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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A




|                                                                                           
|-------------------------------------------------------------------------------------------
|(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|                                                                                           
|For the Quarterly Period Ended March 31, 2002                                              
|                                                                                           
|OR                                                                                         
|                                                                                           
|(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934       
|                                                                                           
|For the transition period from   to                                                        

Commission file number 000-23740

INNOTRAC CORPORATION

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Georgia                                                        |  | 58-1592285                             
|                                                               |  |                                        
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
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 the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

|                               |  |                                 
|------------------------------ |  | --------------------------------
|                               |  | Outstanding at November 12, 2002
|                               |  |                                 
|Common Stock at $.10 par value |  | 11,674,595 Shares               





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TABLE OF CONTENTS



|                                             |                                                                                                |                                                           |  |  |  |  |  | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|EXPLANATORY NOTE                            
|Part I  Financial Information              
|                                             | Item 1  FInancial Statements                                                                 
|Part I. Financial Information               
|                                             | Item 1. Financial Statements:                                                                 
|                                             |                                                                                                | CONDENSED CONSOLIDATED BALANCE SHEETS                    
|                                             |                                                                                                | CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
|                                             |                                                                                                | CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                             |                                                                                                | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     
|                                             | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
|Part II  Other Information                 
|                                             | Item 6  Exhibits and Reports on Form 8-K                                                     
|Signatures                                  
|CERTIFICATIONS                              
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-99.2 SECTION 906 CERTIFICATION OF THE CFO



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INDEX

|                 |  |                       |  |                                                                                                                             |  |     
|---------------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----
|                 |  |                       |  |                                                                                                                             |  | Page
|                 |  |                       |  |                                                                                                                             |  |     
|Explanatory Note |  | 2                    
|Part I           |  | Financial Information |  |                                                                                                                            
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  | Item 1.               |  | Financial Statements:                                                                                                       |  | 3   
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  |                       |  | Condensed Consolidated Balance Sheets 
March 31, 2002 and December 31, 2001 (Unaudited)                                    |  | 4   
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  |                       |  | Condensed Consolidated Statement of Operations for the
Three Months Ended March 31, 2002 and 2001 (as Restated) (Unaudited) |  | 5   
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  |                       |  | Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2002 and 2001 (Unaudited)               |  | 6   
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  |                       |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                            |  | 7   
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                                       |  | 11  
|                 |  |                       |  |                                                                                                                             |  |     
|Part II          |  | Other Information     |  |                                                                                                                            
|                 |  |                       |  |                                                                                                                             |  |     
|                 |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                                            |  | 17  
|                 |  |                       |  |                                                                                                                             |  |     
|Signatures       |  |                       |  | 18                                                                                                                         
|                 |  |                       |  |                                                                                                                             |  |     
|Certifications   |  |                       |  | 19                                                                                                                         

1



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EXPLANATORY NOTE

The Company is filing this amendment to its Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
2002 in order to properly reflect the adoption of a new accounting
standard and to retroactively apply this standard for all periods
presented. In January 2002, the Emerging Issues Task Force
(EITF) of the Financial Accounting Standards Board
concluded in EITF No. 01-14, Income Statement Characterization
of Reimbursements Received for Out-of-Pocket Expenses Incurred,
that reimbursements received from customers for out-of-pocket
expenses incurred on their behalf should be characterized as revenue
in the statement of operations. Prior to the adoption of this
standard, the Company netted reimbursements from customers,
primarily for freight and postage fees, against the related expenses,
with the result that reimbursements were
not included in revenues and out-of-pocket expenses were not included
in cost of revenues. With the adoption of this standard, effective
for reporting periods beginning after December 15, 2001, the
Company has reclassified out-of-pocket expenses incurred and
reimbursements from customers for those expenses as cost of revenues
and revenues, respectively.

Adoption of this accounting standard results in no
change to operating or net income or earnings per share or to the consolidated balance
sheets or consolidated statements of cash flows for the three month period ended March 31, 2002 or any prior
periods presented, and we anticipate no net impact on operating or
net income or earnings per share or the balance sheets or cash flow statements for future
periods because of this standard. The only impact of EITF Issue
No. 01-14 was to increase revenues and cost of revenues equally
by $4.7 million and $7.9 million for the three months ended
March 31, 2002 and 2001, respectively.

2



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PART I  FINANCIAL INFORMATION




ITEM 1 - FINANCIAL
STATEMENTS

The following condensed consolidated financial
statements of Innotrac Corporation, a Georgia corporation (the
Company), have been prepared in accordance with the
instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America. Certain amounts in the prior year have been
reclassified to conform to the current presentation. 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 months ended
March 31, 2002 are not necessarily indicative of the results for
the entire year ending December 31, 2002. These financial
statements should be read in conjunction with
the consolidated financial statements and notes thereto included in
the Companys 10-K filing and annual report.

3



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INNOTRAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)

|                             |                                                                                                      |                                            |                           |                                      |        |        |        |         |        |        |  | 
|---------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | ------------------------------------ | ------ | ------ | ------ | ------- | ------ | ------ |  | 
|ASSETS                       |                                                                                                      | March 31, 2002                             |                           | December 31, 2001                   
|                             |                                                                                                      |                                            |                           |                                     
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |         |        |       
|Current assets:              |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             | Cash and cash equivalents                                                                            |                                            | $                         | 73                                   |        |        | $      | 9,413   |       
|                             | Accounts receivable, net                                                                             |                                            |                           | 21,679                               |        |        |        | 13,662  |       
|                             | Inventories, net                                                                                     |                                            |                           | 20,846                               |        |        |        | 27,264  |       
|                             | Deferred income taxes                                                                                |                                            |                           | 1,875                                |        |        |        | 2,736   |       
|                             | Prepaid expenses and other                                                                           |                                            |                           | 5,323                                |        |        |        | 5,018   |       
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      |                                            | Total current assets      |                                      |        | 49,796 |        |         |        | 58,093 | 
|Property and equipment:      |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             | Rental equipment                                                                                     |                                            |                           | 1,825                                |        |        |        | 2,003   |       
|                             | Computer, machinery and equipment                                                                    |                                            |                           | 20,449                               |        |        |        | 19,715  |       
|                             | Furniture, fixtures and leasehold improvements                                                       |                                            |                           | 4,097                                |        |        |        | 4,005   |       
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      |                                            | 26,371                    |                                      |        |        | 25,723 |        
|                             | Less accumulated depreciation and amortization                                                       |                                            |                           | (10,640                              | )      |        |        | (11,223 | )     
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      |                                            | 15,731                    |                                      |        |        | 14,500 |        
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|Goodwill                     |                                                                                                      |                                            | 25,213                    |                                      |        |        | 25,213 |        
|Deferred income taxes        |                                                                                                      |                                            | 0                         |                                      |        |        | 438    |        
|Intangibles,
net             |                                                                                                      |                                            | 824                       |                                      |        |        | 958    |        
|Other assets                 |                                                                                                      |                                            | 193                       |                                      |        |        | 191    |        
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      | Total
assets                               |                           | $                                    | 91,757 |        |        | $       | 99,393 |       
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      |                                            |                           | LIABILITIES AND SHAREHOLDERS EQUITY |        |        |        |         |        |        |  | 
|Current liabilities:         |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             | Accounts payable                                                                                     |                                            | $                         | 13,571                               |        |        | $      | 8,581   |       
|                             | Accrued earn-out payment                                                                             |                                            |                           | 0                                    |        |        |        | 15,275  |       
|                             | Accrued expenses and other                                                                           |                                            |                           | 9,817                                |        |        |        | 11,861  |       
|                             | Line of credit                                                                                       |                                            |                           | 2,334                                |        |        |        | 0       |       
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      |                                            | Total current liabilities |                                      |        | 25,722 |        |         |        | 35,717 | 
|Total noncurrent liabilities |                                                                                                      |                                            | 397                       |                                      |        |        | 393    |        
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      |                                            | Total liabilities         |                                      |        | 26,119 |        |         |        | 36,110 | 
|Shareholders equity:        |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             | Common
stock, $.10 par value, 50,000,000 shares authorized, 11,674,595
shares issued and outstanding |                                            |                           | 1,167                                |        |        |        | 1,136   |       
|                             | Additional paid-in capital                                                                           |                                            |                           | 62,560                               |        |        |        | 61,023  |       
|                             | Retained earnings                                                                                    |                                            |                           | 2,166                                |        |        |        | 1,201   |       
|                             | Accumulated other comprehensive income                                                               |                                            |                           | 0                                    |        |        |        | 178     |       
|                             | Less: Treasury stock                                                                                 |                                            |                           | (255                                 | )      |        |        | (255    | )     
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      | Total shareholders equity                 |                           |                                      | 65,638 |        |        |         | 63,283 |       
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        
|                             |                                                                                                      | Total liabilities and shareholders equity |                           | $                                    | 91,757 |        |        | $       | 99,393 |       
|                             |                                                                                                      |                                            |                           |                                      |        |        |        |        

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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Financial Statements-Continued




INNOTRAC CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2002 and 2001
(In thousands, except per share amounts)

|                                                        |                                              |                          |              |                         |        |                              |        |        |        |        |      |  
|------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------------ | ----------------------- | ------ | ---------------------------- | ------ | ------ | ------ | ------ | ---- | -
|                                                        |                                              |                          |              |                         |        | Three Months Ended March 31,
|                                                        |                                              |                          |              |                         |        |                             
|                                                        |                                              |                          |              |                         |        | 2002                        
|                                                        |                                              |                          |              |                         |        | (As
Restated,See Note 1)     |        | 2001  
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Revenues, net                                           |                                              | $                        | 16,330       |                         |        | $                            | 24,921 |       
|Reimbursable
costs                                      |                                              |                          | 4,718        |                         |        |                              | 7,949  |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        |                                              | Total
revenues           |              |                         | 21,048 |                              |        |        | 32,870 |       
|Cost of revenues                                        |                                              |                          | 6,989        |                         |        |                              | 11,309 |       
|Reimbursable
costs                                      |                                              |                          | 4,718        |                         |        |                              | 7,949  |       
|Special credit                                          |                                              |                          | (293         | )                       |        |                              |       |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        |                                              | Total
costs of revenues  |              |                         | 11,414 |                              |        |        | 19,258 |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        |                                              |                          | Gross
margin |                         |        | 9,634                        |        |        |        | 13,612 |     
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Operating expenses:                                     |                                              |                          |              |                         |        |                              |        |       
|                                                        | Selling, general and administrative expenses |                          |              | 7,794                   |        |                              |        | 13,240 |       
|                                                        | Special credit                               |                          |              | (962                    | )      |                              |        | 0      |       
|                                                        | Depreciation and amortization                |                          |              | 1,218                   |        |                              |        | 1,196  |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        |                                              | Total operating expenses |              |                         | 8,050  |                              |        |        | 14,436 |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        |                                              |                          |              | Operating income (loss) |        |                              | 1,584  |        |        |        | (824 | )
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Other income, net                                       |                                              |                          | (4           | )                       |        |                              | (213   | )     
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Income (loss) before income taxes and minority interest |                                              |                          | 1,588        |                         |        |                              | (611   | )     
|Income tax (provision) benefit                          |                                              |                          | (622         | )                       |        |                              | 240    |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Net income (loss) before minority interest              |                                              |                          | 966          |                         |        |                              | (371   | )     
|Minority interest, net of income tax benefit            |                                              |                          | 0            |                         |        |                              | 871    |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        |                                              |                          |              | Net income              |        | $                            | 966    |        |        | $      | 500  |  
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Basic and diluted earnings per share:                   |                                              |                          |              |                         |        |                              |        |       
|                                                        | Basic                                        |                          | $            | 0.08                    |        |                              | $      | 0.04   |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        | Diluted                                      |                          | $            | 0.08                    |        |                              | $      | 0.04   |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|Weighted average shares outstanding:                    |                                              |                          |              |                         |        |                              |        |       
|                                                        | Basic                                        |                          |              | 11,516                  |        |                              |        | 11,319 |       
|                                                        |                                              |                          |              |                         |        |                              |        |       
|                                                        | Diluted                                      |                          |              | 11,790                  |        |                              |        | 11,540 |       
|                                                        |                                              |                          |              |                         |        |                              |        |       

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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Financial Statements-Continued




INNOTRAC CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2002 and 2001
(In thousands)

|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |      |        |        |        |  
|---------------------------------------------------- | --------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------- | ------- | ---------------------------- | ------- | ---- | ------ | ------ | ------ | -
|                                                     |                                   |                                                                                   |                                                              |                                                     |         | Three Months Ended March 31,
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                             
|                                                     |                                   |                                                                                   |                                                              |                                                     |         | 2002                         |         | 2001
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Cash flows from operating activities:                |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   | Net income                                                                        |                                                              | $                                                   | 966     |                              |         | $    | 500    |       
|                                                     |                                   | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                              |                                                     |         |                              |         |      |        |       
|                                                     |                                   |                                                                                   | Depreciation and amortization                                |                                                     |         | 1,218                        |         |      |        | 1,196  |       
|                                                     |                                   |                                                                                   | Loss on disposal of fixed assets                             |                                                     |         | 501                          |         |      |        | 4      |       
|                                                     |                                   |                                                                                   | Deferred income taxes                                        |                                                     |         | 1,324                        |         |      |        | 742    |       
|                                                     |                                   |                                                                                   | Minority interest in subsidiary                              |                                                     |         | 0                            |         |      |        | (871   | )     
|                                                     |                                   |                                                                                   | Amortization of deferred compensation                        |                                                     |         |                              |         |      |        |        |       
|                                                     |                                   | Changes
in operating assets and liabilities:                                      |                                                              |                                                     | 18      |                              |         |      | 33     |       
|                                                     |                                   |                                                                                   | (Increase) decrease in accounts receivable                   |                                                     |         | (8,017                       | )       |      |        | 4,918  |       
|                                                     |                                   |                                                                                   | Realized gain on sale of marketable securities               |                                                     |         | (76                          | )       |      |        | 0      |       
|                                                     |                                   |                                                                                   | Decrease in inventories                                      |                                                     |         | 6,418                        |         |      |        | 1,231  |       
|                                                     |                                   |                                                                                   | Increase in prepaid expenses and other                       |                                                     |         | (920                         | )       |      |        | (1,125 | )     
|                                                     |                                   |                                                                                   | Decrease (increase) in accounts payable and accrued expenses |                                                     |         | 3,002                        |         |      |        | (2,278 | )     
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   |                                                                                   |                                                              | Net cash provided by operating activities           |         |                              | 4,434   |      |        |        | 4,350  |  
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Cash flows from investing activities:                |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   | Capital expenditures                                                              |                                                              |                                                     | (2,821  | )                            |         |      | (2,317 | )     
|                                                     |                                   | Earn-out
payment                                                                  |                                                              |                                                     | (13,727 | )                            |         |      | 0      |       
|                                                     |                                   | Sale of marketable securities                                                     |                                                              |                                                     | 511     |                              |         |      | 0      |       
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   |                                                                                   |                                                              | Net cash used in investing activities               |         |                              | (16,037 | )    |        |        | (2,317 | )
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Cash flows from financing activities:                |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   | Net borrowings under line of credit                                               |                                                              |                                                     | 2,334   |                              |         |      | 0      |       
|                                                     |                                   | Repayment of capital lease obligations                                            |                                                              |                                                     | (71     | )                            |         |      | (22    | )     
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   |                                                                                   |                                                              | Net cash provided by (used in) financing activities |         |                              | 2,263   |      |        |        | (22    | )
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Net (decrease) increase in cash and cash equivalents |                                   |                                                                                   | (9,340                                                       | )                                                   |         |                              | 2,011   |     
|Cash and cash equivalents, beginning of period       |                                   |                                                                                   | 9,413                                                        |                                                     |         |                              | 18,334  |     
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Cash and cash equivalents, end of period             |                                   | $                                                                                 | 73                                                           |                                                     |         | $                            | 20,345  |     
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Supplemental cash flow disclosures:                  |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   | Cash paid for interest                                                            |                                                              | $                                                   | 85      |                              |         | $    | 0      |       
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     |                                   | Cash paid for income taxes, net of refunds received                               |                                                              | $                                                   | (18     | )                            |         | $    | 0      |       
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|Noncash transactions:                                |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     
|                                                     | Stock issued for earn-out payment |                                                                                   | $                                                            | 1,550                                               |         |                              | $       | 0    |       
|                                                     |                                   |                                                                                   |                                                              |                                                     |         |                              |         |     

The accompanying notes are an integral part of these condensed consolidated
financial statements.

6



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INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 AND 2001
(Unaudited)



|1. |  | SIGNIFICANT ACCOUNTING POLICIES
|-- |  | -------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Except as set forth below, 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 Form 10-K filed with the Securities and Exchange
Commission on March 28, 2002 for the year ended December 31, 2001.
Certain prior year amounts have been reclassified to conform with current
year financial statement presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Subsequent to the issuance of the
unaudited condensed consolidated financial statements for the quarter ended March 31, 2002, management determined that
the Emerging Issues
Task Force (EITF) No. 01-14, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket
Expenses Incurred , should have been adopted by the Company as of January 1, 2002. EITF No.01-14 states that reimbursements received from customers
for out-of-pocket expenses incurred on their behalf should be
characterized as revenue in the statement of operations. Prior to the
adoption of this standard, the Company netted reimbursements from
customers, primarily for freight and postage fees, against
the related expenses, with the result
that reimbursements were not included in revenues and out-of-pocket
expenses were not included in cost of revenues. With the adoption of
this standard, effective for reporting periods beginning after
December 15, 2001, the Company has reclassified reimbursements
from customers for these
expenses as revenues, and has conformed this presentation for all periods presented.
|
| | Adoption of this accounting standard
results in no change to operating or net income or earnings per share or to the
consolidated balance sheets or consolidated statements of cash flows
for the three month period ended March 31,
2002. The impact of the adoption of EITF No. 01-14 was to increase revenues and cost of
revenues equally by $4.7 million and $7.9 million for the three months ended
March 31, 2002 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



|2. |  | SPECIAL CHARGES
|-- |  | ---------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | At March 31, 2002 and December 31, 2001, the Company had approximately
$2.4 million and $4.6 million, respectively, in accruals related to the
special charges incurred during the year ended December 31, 2000. The
remaining accruals at March 31, 2002 included $700,000 for the
Companys shift to a fee-for-service business model and $1.7 million for
e-commerce costs. Cash payments for the three months ended March 31, 2002
were approximately $500,000. The Company recognized $1.3 million
into income during the first
quarter of 2002 related to the gains realized on sales of inventory
items and cash collected for accounts receivable items that were
written off as special charges in previous periods. The majority of the remaining accruals
are expected to be utilized during the year ending December 31, 2002.
|



|3. |  | FINANCING OBLIGATIONS
|-- |  | ---------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has a revolving credit agreement with a bank for borrowings up
to $40 million. The line of credit is secured by all assets of the Company
and was scheduled to expire on June 1, 2002. However, in May
2002 the Company was granted a renewal through June 1, 2005
under similar terms and conditions of the existing revolving credit
agreement. At
March 31, 2002, the Company had an outstanding balance of $2.3 million
under the line of credit. There was no balance outstanding at December 31,
2001. The revolving line of credit agreement contains various restrictive
financial and change of ownership control covenants. At March 31, 2002,
the Company was in compliance with all covenants.



| |                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. During the
three months ended March 31, 2002, the Company incurred interest expense
related to the line of credit of approximately $34,000 based at a weighted
average interest rate of 4.38%.

7



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##### Table of Contents



INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 AND 2001
(Unaudited)



|4. |  | MINORITY INTERESTS
|-- |  | ------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company had a majority ownership in Return.com Online, LLC
(Return.com) during the three months ended March 31,
2001. The remaining interest was owned by Mail Boxes Etc
(MBE). In March 2001, United Parcel Services, Inc. (UPS) announced a
definitive agreement to purchase MBE. As a result of this agreement, the
Company agreed to reacquire MBEs 40% ownership interest in Return.com in
April 2001. The note receivable of $3.4 million due from MBE was forgiven
by the Company in exchange for MBEs ownership interest in Return.com,
resulting in 100% ownership by the Company. All remaining contractual
commitments for additional funding by the Company were also cancelled.



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the three months ended March 31, 2001, the Company recorded $2.8
million in impairment reserves for its investment in Return.com. The
Company utilized these reserves during the fourth quarter of 2001 to write
off its investment in Return.com. At December 31, 2001, Return.com was no
longer in operation.



|5. |  | EARNINGS PER SHARE
|-- |  | ------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table shows the amounts used in computing earnings per share
(EPS) in accordance with Statement of Financial
Accounting Standards (SFAS) No.
128, Earnings Per Share, and the effects on income and the weighted average number of shares of
potential diluted common stock. Certain options outstanding to purchase
shares of the Companys common stock aggregating 1.1 million and 1.0
million were not included in the computation of diluted EPS for the three
months ended March 31, 2002 and 2001, respectively, because their effect
was anti-dilutive. Shares used to compute diluted EPS for the three
months ended March 31, 2002 and 2001 are as follows (in 000s):

|                            |                                           |  |                    |        |      |  |  |        | 
|--------------------------- | ----------------------------------------- |  | ------------------ | ------ | ---- |  |  | ------ | 
|                            |                                           |  | Three Months Ended
|                            |                                           |  | March 31,         
|                            |                                           |  |                   
|                            |                                           |  | 2002               |        | 2001
|                            |                                           |  |                    |        |     
|Diluted earnings per share: |                                           |  |                    |        |      |  |  |       
|                            | Weighted average shares outstanding       |  |                    | 11,516 |      |  |  | 11,319 | 
|                            | Employee and director stock options       |  |                    | 274    |      |  |  | 221    | 
|                            |                                           |  |                    |        |      |  |  |       
|                            | Weighted average shares
assuming dilution |  |                    | 11,790 |      |  |  | 11,540 | 
|                            |                                           |  |                    |        |      |  |  |       

8



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##### Table of Contents



INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 AND 2001
(Unaudited)



|6. |  | OTHER COMPREHENSIVE INCOME
|-- |  | --------------------------



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 130, Reporting
Comprehensive Income, established standards for reporting and
display of comprehensive income and its components in financial
statements. The components of the Companys comprehensive income are
as follows (in thousands):

|                            |                                                              |   |                    |      |      |   |     |     | 
|--------------------------- | ------------------------------------------------------------ | - | ------------------ | ---- | ---- | - | --- | --- | 
|                            |                                                              |   | Three Months Ended
|                            |                                                              |   | March 31,         
|                            |                                                              |   |                   
|                            |                                                              |   | 2002               |      | 2001
|                            |                                                              |   |                    |      |     
|Other
comprehensive income: |                                                              |   |                    |      |      |   |     |    
|                            | Net
income                                                   |   | $                  | 966  |      |   | $   | 500 | 
|                            | Reclassification
adjustment for gains included in net income |   |                    | (178 | )    |   |     | 0   | 
|                            |                                                              |   |                    |      |      |   |     |    
|Comprehensive
income        |                                                              | $ | 788                |      |      | $ | 500 |    
|                            |                                                              |   |                    |      |      |   |     |    



|7. |  | RECENT ACCOUNTING PRONOUNCEMENTS
|-- |  | --------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 2001, the Financial Accounting Standards Board (FASB) issued
 SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS 141 prohibits the use of pooling-of-interest for
business combinations initiated after June 30, 2001 and also applies to all
business combinations accounted for by the purchase method that are
completed after June 30, 2001. There are also transition provisions that
apply to business combinations completed before July 1, 2001, that were
accounted for by the purchase method. SFAS 142 changes the accounting for
goodwill and other indefinite life intangible assets from an amortization
method to an impairment only approach.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company adopted these statements
effective January 1, 2002. In accordance with SFAS No. 142, the Company
no longer amortizes goodwill. The Company has intangible assets that
continue to be subject to amortization under the provisions of
SFAS 142. The intangible assets consist of acquired customer
contracts which are amortized over
a period of 1 to 5 years on a straight-line basis. At March 31,
2002 and December 31, 2001, the Company had other intangible assets of
approximately $824,000 and $943,000, net of accumulated amortization
of $436,000 and $67,000, respectively. Amortization expense of the
intangible assets amounted to approximately $113,000 and $51,000
during the first quarters of 2002 and 2001, respectively. During the three months ended March 31, 2001,
amortization expense associated with goodwill was approximately $42,000.
As according to the provisions of SFAS 142, the Companys proforma
consolidated net income and diluted earnings per share for the three months
ended March 31, 2001 excluding amortization of goodwill would have been
approximately $525,000 and $0.05 per share, respectively. The Company
plans to complete its transition impairment analysis required upon the adoption of
SFAS 142 during the second quarter of 2002 and will recognize an impairment, if any, at that time as a cumulative effect of a change in accounting principle.
|
| | The Company has intangible assets that
continue to be subject to amortization under the provisions of SFAS
No. 142. The intangible assets consist of acquired customer contracts
which are amortized over a period of 1 to 5 years on a straight-line
basis. At March 31, 2002 and December 31, 2001, the Company had
intangible assets, consisting primarily of customer contracts, of
approximately $824,000 and $958,000, net of accumulated amortization
of approximately $436,000 and $302,000, respectively. Amortization
expense of these intangible assets amounted to approximately $134,000
and $51,000 during the three months ended March 31, 2002 and 2001,
respectively. Expected amortization expense for these intangibles is
$202,000 in 2003, $202,000 in 2004 and $185,000 in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

9



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##### Table of Contents



INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 AND 2001
(Unaudited)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long
Lived Assets to be Disposed of, and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, and amends ARB No. 51, Consolidated Financial Statements.
SFAS 144 retains many of the requirements of SFAS 121 and the basic
provisions of APB Opinion 30; however, it establishes a single accounting
model for long-lived assets to be disposed of by sale. The Company
adopted SFAS 144 on January 1, 2002; the adoption did not have a material
effect on the Companys financial position or results of operations.

8.   EARN-OUT PAYMENT



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 8, 2000, the Company
acquired UDS, which was accounted for under the purchase method of
accounting. At December 31, 2001, the Company recorded an
accrual for approximately $15.3 million for payment to the sellers of
UDS under the terms of an earn-out provision contained in the
December 8, 2000 Merger Agreement. The earn-out accrual was
recorded as additional purchase price consideration. In February
2002, the payment was made consisting of $13.7 million of cash and
310,000 shares of the Companys common stock valued at $1.6 million.
As a result, goodwill related to UDS amounts to $18.8 million, net of
accumulated amortization of $0.3 million as of March 31, 2002.

10



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##### Table of Contents






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 of our
contracts; reliance on the telecommunications industry; the impact of the
trend toward outsourcing; risks associated with changing technology; risks
associated with competition; and other factors discussed in more detail
under Business in our Annual Report on Form 10-K for the year ended
December 31, 2001.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in Note 1 to the unaudited
condensed consolidated financial statements included in Item 1, the
accompanying financial statements have been restated. The following
Managements Discussion and Analysis reflects this restatement.



| | 
| | 

Overview



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Innotrac provides customized, technology-based order fulfillment, call
center and total customer relationship management services to large
corporations that outsource these functions. The Company offers inventory
management, inbound call center, pick/pack/ship services, order tracking,
transaction processing and returns of various consumer products. The
Company handles telecommunications products that include Digital Subscriber
Line and Cable Modems (Modems), consumer phones and wireless pager
equipment, for clients such as BellSouth Corporation (BellSouth) and
Qwest International, Inc. (Qwest) and their customers. The Company also
provides these services for a significant number of catalog, retail, direct
marketing and consumer products companies such as Coca-Cola, NAPA, Tactica,
Nordstrom.com, Porsche, Wilsons Leather and Thane International. During
the three months ended March 31, 2002, approximately 27% of the Companys
revenues were generated from its telecommunications clients, 21% from its
Modem clients and 52% from its other traditional fulfillment and marketing
services clients. The Company anticipates that the percentage of its
revenues attributable to telecommunications clients will continue to
decrease in 2002 due to the loss of SBC during the fourth quarter of 2001
and the addition of Martha Stewart Living Omnimedia, Inc. as a fulfillment
and call center client, which commenced in February 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | With the Companys conversion of substantially all of its clients to a
fee-for-service model during 2000, the Company no longer purchases and
sells Caller ID equipped phones, Modems and other telecommunications
equipment from third party manufacturers for these clients. Instead, the
Company warehouses products on a consignment basis and fulfills equipment
on behalf of its customers for a fee. The Company still purchases and owns
inventory for certain clients, but on a significantly reduced risk basis as
a result of client guarantees and contractual indemnifications. The new
model substantially reduces revenues as the pass through cost of purchased
equipment is no longer included in revenues. Gross margins have improved
since the Company no longer has inventory risk or cost of equipment.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of March 31, 2001, Innotrac owned 60% of Return.com LLC, (Return.com)
a subsidiary that processed product returns for online and catalog
retailers. The Companys equity partner in this venture, Mail Boxes, Etc.
(MBE), owned the remaining 40% of Return.com. However, due to the
announcement in March 2001 that United Parcel Services, Inc. had entered
into a definitive agreement to purchase MBE, the Company elected to
acquire from MBE the remaining 40% ownership interest in Return.com and
terminate its arrangement with MBE as its exclusive front-end solution.
This became effective in April 2001. During the fourth quarter of 2001,
the Company utilized its $2.8 million impairment reserve, which was
recorded in the first quarter of 2001, to write off its investment in
Return.com. At December 31, 2001, Return.com was no longer in operation.

11



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##### Table of Contents



Item 2  continued

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result of the loss of the SBC contract in December 2001, the Company
elected to close its call center operations in Atlanta, Georgia in January
2002 and shifted its Atlanta clients to its call center operations in
Pueblo, Colorado. The Company terminated approximately 260 employees at
the Atlanta and Pueblo call center facilities effective January 2002. The
Company incurred approximately $1.0 million in severance, write-off of
assets, and other expenses related to the closure of the Atlanta call
center operations during the fourth quarter of 2001. Management does not
anticipate incurring any additional costs associated with this closure
during 2002. The Company continues to operate its call center facilities
in Pueblo, Colorado and Reno, Nevada.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On February 1, 2002, the Company made an earn-out payment of $15.3 million
to the sellers of Universal Distribution Services, Inc. (UDS) in
accordance with the earn-out provisions in the December 2000 Merger
Agreement with UDS. The payment included $13.7 million in cash and 310,000
shares of the Companys common stock valued at $1.6 million. The payment
was funded from existing working capital and borrowings under the Companys
line of credit.

12



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following table sets forth unaudited summary operating data, expressed as
a percentage of revenues, for the three months ended March 31, 2002 and 2001.
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   
|                                                        |                         |  | Ended March 31,
|                                                        |                         |  |                
|                                                        |                         |  | 2002            |      | 2001
|                                                        |                         |  |                 |      |     
|Revenues                                                |                         |  | 100.0           | %    |      |  | 100.0 | %   
|Cost of revenues                                        |                         |  | 55.6            |      |      |  | 58.6  |     
|Special credit                                          |                         |  | (1.4            | )    |      |  | 0.0   |     
|                                                        |                         |  |                 |      |      |  |       |     
|                                                        | Gross margin            |  |                 | 45.8 |      |  |       | 41.4 |  
|Selling, general and administrative expenses            |                         |  | 37.1            |      |      |  | 40.3  |     
|Special credit                                          |                         |  | (4.6            | )    |      |  | 0.0   |     
|Depreciation and amortization                           |                         |  | 5.8             |      |      |  | 3.6   |     
|                                                        |                         |  |                 |      |      |  |       |     
|                                                        | Operating income (loss) |  |                 | 7.5  |      |  |       | (2.5 | )
|Other income, net                                       |                         |  | 0.0             |      |      |  | (0.6  | )   
|                                                        |                         |  |                 |      |      |  |       |     
|Income (loss) before income taxes
and minority interest |                         |  | 7.5             |      |      |  | (1.9  | )   
|Income tax (provision) benefit                          |                         |  | (2.9            | )    |      |  | 0.8   |     
|                                                        |                         |  |                 |      |      |  |       |     
|Income (loss) before minority interest                  |                         |  | 4.6             |      |      |  | (1.1  | )   
|Minority interest                                       |                         |  | 0.0             |      |      |  | 2.6   |     
|                                                        |                         |  |                 |      |      |  |       |     
|                                                        | Net income              |  |                 | 4.6  | %    |  |       | 1.5  | %
|                                                        |                         |  |                 |      |      |  |       |     

Special Credit

At March 31, 2002 and December 31, 2001,
the Company had approximately $2.4 million and $4.6 million, respectively, in accruals related to the special
charges incurred during the year ended December 31, 2000. The remaining
accruals at March 31, 2002 included $700,000 for the Companys shift to a
fee-for-service business model and $1.7 million for e-commerce costs. Cash
payments for the three months ended March 31, 2002 were
approximately $500,000. The Company recognized $1.3 million into
income during the first quarter of 2002 related to the gains realized
on sales of inventory items and cash collected for accounts
receivable items that were written off as special charges in previous
periods. The majority of the remaining accruals
are expected to be utilized during the year ending December 31, 2002.

13



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001

Revenues.Total revenues decreased 36.2% to
$21.0 million for the three months
ended March 31, 2002 from $32.9 million for the three months ended March 31,
2001. The decrease in revenue is primarily due to the loss of the SBC contract
at December 1, 2001 which represented approximately
$4.9 million of revenues during the first quarter of 2001; completion of the CPE outbound sales
program for BellSouth Corporation (BellSouth) during the third quarter of 2001; and a decrease in
product sales from Warranty Corporation of America (WACA) as a result of its
loss of a significant client. This decline in revenues was offset by the
re-initiation of fulfillment services of consumer phones and the expansion of
services to include wireless pager equipment with BellSouth during the third
and fourth quarters of 2001, as well as the initiation of the Martha Stewart
Living Omnimedia, Inc. contract in February 2002.

Cost of Revenues.Cost of revenues decreased
40.9% to $11.4 million for the
three months ended March 31, 2002 compared to $19.3 million for the three
months ended March 31, 2001. Cost of revenues decreased primarily due to the
decrease in equipment units sold to WACA as a result of its loss of a
significant client and from the completion of the CPE outbound sales program
for BellSouth during the third quarter of 2001. A reduction in call center
direct costs from the loss of the SBC contract in December 2001 and the
subsequent closure of the Atlanta call center in January 2002 also contributed
to the decrease in cost of revenues during the first quarter of 2002 as
compared to the same period in 2001.

Gross Margin.For the three months ended March 31, 2002, the Companys gross
margin decreased by $4.0 million to $9.6 million, or 45.8% of revenues,
compared to $13.6 million, or 41.4% of revenues, for the three months ended
March 31, 2001. This decrease was due primarily to the factors discussed
above.

Selling, General and Administrative Expenses.S,G&A expenses for the three
months ended March 31, 2002 decreased to $7.8 million, or
37.1% of revenues,
compared to $13.2 million, or 40.3% of revenues, for the same period in 2001.
The decrease in expenses was mainly attributable to the $2.8 million in
reserves recorded during the first quarter of 2001 primarily for the
impairment of software development costs and severance costs related to
Return.com. There was also a decrease in bad debt expense and other variable
expenditures during the three months ended March 31, 2002 as compared to the same period in 2001. The decline in S,G&A costs was partially offset by increased
costs from the acquisition of iFulfillment, Inc. in July 2001.

Income Taxes.The Companys effective tax rate for the three months ended
March 31, 2002 and 2001 was 39.2% and 39.3%, respectively.

14



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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
and, from time to time, equity offerings. The Company had cash and cash
equivalents of approximately $73,000 at March 31, 2002 as compared to $9.4
million at December 31, 2001. This decrease in cash was primarily due to an
earn-out payment made by the Company during the first quarter of 2002. On
February 1, 2002, the Company paid $15.3 million to the sellers of Universal
Distribution Services, Inc. (UDS) in accordance with the earn-out provisions
outlined in the December 8, 2000 Merger Agreement between the Company and UDS.
The payment included $13.7 million in cash and 310,000 shares of the Companys
common stock valued at approximately $1.6 million.

On February 11, 2002, the Board of Directors authorized the repurchase of up
to $10 million of the Companys outstanding common stock through February
2003. During the three months ended March 31, 2002, the Company did not
repurchase any shares of common stock.

The Company maintains a $40 million revolving
line of credit with a bank. In May 2002, the Company renewed this
line of credit through June 1, 2005 under similar terms and
conditions of the previous revolving credit agreement. Borrowings
under the line of credit bear interest at the Companys option at the banks
prime rate, as adjusted from time to time, or LIBOR plus up to 225 basis
points. At March 31, 2002, the Company had approximately $2.3 million
outstanding under the line of credit. The weighted average interest rate for
borrowings during the first quarter of 2002 was 4.38%.

During the three months ended March 31, 2002 and 2001, the Company generated
approximately $4.4 million in cash flows from operating activities.

During the three months ended March 31, 2002, net cash used in investing
activities was $16.0 million in 2002 as compared to $2.3 million in 2001.
This difference was primarily due to the earn-out payment of $13.7 million in
cash made in February 2002.

During the three months ended March 31, 2002, net cash provided by financing
activities was $2.3 million compared to $22,000 used in financing activities
in the same period in 2001 primarily due to borrowings made under the
Companys line of credit during 2002.

The Company estimates that its cash needs through 2002 will be met by cash
flows from operations and borrowing under its line of credit facility. 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. Additionally, the
Company anticipates that its line of credit which expires in June 2002 will be
renewed under similar terms and conditions; however, there can be no
assurances that this will occur.

15



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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS 141 prohibits the use of pooling-of-interest for business
combinations initiated after June 30, 2001 and also applies to all business
combinations accounted for by the purchase method that are completed after June
30, 2001. There are also transition provisions that apply to business
combinations completed before July 1, 2001, that were accounted for
by the purchase method. SFAS 142 changes the accounting for goodwill and other
indefinite life intangible assets from an amortization method to an impairment
only approach.

The Company adopted these statements effective
January 1, 2002.
In accordance with SFAS No. 142, the Company no longer amortizes goodwill.
The Company has intangible assets that continue to be subject to
amortization under the provisions of SFAS 142. These intangible
assets consist of acquired customer contracts which are amortized over 1 to 5 years on a straight-line
basis. At March 31, 2002 and December 31, 2001, the Company had other
intangible assets of approximately $824,000 and $943,000, net of
accumulated amortization of $436,000 and $67,000, respectively.
Amortization expense of these intangible assets amounted to
approximately $113,000 and $51,000 during the first quarters of 2002
and 2001, respectively. During the three months ended March 31, 2001, amortization expense associated
with goodwill was approximately $42,000. As according to the provisions of
SFAS 142, the Companys proforma consolidated net income and diluted earnings
per share for the three months ended March 31, 2001 excluding amortization of
goodwill would have been approximately $525,000 and $0.05 per share,
respectively. The Company plans to complete its transition impairment analysis required
upon the adoption of SFAS 142 during the second quarter of 2002 and will recognize an impairment, if any, at that time as a cumulative effect of a change in accounting principle.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets
to be Disposed of, and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of OperationsReporting the Effects of Disposal
of a Segment of a Business and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, and amends APB No. 51, Consolidated
Financial Statements. SFAS 144 retains many of the requirements of SFAS 121
and the basic provisions of APB Opinion 30; however, it establishes a single
accounting model for long-lived assets to be disposed of by sale. The Company
adopted SFAS 144 on January 1, 2002; the adoption did not have a material
effect on the Companys financial position or results of operations.

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PART II  OTHER INFORMATION




ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K



|    |  |                                                                               
|--- |  | ------------------------------------------------------------------------------
|(a) |  | Exhibits:                                                                     
|   
|    |  | 99.1    Certification of Chief Executive Officer
Pursuant to 18 U.S.C. § 1350.
|   
|    |  | 99.2    Certification of Chief Financial Officer
Pursuant to 18 U.S.C. § 1350.
|   
|(b) |  | Reports on Form 8-K:                                                          



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company did not file any reports on Form 8-K during the three
months ended March 31, 2002. On April 22, 2002, the      Company filed a
Form 8-K announcing the Companys change in independent accountants.

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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:  November 19, 2002 |  | By: /s/ Scott D. Dorfman                                                                                  
|                         |  |                                                                                                           
|                         |  | Scott D. Dorfman
President, Chief Executive Officer and Chairman
of the Board                             
|                         |  |                                                                                                           
|Date:  November 19, 2002 |  | By: /s/ David L. Gamsey                                                                                   
|                         |  |                                                                                                           
|                         |  | David L. Gamsey
Senior Vice President, Chief Financial Officer
and Secretary (Principal Financial
Officer)

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CERTIFICATIONS

I, Scott D. Dorfman, certify that:

1.     I have reviewed
this quarterly report on Form 10-Q/A of Innotrac
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.

|                        |  |                                                                              
|----------------------- |  | -----------------------------------------------------------------------------
|Date:
November 19, 2002 |  | /s/ Scott D. Dorfman                                                         
|                        |  |                                                                              
|                        |  | Scott D. Dorfman
President, Chief Executive Officer and Chairman of the Board

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CERTIFICATIONS

I, David L. Gamsey, certify that:

1.     I have reviewed
this quarterly report on Form 10-Q/A of Innotrac
Corporation;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.

|                        |  |                                                                                                           
|----------------------- |  | ----------------------------------------------------------------------------------------------------------
|Date: November 19, 2002 |  | /s/ David L. Gamsey                                                                                       
|                        |  |                                                                                                           
|                        |  | David L. Gamsey
Senior Vice President, Chief Financial Officer and Secretary
(Principal Financial Officer)

20