminate Services and Marketing Agreement, dated
April 17, 2001, between Return.com Online LLC, Mail Boxes
Etc., USA, Inc. and the Registrant (incorporated by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2001 (Commission
File No. 0-23741), filed with the Commission on May 14, 2001)
10.13(a) Lease, dated July 23, 2001, by and between The Lincoln
National Life Insurance Company and iFulfillment, Inc.
(incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001 (Commission File No. 000-23741), filed with
the Commission on March 28, 2002)
(b) Lease, dated August 5, 2002, by and between The Lincoln
National Life Insurance Company and the Registrant
(incorporated by reference to Exhibit 10.13(b) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2002 (Commission File No. 000-23741), filed with
the Commission on March 31, 2003)
10.14+ Employment Agreement dated December 31, 2001, by and between
Robert J. Toner, Jr. and the Registrant (incorporated by
reference to Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2001 (Commission
File No. 000-23741), filed with the Commission on March 28,
2002)
10.15+ Employment Agreement dated December 8, 2000, by and between
Patrick J. West and the Registrant (incorporated by reference
to Exhibit 10.24 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2001 (Commission File No.
000-23741), filed with the Commission on March 28, 2002)
10.16(a) Lease, dated April 23, 2002, by and between ProLogis
Development Services Incorporated and the Registrant
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002 (Commission File No. 000-23740) filed with
the Commission on November 19, 2002)
(b) First Amendment to Lease Agreement dated October 15, 2002 by
and between ProLogis Development Services Incorporated and the
Registrant (incorporated by reference to Exhibit 10.16(b) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2002 (Commission File No. 000-23741), filed with
the Commission on March 31, 2003)
10.17(a) Lease, dated September 17, 2002, by and between The Prudential
Insurance Company of America and the Registrant (incorporated
by reference to Exhibit 10.17 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 2002
(Commission File No. 000-23741), filed with the Commission on
March 31, 2003)
(b) First Amendment to Lease Agreement dated April 4, 2003 by and
between The Prudential Insurance Company of America and the
Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for
24
the quarterly period ended March 31, 2003 (Commission File No.
000-23740), filed with the Commission on May 14, 2003)
10.18+ Employment Agreement dated April 7, 2003, by and between James
McMurphy and the Registrant (incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2003 (Commission File
No. 000-23741), filed with the Commission on August 14, 2003)
10.19(a) Agreement dated August 14, 2003 by and between IPOF Fund, LP,
an Ohio limited partnership ("IPOF"), David Dadante, an
individual resident of Ohio and the general partner of IPOF
and the Registrant (incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 30, 2003 (Commission File No.
000-23740), filed with the Commission on August 20, 2003)
(b) First Amendment dated November 24, 2003 to the Agreement by
and between IPOF Fund, LP, an Ohio limited partnership
("IPOF"), David Dadante, an individual resident of Ohio and
the general partner of IPOF and the Registrant (incorporated
by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K (Commission File No. 000-23740), filed with
the Commission on November 24, 2003)
13.1* Portions of the Registrant's Annual Report to Shareholders for
2003 incorporated into this Form 10-K
14.1* Code of Business Conduct and Ethics
21.1* List of Subsidiaries
23.1* Consent of Deloitte & Touche LLP
23.2* Notice Regarding Consent of Arthur Andersen LLP
24.1* Power of Attorney
31.1* Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a)
31.2* Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)/15d-14(a)
32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
* Filed herewith.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit.
(b) REPORTS ON FORM 8-K
On November 7, 2003, the Company furnished to the Commission pursuant to Items 7
and 12 of Form 8-K its press release announcing the Company's financial results
for the third quarter of 2003.
On November 24, 2003, the Company filed and furnished its Form 8-K announcing
the amendment of its Rights Agreement pursuant to Items 5, 7 and 9 of Form 8-K.
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES
PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 2-02 OF REGULATION S-X, THE
FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP,
WHICH HAS CEASED OPERATIONS, AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
ARTHUR ANDERSEN LLP REPORTED ON SUCH FINANCIAL STATEMENTS PRIOR TO THE
RECLASSIFICATIONS AND REVISIONS DISCUSSED IN NOTE 2 AND NOTE 16 OF THE NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of INNOTRAC CORPORATION AND SUBSIDIARY
included in this Form 10-K and have issued our report thereon dated February 8,
2002. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 8, 2002
S-1
INNOTRAC CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning Charged to Other End of
Description of Period Expenses Accounts Deductions Period
- ----------- ---------- ---------- ---------- ---------- ----------
(in 000's)
Provision for uncollectble accounts
Year ended December 31,
2003 .......................... $ 959 $ 1,571 $ -- $ (834) $1,696
2002 .......................... $3,263 $(1,329) $ -- $ (975) $ 959
2001 .......................... $3,416 $ 3,813 $ 50 $(4,016) $3,263
Provisions for returns and allowances
Year ended December 31,
2003 .......................... $ 10 $ 29 $ -- $ (27) $ 12
2002 .......................... $ 193 $ 52 $ -- $ (235) $ 10
2001 .......................... $ 725 $ 211 $ 843 $(1,586) $ 193
Provisions for restructuring charge
Year ended December 31,
2003 .......................... $ 277 $ -- $ -- $ (277) $ --
2002 .......................... $1,831 $ (807) $ -- $ (747) $ 277
2001 .......................... $2,831 $ -- $(100) $ (900) $1,831
S-2
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, on the 30th day of March,
2004.
INNOTRAC CORPORATION
/s/ Scott D. Dorfman
------------------------------------------
Scott D. Dorfman
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Report has been signed below by the following persons on
behalf of the Registrant in the capacities indicated on the 30th day of March
2004.
Signature Title
- --------- -----
/s/ Scott D. Dorfman Chairman of the Board, President and Chief Executive
- ----------------------- Officer (Principal Executive Officer)
Scott D. Dorfman
Senior Vice President, Chief Financial Officer,
/s/ David L. Gamsey Treasurer and Secretary (Principal Financial and
- -----------------------
David L. Gamsey Accounting Officer)
/s/ David L. Ellin Senior Vice President--Sales and Director
- -----------------------
David L. Ellin
/s/ J. Alston Gardner Director
- -----------------------
J. Alston Gardner
/s/ Bruce V. Benator Director
- -----------------------
Bruce V. Benator
/s/ Martin J. Blank Director
- -----------------------
Martin J. Blank
/s/ Joel E. Marks Director
- -----------------------
Joel E. Marks