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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to
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Commission file number 000-23740
INNOTRAC CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1592285
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6655 Sugarloaf Parkway Duluth, Georgia 30097
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (678) 584-4000
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes No X .
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at August 3, 2004
-----------------------------
Common Stock at $.10 par value 11,898,143 Shares
INNOTRAC CORPORATION
INDEX
Part I. Financial Information
Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 2004 (Unaudited) and December 31, 2003 3
Condensed Consolidated Statements of Operations for the
Three Months Ended June 30, 2004 and 2003 (Unaudited) 4
Condensed Consolidated Statements of Operations for the
Six Months Ended June 30, 2004 and 2003 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2004 and 2003 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosure About Market Risks 20
Item 4. Controls and Procedures 20
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The following condensed consolidated financial statements of Innotrac
Corporation, a Georgia corporation ("Innotrac" or the "Company"), have been
prepared in accordance with the instructions to Form 10-Q and, therefore, omit
or condense certain footnotes and other information normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. In the opinion of management, all
adjustments are of a normal and recurring nature, except those specified
otherwise, and include those necessary for a fair presentation of the financial
information for the interim periods reported. Results of operations for the
three and six months ended June 30, 2004 are not necessarily indicative of the
results for the entire year ending December 31, 2004. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 2003 Annual Report on Form 10-K.
2
INNOTRAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS JUNE 30, 2004 DECEMBER 31, 2003
(UNAUDITED)
Current assets:
Cash and cash equivalents .............................................. $ 1,362 $ 2,228
Accounts receivable (net of allowance for doubtful accounts of $2,537 at
June 30, 2004 and $1,696 at December 31, 2003) ..................... 16,880 15,682
Inventory .............................................................. 4,996 10,896
Prepaid expenses and other ............................................. 1,766 915
-------- --------
Total current assets ......................................... 25,004 29,721
-------- --------
Property and equipment:
Rental equipment ....................................................... 648 895
Computer software and equipment ........................................ 27,752 27,320
Furniture, fixtures and leasehold improvements ......................... 4,802 4,682
-------- --------
33,202 32,897
Less accumulated depreciation and amortization ......................... (19,681) (18,147)
-------- --------
13,521 14,750
-------- --------
Goodwill ..................................................................... 25,169 25,169
Other assets, net ............................................................ 1,237 1,322
-------- --------
Total assets ................................................. $ 64,931 $ 70,962
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... $ 6,365 $ 5,738
Line of credit ......................................................... 4,085 11,802
Accrued expenses and other ............................................. 2,805 2,577
-------- --------
Total current liabilities .................................... 13,255 20,117
-------- --------
Noncurrent liabilities:
Other noncurrent liabilities ........................................... 1,055 1,083
-------- --------
Total noncurrent liabilities ................................. 1,055 1,083
-------- --------
Commitments and contingencies (see Note 5)
Shareholders' equity:
Preferred stock: 10,000,000 shares authorized, $0.10 par value,
no shares issued or outstanding ................................. -- --
Common stock: 50,000,000 shares authorized, $0.10 par value,
11,892,443 shares issued, 11,892,443 (2004) and 11,715,280 (2003)
shares outstanding .............................................. 1,189 1,171
Additional paid-in capital ............................................. 64,371 63,791
Accumulated deficit .................................................... (14,939) (15,200)
-------- --------
Total shareholders' equity ................................... 50,621 49,762
-------- --------
Total liabilities and shareholders' equity ................... $ 64,931 $ 70,962
======== ========
See notes to condensed consolidated financial statements.
3
Financial Statements-Continued
INNOTRAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30,
2004 2003
-------- --------
(UNAUDITED) (UNAUDITED)
Revenues ........................................ $ 19,807 $ 17,631
Cost of revenues ................................ 8,977 8,488
-------- --------
Gross profit ................... 10,830 9,143
-------- --------
Operating expenses:
Selling, general and administrative expenses 9,158 8,183
Special credits ............................. -- (30)
Depreciation and amortization ............... 1,370 1,462
-------- --------
Total operating expenses ............. 10,528 9,615
-------- --------
Operating income (loss) ........ 302 (472)
-------- --------
Other (income) expense:
Interest expense ............................ 77 155
Other income ................................ -- --
-------- --------
Total other expense .................. 77 155
-------- --------
Income (loss) before income taxes ............... 225 (627)
Income tax benefit .............................. -- 234
-------- --------
Net income (loss) .............. $ 225 $ (393)
======== ========
Earnings (loss) per share:
Basic ....................................... $ 0.02 $ (0.03)
======== ========
Diluted ..................................... $ 0.02 $ (0.03)
======== ========
Weighted average shares outstanding:
Basic ....................................... 11,731 11,487
======== ========
Diluted ..................................... 12,316 11,487
======== ========
See notes to condensed consolidated financial statements.
4
Financial Statements-Continued
INNOTRAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30,
2004 2003
-------- --------
(UNAUDITED) (UNAUDITED)
Revenues ........................................ $ 39,802 $ 35,965
Cost of revenues ................................ 17,915 17,158
-------- --------
Gross profit ................... 21,887 18,807
-------- --------
Operating expenses:
Selling, general and administrative expenses 18,642 17,543
Special credits ............................ -- (30)
Depreciation and amortization .............. 2,622 2,931
-------- --------
Total operating expenses ............. 21,264 20,444
-------- --------
Operating income (loss) ........ 623 (1,637)
-------- --------
Other (income) expense:
Interest expense ........................... 171 402
Other income ............................... -- (7)
-------- --------
Total other expense .................. 171 395
-------- --------
Income (loss) before income taxes ............... 452 (2,032)
Income tax benefit .............................. -- 747
-------- --------
Net income (loss) .............. $ 452 $ (1,285)
======== ========
Earnings (loss) per share:
Basic ...................................... $ 0.04 $ (0.11)
======== ========
Diluted .................................... $ 0.04 $ (0.11)
======== ========
Weighted average shares outstanding:
Basic ...................................... 11,748 11,455
======== ========
Diluted .................................... 12,501 11,455
======== ========
See notes to condensed consolidated financial statements.
5
Financial Statements-Continued
INNOTRAC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
2004 2003
------- -------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss) .......................................................... $ 452 $(1,285)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ......................................... 2,622 2,931
Loss on disposal of fixed assets ...................................... 100 --
Deferred income taxes ................................................. -- (746)
Amortization of deferred compensation ................................. 51 36
Changes in operating assets and liabilities:
Increase in accounts receivable ....................................... (1,198) (2,475)
Decrease in inventories ............................................... 5,899 7,042
(Increase) decrease in prepaid expenses and other assets .............. (927) 853
Increase (decrease) in accounts payable ............................... 627 (8,712)
Increase (decrease) in accrued expenses and other ..................... 239 (2,163)
------- -------
Net cash provided by (used in) operating activities .............. 7,865 (4,519)
------- -------
Cash flows from investing activities:
Capital expenditures ....................................................... (1,317) (655)
Payment for business acquired .............................................. -- (176)
------- -------
Net cash used in investing activities ............................ (1,317) (831)
------- -------
Cash flows from financing activities:
(Repayments) borrowings under line of credit ............................... (7,717) 4,635
Repayment of capital lease and other obligations ........................... (39) (72)
Loan fees paid ............................................................. (15) (31)
Stock reacquired to settle employee stock bonus withholding tax obligation . (286) --
Exercise of employee stock options ......................................... 643 472
------- -------
Net cash (used in) provided by financing activities .............. (7,414) 5,004
------- -------
Net decrease in cash and cash equivalents ........................................ (866) (346)
Cash and cash equivalents, beginning of period ................................... 2,228 961
------- -------
Cash and cash equivalents, end of period ......................................... $ 1,362 $ 615
======= =======
Supplemental cash flow disclosures:
Cash paid for interest ..................................................... $ 198 $ 425
======= =======
Cash income tax refunds received, net of taxes paid ........................ $ -- $(1,486)
======= =======
See notes to condensed consolidated financial statements.
6
INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed for quarterly financial reporting are the
same as those disclosed in the Notes to Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 2003.
Certain of the Company's more significant accounting policies are as
follows:
Accounting Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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.
Goodwill and Other Acquired Intangibles. Goodwill represents the cost of an
acquired enterprise in excess of the fair market value of the net tangible
and identifiable intangible assets acquired. The Company accounts for
goodwill and other acquired intangibles in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets". The Company tests goodwill annually
for impairment as of 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 2004 in accordance
with SFAS No. 142, no impairment was determined to exist at that time.
Innotrac's goodwill carrying amount as of June 30, 2004 is $25.2 million.
Impairment of Long-Lived Assets. The Company reviews long-lived assets and
certain intangible assets for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment would be measured based on a projected cash flow
model. If the projected undiscounted cash flows for the asset are not in
excess of the carrying value of the related asset, the impairment would be
determined based upon the excess of the carrying value of the asset over
the projected discounted cash flows for the asset.
Deferred Tax Asset. Innotrac 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 basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. A valuation allowance was recorded
against the net deferred tax asset as of December 31, 2003 (see Note 4).
Revenue Recognition. Innotrac derives its revenue primarily from two
sources: (1) fulfillment operations and (2) the delivery of call center
services. Innotrac's fulfillment services operations record revenue at the
conclusion of performing the applicable service. Innotrac's call center
services business recognizes revenue according to written pricing
agreements based on the number of calls received by call center operators,
the length of the calls, or on an hourly rate basis. As required by the
consensus reached in Emerging Issue Task Force ("EITF") Issue No. 99-19,
revenues have been recorded net of the cost of the inventory for all
fee-for-service clients.
7
INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(UNAUDITED)
Stock-Based Compensation Plans. The Company accounts for its stock-based
compensation plans under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Since the exercise
price for all options granted under those plans was equal to the market
value of the underlying common stock on the date of grant, no compensation
cost is recognized in the accompanying condensed consolidated statements of
operations. Had compensation cost for stock options been determined under a
fair value based method, in accordance with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," as
amended by Statement of Financial Accounting Standards No. 148, the
Company's net income (loss) and net income (loss) per share would have been
the following pro forma amounts (in 000's, except per share data).
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
--------- --------- --------- ---------
Net income (loss) ......... $ 225 $ (393) $ 452 $(1,285)
Pro forma net income (loss) $ 125 $ (601) $ 253 $(1,705)
Basic and diluted net
income (loss) per share ... $0.02 $(0.03) $0.04 $ (0.11)
Basic and diluted pro
forma net income (loss)
per share ................. $0.01 $(0.05) $0.02 $ (0.15)
Under the fair value based method, compensation cost, net of tax is
$100,000 and $208,000 for the three months ended June 30, 2004 and 2003,
respectively and $199,000 and $420,000 for the six months ended June 30,
2004 and 2003, respectively.
During the three months ended June 30, 2004 and 2003, options representing
59,250 and 101,050 shares were exercised, respectively. During the six
months ended June 30, 2004 and 2003, options representing 135,000 and
116,050 shares were exercised, respectively.
2. FINANCING OBLIGATIONS
Effective May 10, 2004, the Company amended its revolving credit agreement
with a bank to reduce the maximum borrowing limit from $40.0 million to
$25.0 million and to revise certain debt covenants. Although the maximum
borrowing limit as amended is $25.0 million, the credit facility limits
borrowings to a specified percentage of eligible accounts receivable and
inventory, which totaled $16.9 million at June 30, 2004. At June 30, 2004
the Company had $12.8 million available under the revolving credit
agreement. The credit facility expires in June 2005.
The Company and its subsidiary have granted a security interest in all of
their assets and the subsidiary has provided a guarantee to the lender as
collateral under this revolving credit agreement. The revolving 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.
8
INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(UNAUDITED)
The financial covenants require the Company to maintain a minimum fixed
charge ratio of 1.30 to 1.00. The Company's fixed charge ratio at June 30,
2004 was 1.56 to 1.00. Additionally, the revolving credit agreement
contains a minimum tangible net worth requirement of $24.0 million. The
Company's tangible net worth at June 30, 2004 was $25.1 million. Compliance
with the minimum tangible net worth covenant and other financial covenants
is determined on a quarterly basis.
Interest on borrowings is payable monthly at rates equal to the prime rate,
or at the Company's option, LIBOR plus up to 225 basis points. On May 13,
2004, the Company fixed $3.0 million of its $4.1 million of borrowings at
the 90-day LIBOR rate of 2.74%. Interest expense of approximately $27,000
and $62,000 related to the 90-day LIBOR was incurred for the three and six
months ended June 30, 2004, respectively. During the three months ended
June 30, 2004 and 2003, the Company incurred interest expense related to
the line of credit of approximately $24,000 and $172,000, respectively,
resulting in a weighted average interest rate of 3.79%, and 3.46%,
respectively. During the six months ended June 30, 2004 and 2003, the
Company incurred interest expense related to the line of credit of
approximately $63,000 and $401,000, respectively, resulting in a weighted
average interest rate of 4.08% and 3.72%, respectively. The Company also
incurred unused revolving credit facility fees of approximately $22,000 and
$13,000 during the three months ended June 30, 2004 and 2003, respectively,
and $39,000 and $24,000 during the six months ended June 30, 2004 and 2003,
respectively.
3. EARNINGS PER SHARE
The following table shows the shares (in 000's) used in computing diluted
earnings per share ("EPS") in accordance with Statement of Financial
Accounting Standards No. 128:
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------
Diluted earnings per share:
Weighted average shares outstanding 11,731 11,487 11,748 11,455
Employee and director stock
options and unvested
restricted shares ................ 585 -- 753 --
------ ------ ------ ------
Weighted average shares assuming
dilution ..................... 12,316 11,487 12,501 11,455
====== ====== ====== ======
Options outstanding to purchase 333,150 shares and 112,500 shares of the
Company's common stock for the three and six months ended June 30, 2004,
respectively, and 2.2 million shares for both the three and the six months
ended June 30, 2003 were not included in the computation of diluted EPS
because their effect was anti-dilutive.
4. INCOME TAXES
Innotrac 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 basis of assets and 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. Innotrac's gross deferred tax asset as of
June 30, 2004 and
9
INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(UNAUDITED)
December 31, 2003 was approximately $12.5 million and $12.8 million,
respectively. This deferred tax asset was generated primarily by net
operating loss carryforwards created primarily by the special charge of
$34.3 million recorded in 2000 and the net losses generated in 2002 and
2003. Innotrac has a tax net operating loss carryforward of $31.5 million
at December 31, 2003 that expires between 2020 and 2023.
Innotrac's ability to generate the expected amounts of taxable income from
future operations is dependent upon general economic conditions,
competitive pressures on sales and margins and other factors beyond
management's control. These factors, combined with losses in recent years,
create uncertainty about the ultimate realization of the gross deferred tax
asset in future years. Therefore, a valuation allowance of approximately
$9.7 million and $9.9 million has been recorded as of June 30, 2004 and
December 31, 2003, respectively. Income taxes associated with future
earnings will be offset by a reduction in the valuation allowance. For the
three and six months ended June 30, 2004, an income tax provision of
$274,000 and $365,000, respectively, was offset by a corresponding
reduction of the deferred tax asset 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.
5. COMMITMENTS AND CONTINGENCIES
Shareholder Rights Plan. In December 1997, the Company's Board of Directors
approved a Shareholder Rights Plan (the "Rights Plan"). The Rights Plan
provides for the distribution of one right for each outstanding share of
the Company's common stock held of record as of the close of business on
January 1, 1998 or that thereafter becomes outstanding prior to the earlier
of the final expiration date of the rights or the first date upon which the
rights become exercisable. Each right entitles the registered holder to
purchase from the Company one one-hundredth of a share of Series A
participating cumulative preferred stock, par value $.10 per share, at a
price of $60.00 (the "Purchase Price"), subject to adjustment. The rights
are not exercisable until ten calendar days after a person or group (an
"Acquiring Person") buys, or announces a tender offer for, 15% or more of
the Company's common stock. Such ownership level has been increased to 40%
for a particular shareholder that owned approximately 26.1% of the shares
outstanding on June 30, 2004. In the event the rights become exercisable,
each right will entitle the holder to receive that number of shares of
common stock having a market value equal to the Purchase Price. If, after
any person has become an Acquiring Person (other than through a tender
offer approved by qualifying members of the board of directors), the
Company is involved in a merger or other business combination where the
Company is not the surviving corporation, or the Company sells 50% or more
of its assets, operating income, or cash flow, then each right will entitle
the holder to purchase, for the Purchase Price, that number of shares of
common or other capital stock of the acquiring entity which at the time of
such transaction have a market value of twice the Purchase Price. The
rights will expire on January 1, 2008, unless extended, unless the rights
are earlier exchanged, or unless the rights are earlier redeemed by the
Company in whole, but not in part, at a price of $0.001 per right. No
shares have been issued under the Rights Plan.
Legal Proceedings. The Company is subject to various legal proceedings and
claims that arise in the ordinary course of business. There are no material
pending legal proceedings to which the Company is a party.
Employment Commitment. In June 1999, in conjunction with the opening of a
new call center facility, the Company entered into an employment commitment
agreement with the City of Pueblo, Colorado, whereby the Company received
cash incentives of $968,000. These funds were accounted for as a reduction
in the basis of the assets acquired. In return for this consideration, the
Company is obligated to employ a minimum number of full-time employees at
its Pueblo facility, measured on a quarterly basis.
10
INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(UNAUDITED)
This obligation, which became effective June 2002, will continue through
June 2009. During the three and six months ended June 30, 2004 and 2003,
the Company had substantially met the minimum employee requirements of 359
full-time employees, as measured on a quarterly basis. In the event that
the number of full-time employees fails to meet the minimum requirement,
the Company will incur a quarterly penalty of $96.30 for each employee less
than the minimum required amount.
6. RELATED PARTY TRANSACTION
In early 2004, the Company learned that certain trading activity of the
IPOF Group, an owner of more than 5% of the outstanding Common Stock, may
have violated the short-swing profit rules under Section 16(b) of the
Securities Exchange Act of 1934. The Company promptly conducted an
investigation of the matter. On March 3, 2004, the Company and the IPOF
Group entered into a settlement agreement regarding the potential Section
16(b) liability issues that provides for the Company's recovery of
$301,957, which is due no later than March 3, 2006.
11
ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion may contain certain forward-looking statements that are
subject to conditions that are beyond the control of the Company. Actual results
may differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ include, but are
not limited to, the Company's reliance on a small number of major clients; risks
associated with the terms and pricing of our contracts; reliance on the
telecommunications and direct marketing industries and the effect on the Company
of the downturns, consolidation and changes in those industries in the past two
years; risks associated with the fluctuations in volumes from our clients; risks
associated with upgrading, customizing, migrating or supporting existing
technology; risks associated with competition; and other factors discussed in
more detail under "Business -- Certain Factors Affecting Forward-Looking
Statements" in our Annual Report on Form 10-K.
OVERVIEW
Innotrac Corporation ("Innotrac" or the "Company"), founded in 1984 and
headquartered in Atlanta, Georgia, is a full-service fulfillment and logistics
provider serving enterprise clients and world-class brands. The Company employs
sophisticated order processing and warehouse management technology and operates
seven fulfillment centers and two call centers in five cities spanning all time
zones across the continental United States.
We receive most of our 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.
Our core service offering includes the following:
- 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
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Today, the Company is primarily focused on five diverse lines of business,
or industry verticals. This is a result of a significant effort made by the
Company to diversify both its industry concentration and client base over
the last three years. Prior to 2000, the Company was primarily focused on
the telecommunications industry, with over 90% of its revenues being derived
through this vertical. While a large portion of the Company's revenues are
still derived from this industry group, the chart below is indicative of the
diversification efforts achieved in recent years.
BUSINESS MIX
Three Months Ended Six Months Ended
June 30, June 30,
Business Line/Vertical 2004 2003 2004 2003
- ---------------------- ------ ------ ------ ------
Telecommunications products 21.3% 24.9% 20.4% 23.3%
Modems .................... 17.4 19.5 19.8 19.9
Retail/Catalog ............ 27.2 27.6 25.1 26.9
Direct Marketing .......... 25.0 16.3 24.7 16.8
B2B ....................... 9.1 11.7 10.0 13.1
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
The Company continues to be 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 telephones, caller ID equipment, digital subscriber line
("DSL") and other telecommunications products to companies such as BellSouth
Corporation and Qwest Communications International, Inc. and their
customers. Inventory for our telecommunications and DSL modem clients is
held on a consignment basis, with the exception of certain BellSouth
inventory, for which we are contractually indemnified, and includes items
such as telephones, Caller ID equipment, wireless pagers, DSL modems and
ancillary equipment. We anticipate that the percentage of our revenues
attributable to telecommunications and DSL modem clients will remain fairly
constant during 2004. Based on client forecasts, we are anticipating a
decrease of approximately $1.6 million in our wireless pager business in
2004 as our one client in this area has decided to exit, offset by an
increase in our DSL modem business which is still in a strong growth mode.
The telephone and caller ID equipment business is mature, yet steady.
The Company also provides a variety of these services for a significant
number of retail, catalog and direct marketing clients which include such
companies 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 retail,
catalog and direct marketing clients via the Internet, through customer
service representatives at our Pueblo and Reno call centers or through
direct electronic transmission from our clients. The 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 for our retail, catalog
and direct marketing clients is held on a consignment basis, with minor
exceptions, and includes items such as shoes, dresses, accessories, books
and outdoor furniture. Our revenues are sensitive to the number of orders
and customer service calls received. Our client contracts do not guarantee
volumes. We anticipate that the percentage of our revenues attributable to
our retail and catalog clients will increase during 2004 due to the
anticipated additions of new channels, product lines and divisions for
existing clients, along with internal growth and a strengthening of the
overall economy. This would also be consistent with actual sales volumes
experienced in the second half of 2003, which represented an increase of
over $1.1 million from the first half of 2003. However, we have been
notified that the Martha Stewart
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Living Omnimedia business will end on March 31, 2005. For the six months
ended June 30, 2004, this client represented 4.5% of total revenues.
Revenues attributable to our direct marketing clients increased in the first
half of 2004 due to a new product introduced by one of our newer direct
marketing clients. The direct marketing vertical was weak throughout all of
2003, but has begun to rebound in the first half of 2004. However, on April
30, 2004, one of our major direct marketing clients reacquired 55% of its
outstanding stock. The impact of the change in ownership of this client and
the availability of working capital to fund this client's business cannot be
estimated at this time, but could materially impact our future results of
operations if our services for this client were reduced or discontinued. For
the six months ended June 30, 2004, this client represented 4.2% of total
revenues.
The Company also provides these services for business-to-business ("B2B")
clients including Books Are Fun, Ltd. (a subsidiary of Reader's Digest),
NAPA and The Walt Disney Company. This is a small, but growing area of our
business.
RESULTS OF OPERATIONS
The following table sets forth unaudited summary operating data, expressed
as a percentage of revenues, for the three and six months ended June 30,
2004 and 2003. The data has been prepared on the same basis as the annual
consolidated financial statements. In the opinion of management, it reflects
normal and recurring adjustments necessary for a fair presentation of the
information for the periods presented. Operating results for any period are
not necessarily indicative of results for any future period.
The financial information provided below has been rounded in order to
simplify its presentation. However, the percentages below are calculated
using the detailed information contained in the condensed consolidated
financial statements.
Three Months Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
------ ------ ------ ------
Revenues ................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................... 45.4 48.1 45.0 47.7
------ ------ ------ ------
Gross margin ............................ 54.6 51.9 55.0 52.3
Selling, general and administrative expenses 46.2 46.4 46.9 48.8
Special credits ............................ -- (0.1) -- (0.1)
Depreciation and amortization .............. 6.9 8.3 6.6 8.1
------ ------ ------ ------
Operating income (loss) ................. 1.5 (2.7) 1.5 (4.5)
Other expense, net ......................... .4 0.8 .4 1.1
------ ------ ------ ------
Income (loss) before income taxes ....... 1.1 (3.5) 1.1 (5.6)
Income tax benefit ......................... -- 1.3 -- 2.0
------ ------ ------ ------
Net income (loss) ....................... 1.1% (2.2)% 1.1% (3.6)%
====== ====== ====== ======
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30,
2003
Revenues. Net revenues increased 12.3% to $19.8 million for the three months
ended June 30, 2004 from $17.6 million for the three months ended June 30, 2003.
The increase in revenues is primarily due to an increase in volumes from our
direct marketing clients of approximately $2.2 million, along with an increase
of $522,000 from our retail/catalog business, net of decreases in our B2B and
telecom businesses of $298,000 and $162,000, respectively.
Cost of Revenues. Cost of revenues increased 5.8% to $9.0 million for the three
months ended June 30, 2004 compared to $8.5 million for the three months ended
June 30, 2003. Cost of revenues increased slightly primarily due to an overall
increase in revenues.
Gross Profit. For the three months ended June 30, 2004, the Company's gross
profit increased by $1.7 million to $10.8 million, or 54.6% of revenues,
compared to $9.1 million, or 51.9% of revenues, for the three months ended June
30, 2003. This increase in gross profit was due primarily to greater operating
efficiencies throughout our facilities, a change in the business mix and greater
revenues.
Selling, General and Administrative Expenses. S,G&A expenses for the three
months ended June 30, 2004 increased to $9.2 million, or 46.2% of revenues,
compared to $8.2 million, or 46.4% of revenues, for the same period in 2003.
This net increase was attributable to $376,000 additional allowance for doubtful
accounts, $183,000 higher facility cost in the second quarter of 2004 and the
disposal of internally developed software with a net book value of $100,000,
offset partially by $137,000 of lower information technology related costs.
Additionally, the three months ended June 30, 2003 included one-time credits
relating to contract penalty fee reversals, property tax refunds and coupon
accrual reversal, totaling approximately $485,000. The decrease as a percentage
of revenues is due to the overall increase in revenues.
Income Taxes. The Company's effective tax rate for the three months ended June
30, 2004 and 2003 was 0% and 37.3%, respectively. At December 31, 2003, a
valuation allowance was recorded against the Company's net deferred tax assets
as losses in recent years created uncertainty about the realization of tax
benefits in future years. Income taxes associated with earnings for the three
months ended June 30, 2004 were offset by a reduction of this valuation
allowance resulting in an effective tax rate of 0% for the three months ended
June 30, 2004.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
Revenues. Net revenues increased 10.7% to $39.8 million for the six months ended
June 30, 2004 from $36.0 million for the six months ended June 30, 2003. The
increase in revenues is primarily due to an increase in volumes from our direct
marketing clients of approximately $3.7 million, along with an increase of
$704,000 from our DSL and cable modem clients and an increase of $280,000 in our
retail/catalog business, net of decreases in our B2B and telecom businesses of
$775,000 and $245,000, respectively.
Cost of Revenues. Cost of revenues increased 4.4% to $17.9 million for the six
months ended June 30, 2004 compared to $17.2 million for the six months ended
June 30, 2003. Cost of revenues increased slightly primarily due to an overall
increase in revenues.
Gross Profit. For the six months ended June 30, 2004, the Company's gross profit
increased by $3.1 million to $21.9 million, or 55.0% of revenues, compared to
$18.8 million, or 52.3% of revenues, for the six months ended June 30, 2003.
This increase in gross profit was due primarily to greater operating
efficiencies throughout our facilities, a change in the business mix and greater
revenues.
Selling, General and Administrative Expenses. S,G&A expenses for the six months
ended June 30, 2004 increased to $18.6 million, or 46.9% of revenues, compared
to $17.5 million, or 48.8% of revenues, for the same period in 2003. This net
increase was attributable to $840,000 additional allowance for doubtful
accounts, $470,000 higher facility cost in the first half of 2004, offset
partially by $330,000 of lower information technology related costs and $314,000
of lower account services related costs. Additionally, the three months ended
June 30, 2003 included one-time credits relating to contract penalty fee
reversals, property tax refunds and coupon accrual reversal, totaling
approximately $485,000. The decrease as a percentage of revenues is due to the
overall increase in revenues.
Income Taxes. The Company's effective tax rate for the six months ended June 30,
2004 and 2003 was 0% and 36.8%, respectively. At December 31, 2003, a valuation
allowance was recorded against the Company's net deferred tax assets as losses
in recent years created uncertainty about the realization of tax benefits in
future years. Income taxes associated with earnings for the six months ended
June 30, 2004 were offset by a reduction of this valuation allowance resulting
in an effective tax rate of 0% for the six months ended June 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations and capital expenditures primarily through cash
flow from operations and borrowings under a credit facility with a bank. The
Company had cash and cash equivalents of approximately $1.4 million at June 30,
2004 as compared to $2.2 million at December 31, 2003. Additionally, the Company
had reduced its borrowings under its revolving credit facility (discussed below)
to $4.1 million outstanding at June 30, 2004 as compared to $11.8 million at
December 31, 2003. The Company generated positive cash flow from operations of
$7.9 million during the six months ended June 30, 2004. The Company also
generated positive cash flow from operations for all of 2003. We anticipate
positive cash flows from operations during the remainder of 2004. One of the
primary contributors to generating cash in the first half of 2004 was a further
reduction in inventory of approximately $5.9 million. This also contributed to a
further reduction in borrowings under our revolving credit facility of
approximately $7.7 million. Capital expenditures were $1.3 million in the first
half of 2004. We anticipate capital expenditures of approximately $2.5 million
to $3.0 million for all of 2004. This estimate is subject to various
contingencies, including the possible need to incur additional capital
expenditures related to new clients, the need to open new facilities or
significant new initiatives by existing clients.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company currently has a revolving credit agreement with a bank maturing in
June 2005. Although the facility has a maximum borrowing limit of $25.0 million,
the credit facility limits borrowings to a specified percentage of eligible
accounts receivable and inventory, which totaled $16.9 million at June 30, 2004.
We recently reduced the maximum borrowing amount of this facility from $40.0
million to $25.0 million as the Company does not anticipate a need for the
larger amount. The Company and its subsidiary have granted a security interest
in all of their assets and the subsidiary has provided a guarantee to the lender
as collateral under this revolving credit agreement. The revolving credit
agreement contains various restrictive financial and change of ownership control
covenants. The provisions of the revolving credit agreement require 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 under the credit agreement.
Accordingly, in the event of noncompliance, these amounts could be accelerated.
Interest on borrowings is payable monthly at rates equal to the prime rate, or
at the Company's option, LIBOR plus up to 225 basis points. On May 13, 2004, the
Company fixed $3.0 million of its $4.1 million of borrowings at a 90-day LIBOR
rate of 2.74%. Interest expense of approximately $27,000 and $62,000 related to
the 90-day LIBOR rate was incurred for the three and six months ended June 30,
2004, respectively. During the three months ended June 30, 2004, and 2003 the
Company also incurred interest expense related to the line of credit of
approximately $24,000, and $172,000, respectively. During the six months ended
June 30, 2004, and 2003 the Company incurred interest expense related to the
line of credit of approximately $63,000 and $401,000, respectively. At June 30,
2004, the Company had $12.8 million of additional availability under the
revolving credit agreement.
During the six months ended June 30, 2004, the Company generated $7.9 million in
cash flow from operating activities compared to a use of $4.5 million in cash
flow from operating activities in the same period in 2003. The increase in cash
provided from operating activities was primarily the result of the sale of $5.9
million in inventory. In 2003, the use of cash primarily related to the payment
for $6.2 million of inventory received in the fourth quarter of 2002.
During the six months ended June 30, 2004, net cash used in investing activities
for capital additions was $1.3 million as compared to $655,000 in 2003. All of
these expenditures were funded through existing cash on hand, cash flow from
operations and borrowings under the Company's credit facility.
During the six months ended June 30, 2004, the net cash used in financing
activities was $7.4 million compared to $5.0 million provided by financing
activities in the same period in 2003. The primary difference between years is
attributable to borrowings of $4.6 million under the credit facility in 2003
versus a reduction in outstanding borrowings of $7.7 million in 2004.
Additionally, during 2004, the Company generated cash of $643,000 through the
exercise of previously granted employee stock options, compared to $472,000
generated during the same period in 2003. We anticipate that additional employee
stock options will be exercised during the second half of 2004 resulting in
additional cash payments to the Company.
The Company estimates that its cash and financing needs through 2004 will be met
by cash flows from operations and its credit facility. The Company has generated
positive cash flows from operations in each of the last three years and
anticipates doing so again in 2004. The Company may need to raise additional
funds in order to take advantage of unanticipated opportunities, such as
acquisitions of complementary businesses. There can be no assurance that the
Company will be able to raise any such capital on terms acceptable to the
Company or at all.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those policies that can have a significant
impact on the presentation of our financial position and results of operations
and demand the most significant use of subjective estimates and management
judgment. Because of the uncertainty inherent in such estimates, actual results
may differ from these estimates. Specific risks inherent in our application of
these critical policies are described below. For all of these policies, we
caution that future events rarely develop exactly as forecasted, and the best
estimates routinely require adjustment. These policies often require difficult
judgments on complex matters that are often subject to multiple sources of
authoritative guidance. Additional information concerning our accounting
policies can be found in Note 1 to the condensed consolidated financial
statements in this Form 10-Q and Note 2 to the condensed consolidated financial
statements appearing in our Annual Report on Form 10-K for the year ended
December 31, 2003. The policies that we believe are most critical to an
investor's understanding of our financial results and condition and require
complex management judgment are discussed below.
Goodwill and Other Acquired Intangibles. The Company accounts for goodwill and
other intangible assets in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets". Under SFAS No. 142, goodwill impairment is deemed to exist
if the net book value of a reporting unit exceeds its estimated fair value.
Innotrac's goodwill carrying amount as of June 30, 2004 was $25.2 million. This
asset relates to the goodwill associated with the Company's acquisition of
Universal Distribution Services ("UDS") in December 2000 (including an earnout
payment made to the former UDS shareholders in February 2002), and the
acquisition of iFulfillment, Inc. in July 2001. In accordance with SFAS No. 142,
the Company performed a goodwill valuation in the first quarter of 2004. The
valuation supported that the fair value of the reporting unit at January 1, 2004
exceeded the carrying amount of the net assets, including goodwill, and thus no
impairment was determined to exist. The Company performs this impairment test
annually as of January 1 or sooner if circumstances indicate.
Deferred Tax Asset. Innotrac 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 basis of assets and 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. Innotrac's gross deferred tax asset as of June 30,
2004 and December 31, 2003 was approximately $12.5 million. This deferred tax
asset was generated primarily by net operating loss carryforwards created
primarily by the special charge of $34.3 million recorded in 2000 and the net
losses generated in 2002 and 2003. Innotrac has a tax net operating loss
carryforward of $31.5 million at December 31, 2003 that expires between 2020 and
2023.
Innotrac's ability to generate the expected amounts of taxable income from
future operations is dependent upon general economic conditions, competitive
pressures on sales and margins and other factors beyond management's control.
These factors, combined with losses in recent years, create uncertainty about
the ultimate realization of the gross deferred tax asset in future years.
Therefore, a valuation allowance of approximately $9.7 million and $9.9 million
has been recorded as of June 30, 2004 and December 31, 2003. Income taxes
associated with future earnings will be offset by a reduction in the valuation
allowance. For the three and six months ended June 30, 2004, an income tax
provision of $274,000 and $365,000, respectively, was offset by a corresponding
reduction of the deferred tax asset 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.
Accounting Estimates. 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
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. These estimates are based on the aging of the
receivables and known specific facts and circumstances. One direct marketing
client, with a substantial past due balance at June 30, 2004 and December 31,
2003, entered into a payment arrangement with Innotrac in February 2004.
Although the terms of this arrangement were subsequently breached, payments of
approximately $2.0 million towards this past due amount were received in
February through July 2004. Due primarily to the financial condition, payment
history and aging of the receivables of this client, the Company established a
specific reserve of $1.1 million for this account at December 31, 2003. This
specific reserve was increased to $2.1 million at June 30, 2004 due primarily to
the breach of the previous arrangement and further deterioration in the aging of
the receivable which totaled approximately $2.7 million at June 30, 2004.
Management will continue to assess the level of reserve needed against this
account on a quarterly basis.
19
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Management believes the Company's exposure to market risks (investments,
interest rates and foreign currency) is immaterial. Innotrac holds no market
risk sensitive instruments for trading purposes. At present, the Company does
not employ any derivative financial instruments, other financial instruments or
derivative commodity instruments to hedge any market risks and does not
currently plan to employ them in the future. The Company does not transact any
sales in foreign currency. To the extent that the Company has borrowings
outstanding under its credit facility, the Company will have market risk
relating to the amount of borrowings due to variable interest rates under the
credit facility. The Company believes this exposure is immaterial due to the
short-term nature of these borrowings. Additionally, all of the Company's lease
obligations are fixed in nature as discussed in our Annual Report on Form 10-K
for the year ended December 31, 2003 and other filings on file with the
Securities and Exchange Commission.
ITEM 4 - 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 June 30, 2004. 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 have
materially affected, or are reasonably likely to materially affect, Innotrac's
internal control over financial reporting during the second quarter of 2004.
20
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 17, 2004, the Company held its annual meeting of shareholders in Duluth,
Georgia. As of the record date, March 31, 2004, there were 11,833,193 shares of
Common Stock issued, outstanding and entitled to vote at the annual meeting.
Represented at the meeting in person or by proxy were 11,638,088 shares
representing 98.35% of the total shares of Common Stock entitled to vote at the
meeting.
The purpose of the meeting was to re-elect the following two directors to a
three-year term expiring in 2007. The following table sets forth the number of
votes cast "for" reelection and the number of votes "withheld" for each
director. There were no abstentions or broker non-votes.
NUMBER OF VOTES
---------------
FOR WITHHELD
--- --------
Scott D. Dorfman................... 11,511,158 126,930
Alston Gardner..................... 11,627,901 10,187
The directors whose terms continued after the meeting are Bruce V. Benator,
Martin J. Blank, Joel E. Marks and David L. Gamsey.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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)/15a - 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.
(b) Reports on Form 8-K:
On May 10, 2004, the Company furnished to the Commission pursuant to
Item 12 of Form 8-K its press release announcing the Company's
financial results for the first quarter of 2004.
21
SIGNATURES
Pursuant to the requirements 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.
INNOTRAC CORPORATION
(Registrant)
Date: August 13, 2004 By: /s/ Scott D. Dorfman
--------------------------------------------
Scott D. Dorfman
President, Chief Executive Officer and
Chairman of the Board (Principal Executive
Officer)
Date: August 13, 2004 /s/ David L. Gamsey
--------------------------------------------
David L. Gamsey
Senior Vice President, Chief Financial
Officer and Secretary (Principal Financial
and Accounting Officer)
22