SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
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 | (I.R.S. Employer      
|incorporation or organization)  | Identification Number)





|6655 Sugarloaf Parkway     Duluth, Georgia          | 30097         
|--------------------------------------------------- | --------------
|(Address of principal executive offices)            | (Zip Code)    
|                                                    |               
|Registrant's telephone number, including area code: | (678) 584-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X     No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

|                               | Outstanding at November 7, 2000
|------------------------------ | -------------------------------
|                               |                                
|Common Stock at $.10 par value | 11,184,595 Shares              





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INDEX



|           |                       |                                                                                      
|---------- | --------------------- | -------------------------------------------------------------------------------------
|Part I.    | Financial Information
|           |                       |                                                                                      
|           | Item 1.               | Financial Statements                                                                 
|           |                       |                                                                                      
|           |                       | Condensed Consolidated Balance Sheets -                                              
|           |                       | September 30, 2000 (Unaudited) and December 31, 1999                                 
|           |                       |                                                                                      
|           |                       | Condensed Consolidated Statement of Operations (Unaudited)                           
|           |                       | for the Three Months Ended September 30, 2000 and 1999                               
|           |                       |                                                                                      
|           |                       | Condensed Consolidated Statement of Operations (Unaudited)                           
|           |                       | for the Nine Months Ended September 30, 2000 and 1999                                
|           |                       |                                                                                      
|           |                       | Condensed Consolidated Statement of Cash Flows (Unaudited)                           
|           |                       | for the Nine Months Ended September 30, 2000 and 1999                                
|           |                       |                                                                                      
|           |                       | Notes to Condensed Consolidated Financial Statements                                 
|           |                       |                                                                                      
|           | Item 2.               | Management's Discussion and Analysis of Financial Condition and Results of Operations
|           |                       |                                                                                      
|           | Item 3.               | Quantitative and Qualitative Disclosure About Market Risk                            
|           |                       |                                                                                      
|Part II.   | Other Information    
|           |                       |                                                                                      
|           | Item 6.               | Exhibits and Reports on Form 8-K                                                     
|           |                       |                                                                                      
|Signatures |                      



---





Part I -- Financial Information

Item 1 -- Financial Statements

The following 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. 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 September 30, 2000 are not necessarily indicative of the results for the entire year ending December 31, 2000. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in
the Company's 1 0-K filing and annual report.





---



INNOTRAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
(In thousands)





|                                                 | ASSETS |         | September 30, 2000 |         | December 31, 1999
|------------------------------------------------ | ------ | ------- | ------------------ | ------- | -----------------
|                                                 |        |         | (Unaudited)        |         |                  
|Curent assets                                    |        |         |                    |         |                  
|Cash and cash equivalents                        | $      | 18,435  | $                  | 894    
|Accounts receivable, net                         |        | 42,898  |                    | 52,431 
|Inventories, net                                 |        | 15,290  |                    | 39,503 
|Prepaid expenses and other current assets        | 8,434  |         | 1,982             
|Total current assets                             |        | 85,057  |                    | 94,810 
|                                                 |        |         |                    |         |                  
|Property and equipment:                          |        |         |                    |        
|Rental equipment                                 |        | 3,777   |                    | 4,986  
|Computer, machinery and transportation equipment | 16,500 |         | 8,711             
|Furniture, fixtures and leasehold improvements   | 3,430  |         | 2,830             
|                                                 |        |         | 23,707             |         | 16,527           
|Less accumulated depreciation and amortization   | 9,031  |         | 7,605             
|                                                 |        |         | 14,676             |         | 8,922            
|                                                 |        |         |                    |         |                  
|Other assets, net                                |        | 283     |                    | 486    
|                                                 |        | $       | 100,016            | $       | 104,218          
|                                                 |        |         | ========           |         | =========        
|                                                 |        |         |                    |         |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY             |        |         |                   
|                                                 |        |         |                    |         |                  
|Current liabilities:                             |        |         |                    |        
|Accounts payable                                 | $      | 21,122  | $                  | 10,530 
|Accrued expenses                                 |        | 7,709   |                    | 7,392  
|Total current liabilities                        |        | 28,831  |                    | 17,922 
|                                                 |        |         | 1,232              |         | 7,083            
|Total noncurrent liabilities                     |        |         |                    |        
|Total liabilities                                |        | 30,063  |                    | 25,005 
|                                                 |        |         |                    |         |                  
|Minority interest in subsidiary                  |        | 900     |                    | -      
|                                                 |        |         |                    |         |                  
|Shareholders' equity:                            |        |         |                    |        
|Common stock                                     |        | 1,121   |                    | 1,121  
|Additional paid-in capital                       |        | 59,701  |                    | 59,701 
|Retained earnings                                |        | 8,381   |                    | 18,391 
|Treasury stock                                   |        | (150)   |                    | -      
|Total shareholders' equity                       | 69,053 |         | 79,213            
|Total liabilities and shareholders' equity       | $      | 100,016 | $                  | 104,218
|                                                 |        |         | ========           |         | =========        



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



---





Financial Statements-Continued

INNOTRAC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 2000 and 1999
(Unaudited)(In thousands, except per share amounts)



|                                                                                 |   | Three Months Ended September 30,
|-------------------------------------------------------------------------------- | - | --------------------------------
|                                                                                 |   | 2000                            
|Revenues, net                                                                    | $ | 50,284                          
|Cost of revenues                                                                 |   | 38,540                          
|                                                                                 |   |                                 
|Gross margin                                                                     |   | 11,744                          
|                                                                                 |   |                                 
|Operating expenses:                                                              |   |                                 
|Selling, general and administrative expenses                                     |   | 10,295                          
|Depreciation and amortization                                                    |   | 1,166                           
|Total operating expenses                                                         |   | 11,461                          
|Operating income                                                                 |   | 283                             
|                                                                                 |   |                                 
|Other (income) expenses, net                                                     |   | (121)                           
|                                                                                 |   |                                 
|Income before income taxes and minority interest                                 |   | 404                             
|Income tax provision                                                             |   | (139)                           
|Minority interest in subsidiary, net of tax benefit of $35 and $ 0, respectively |   | (54)                            
|Net income                                                                       | $ | 319                             
|                                                                                 |   | ==========                      
|Earnings per share:                                                              |   |                                 
|                                                                                 |   |                                 
|Basic and diluted earnings per share:                                            |   |                                 
|                                                                                 |   |                                 
|Basic                                                                            | $ | 0.03                            
|                                                                                 |   | ==========                      
|Diluted.                                                                         | $ | 0.03                            
|                                                                                 |   | ==========                      
|                                                                                 |   |                                 
|Weighted average shares outstanding:                                             |   |                                 
|                                                                                 |   |                                 
|Basic                                                                            |   | 11,200                          
|                                                                                 |   | ==========                      
|Diluted                                                                          |   | 11,200                          
|                                                                                 |   | ==========                      





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



---



Financial Statements-Continued

INNOTRAC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)(In thousands, except per share amounts)



|                                                                                 |   | Nine Months Ended September 30,
|-------------------------------------------------------------------------------- | - | -------------------------------
|                                                                                 |   | 2000                           
|Revenues, net                                                                    | $ | 149,031                        
|Cost of revenues                                                                 |   | 117,794                        
|Special charges                                                                  |   | 7,477                          
|                                                                                 |   |                                
|Gross margin                                                                     |   | 23,760                         
|                                                                                 |   |                                
|Operating expenses:                                                              |   |                                
|Selling, general and administrative expenses                                     |   | 28,982                         
|Special charges                                                                  |   | 8,473                          
|Depreciation and amortization                                                    |   | 2,893                          
|Total operating expenses                                                         |   | 40,348                         
|Operating (loss) income                                                          |   | (16,588)                       
|                                                                                 |   |                                
|Other expenses, net                                                              |   | 359                            
|                                                                                 |   |                                
|(Loss) income before income taxes and minority interest                          |   | (16,947)                       
|Income tax benefit (provision)                                                   |   | 6,836                          
|Minority interest in subsidiary, net of tax benefit of $65 and $ 0, respectively |   | (100)                          
|Net (loss) income                                                                | $ | (10,011)                       
|                                                                                 |   | ========                       
|                                                                                 |   |                                
|Earnings per share:                                                              |   |                                
|                                                                                 |   |                                
|Basic and diluted earnings per share (see Note 3):                               |   |                                
|                                                                                 |   |                                
|Basic                                                                            | $ | (0.89)                         
|                                                                                 |   | ========                       
|Diluted                                                                          | $ | (0.89)                         
|                                                                                 |   | ========                       
|Weighted average shares outstanding:                                             |   |                                
|                                                                                 |   |                                
|Basic                                                                            |   | 11,209                         
|                                                                                 |   | ========                       
|Diluted                                                                          |   | 11,209                         
|                                                                                 |   | ========                       



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





---



Financial Statements-Continued



INNOTRAC CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended September 30, 2000 and 1999
(Unaudited)
(In thousands)



|                                                                             |                                                            |          |         |          |          |         
|---------------------------------------------------------------------------- | ---------------------------------------------------------- | -------- | ------- | -------- | -------- | --------
|                                                                             |                                                            |          |         | 2000     |          | 1999    
|Cash flows from operating activities:                                        |                                                            |          |         |         
|Net (loss) income                                                            | $                                                          | (10,011) | $       | 8,854   
|Adjustments to reconcile net (loss) income to net cash provided by (used in) |                                                            |          |         |         
|operating activities:                                                        |                                                            |          |         |         
|                                                                             | Depreciation and amortization                              |          | 2,893   |          | 2,644   
|                                                                             | Loss on disposal of property and equipment                 |          | 454     |          | 412     
|                                                                             | Minority interest in subsidiary                            |          | (100)   |          | -       
|                                                                             | Deferred income taxes                                      |          | 602     |          | 1,487   
|                                                                             | Decrease (increase) in accounts receivable                 |          | 9,533   |          | (21,082)
|                                                                             | Decrease (increase) in inventories                         |          | 24,213  |          | (26,572)
|                                                                             | (Increase) decrease in prepaid expenses and other          |          | (5,709) |          | 534     
|                                                                             | Increase in accounts payable and accrued expenses          |          | 10,955  |          | 2,334   
|                                                                             | Net cash provided by (used in) operating activities        |          | 32,830  |          | (31,389)
|                                                                             |                                                            |          |         |          |          |         
|Cash flows from investing activities:                                        |                                                            |          |         |         
|Purchases of property and equipment                                          |                                                            | (9,077)  |         | (3,811) 
|Other                                                                        |                                                            | (45)     |         | -       
|                                                                             | Net cash used in investing activities                      |          | (9,122) |          | (3,811) 
|                                                                             |                                                            |          |         |          |          |         
|Cash flows from financing activities:                                        |                                                            |          |         |          |         
|                                                                             | Net repayments under line of credit                        |          | (7,008) |          | (2,655) 
|                                                                             | Repayment of long-term debt                                |          | (9)     |          | (63)    
|                                                                             | Proceed from public offering, stock options and other, net |          | -       |          | 35,114  
|                                                                             | Proceeds from issuance of stock in subsidiary              |          | 1,000   |          | -       
|                                                                             | Purchase of treasury stock                                 |          | (150)   |          | -       
|                                                                             | Net cash (used in) provided by financing activities        |          | (6,167) |          | 32,396  
|                                                                             |                                                            |          |         |          |          |         
|Net increase (decrease) in cash and cash equivalents                         |                                                            | 17,541   |         | (2,804) 
|Cash and cash equivalents, beginning of period                               |                                                            | 894      |         | 3,379   
|Cash and cash equivalents, end of period                                     | $                                                          | 18,435   | $       | 575     
|                                                                             |                                                            |          |         | ======== |          | ========
|Supplemental cash flow disclosures:                                          |                                                            |          |         |         
|                                                                             |                                                            |          |         |          |          |         
|                                                                             | Cash paid for interest                                     | $        | 132     | $        | 1,173   
|                                                                             |                                                            |          |         | ======== |          | ========
|                                                                             | Cash paid for income taxes, net of refunds received        | $        | (2,274) | $        | 5,132   
|                                                                             |                                                            |          |         | ======== |          | ========



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



---



Financial Statements-Continued



INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Unaudited)

|1. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company's Form 10-K filed with the Securities and
Exchange Commission on March 30, 2000 for the fiscal year ended December 31, 1999. Certain prior year amounts have been reclassified to conform with current year financial statement presentation.                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2. | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The following table shows the amounts used in computing earnings per share ("EPS") in accordance with Statement of Financial Accounting Standards No. 128 and the effects on income and the weighted average number of shares
of potential dilutive common stock (in thousands, except per share data.) Options outstanding to purchase shares of the Company's common stock were not included in the computation of diluted EPS for the three months and nine months ended September 30,
2000 because their effect would be anti-dilutive if exercised.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                     |  | Three Months Ended | Nine Months Ended
| | ----------------------------------- |  | ------------------ | -----------------
| |                                     |  | September 30,     
| |                                     |  | 2000               |                  
| | Net income (loss)                   |  | $        319       |                  
| |                                     |  |                    |                  
| | Basic earnings per share:           |  |                    |                  
| | Weighted average shares outstanding |  | 11,200             |                  
| | Per share amount                    |  | $       0.03       |                  
| |                                     |  | ======             |                  
| | Diluted earnings per share:         |  |                    |                  
| | Weighted average shares outstanding |  | 11,200             |                  
| | Effect of dilutive securities:      |  |                    |                  
| | Employee and director stock options |  | -                  |                  
| | Weighted average shares             |  |                    |                  
| | assuming dilution                   |  | 11,200             |                  
| |                                     |  |                    |                  
| | Per share amount                    |  | $       0.03       |                  
| |                                     |  | ======             |                  



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3. | SPECIAL CHARGES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | During the quarter ended June 30, 2000, the Company incurred special charges of $15.9 million. The majority of the charge was associated with the Company's migration towards fee for service business and included charges
for inventory, accounts receivable and other items. This charge equated to ($0.85) loss per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|4. | RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". The statement
establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value.
SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138 ("SFAS 138"),
"Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment of SFAS No. 133. SFAS 138 addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS No 133 and amends the
accounting and reporting standards of SFAS 133 for certain derivative instruments and certain hedging activities. SFAS 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. In management's opinion, the impact of
adopting SFAS 133 and 138 will not have a material impact upon the Company's results of operations or financial position.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB No.101"), which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed
with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. An amendment in June 2000 delayed the effective date until the fourth quarter of
2000. Management believes that the Company's revenue recognition practices are in conformity with the guidelines prescribed in SAB No. 101.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          







---

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 reliance on a small number of major clients; risks associated with buying, warehousing and owning products for customers; risks associated
with the terms of our contracts; risks of entering new lines of businesses, particularly e-commerce; reliance on the telecommunications industry; the impact of the trend toward outsourcing; risks associated with changing technology; risks associated with
competition; risks associated with fluctuations in operating and quarterly results; compliance with government regulation; and other factors discussed in more detail under "Business" in the Company's annual report on Form 10-K for the year ended December
31, 1999.

Overview

Innotrac provides customized, technology-based marketing support and fulfillment services to large corporations that outsource these functions. Since 1994, the Company has a high focus on the telecommunications industry because of
its growth characteristics and increasing marketing needs. The Company provides marketing support services and fulfillment of Caller ID equipped telephones and Digital Subscriber Line Modems ("DSL modems"), and other telecommunications products to
BellSouth, Pacific Bell, Southwestern Bell, Ameritech Services, Inc., Bell Atlantic and Qwest and their customers. For the nine months ended September 30, 2000 and 1999, the Company's three largest clients represented 78.5% and 89.5% of total revenues,
respectively. During 2000, the Company began a major initiative to expand customer distribution channels through e-commerce to diversify its client base. The Company's e-commerce clients include the Coca-Cola Company, Kodak, Haggar, and Ocean Pacific,
amongst others.

The Company has begun to convert its clients to a fee for service model. For a majority of our clients, the Company will no longer purchase and sell Caller ID equipped phones, DSL modems and other telecommunications equipment from
third party manufacturers. Instead, the Company will warehouse products on a consignment basis and fulfill equipment on behalf of our customers for a fee. In certain cases, the Company may purchase and own inventory, but on a significantly reduced risk
basis as a result of client guarantees and contractual indemnifications. Management believes that this new model will substantially reduce revenues as pass through cost of purchased equipment will no longer be included in revenues; however, since the
Company will no longer have inventory risk or cost of equipment, gross margins, and more importantly, operating cash flows should improve.

The Company receives most of its orders either through electronic data interchange ("EDI") or the internet. On a same day basis, depending on product availability, the Company picks, packs and ships the item, tracks inventory levels
through an automated, integrated perpetual inventory system, warehouses data and handles customer support and level one technical inquiries.

On May 17, 2000, the Company invested in a new venture, Return.com Online, Inc. ("Return.com") with its equity partner, Mail Boxes Etc. ("MBE"), to process product returns for online and catalog retailers. Return.com is the first
full-service returns portal supported by the convenience of 3,400 physical locations. Customers returning merchandise purchased online, or by catalog or phone, can simply take the item to any participating MBE location in the U.S. for packaging and
shipping. Return.com's Instacredit TM service, available early next year, will allow many customers to receive authorization for an immediate merchandise credit on their credit card-rather than waiting weeks for the return to be processed by the
merchant.

Return.com operates a Web portal that leverages MBE's locations and Innotrac's customer care centers and reverse logistics operations. Information from all of these entities is entered into Return.com's database, enabling quick,
accurate and informative customer service. When buyers wish to return merchandise, they simply click on the Return.com icon on the merchant's Web site, go directly to the Return.com portal or call a toll-free number. Return.com then verifies the
information about the merchandise to be returned, and direct the customer to a MBE location where an Instacredit will be authorized and the returned merchandise will be dropped off for shipping. The merchant can then have the return sent to either its
warehouse, Innotrac or to the manufacturer, or sold through the Return.com disposition network.

Innotrac has invested $3.0 million in this subsidiary and has committed to fund an additional $3.0 million when needed. MBE has invested $1.0 million, through October 2000, and has the right to invest an additional $3.0 million through
December 31, 2000. As of September 30, 2000, Innotrac owned 86% of this subsidiary. However, should MBE elect to further invest, the Company's ownership position could be diluted down to as low as 60%. Management anticipates that further investment by MBE
will occur, but there are no guarantees or requirements. As a result of this ownership structure, the Company has consolidated the results of operations and financial position of Return.com in the attached condensed consolidated financial statements. The
Company expects Return.com to generate significant operating losses for the balance of 2000 and into 2001.

In the quarter ended June 30, 2000, the Company incurred special charges of $15.9 million. The majority of the charges were associated with the Company's migration towards fee for service business and included charges for inventory,
accounts receivable and other items.





---

Results of Operations

The following table sets forth unaudited summary operating data, expressed as a percentage of revenues, for the three and nine months ended September 30, 2000 and 1999, respectively. The data has been prepared on the same basis as
the annual consolidated financial statements. In the opinion of management, it reflects all adjustments, consisting of both a $15.9 million special charge recorded in the quarter ended June 30, 2000 and 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        | Nine Months        
|-------------------------------------------- | ------------------- | -------------------
|                                             | Ended September 30, | Ended September 30,
|                                             | 2000                | 1999               
|                                             |                     |                    
|Revenues                                     | 100.0%              | 100.0%             
|Cost of revenues                             | 76.6                | 72.3               
|Special charges                              | 0.0                 | 0.0                
|Gross margin                                 | 23.4                | 27.7               
|Selling, general and administrative expenses | 20.5                | 18.2               
|Special charges                              | 0.0                 | 0.0                
|Depreciation and amortization                | 2.3                 | 1.6                
|Operating income (loss)                      | 0.6                 | 7.9                
|Other (income) expense, net                  | (0.2)               | 0.5                
|Income (loss) before income taxes            |                     |                    
|and minority interest                        | 0.8                 | 7.4                
|Income tax (provision) benefit               | (0.3)               | (2.9)              
|Minority interest in subsidiary              | (0.1)               | -                  
|Net income (loss)                            | 0.6 %               | 4.5%               
|                                             | ====                | =====              



Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999

Revenues. The Company's net revenues decreased 2.7% to $50.3 million for the three months ended September 30, 2000 from $51.7 million for the three months ended September 30, 1999. The decrease in revenue is consistent with
the Company's switch to a fee for service model offset by an increase in DSL modems fulfilled.

Cost of Revenues. The Company's cost of revenues increased 3.3% to $38.5 million for the three months ended September 30, 2000 compared to $37.3 million for the three months ended September 30, 1999. Cost of revenues increased
primarily due to an increase in outbound telemarketing costs to obtain sales plus a slight increase in fulfillment center labor.

Gross Margin. For the three months ended September 30, 2000, the Company's gross margin decreased 18.1% to $11.7 million compared to $14.3 million for the three months ended September 30, 1999. The decrease in gross margin was
due primarily to the increase in outbound telemarketing costs and the slight increase in fulfillment center labor.

Selling, General and Administrative Expenses. S,G&A expenses for the three months ended September 30, 2000 increased 9.6% to $10.3 million or 20.5% of revenues compared to $9.4 million or 18.2% of revenues for the three
months ended September 30, 1999. This increase is due to significant investments, beyond normal levels, being expended on information technology during 2000 to complete the Company's migration to a new fully integrated warehouse management, procurement,
inventory, billing and general ledger system. Management expects such expenditures to return to normal levels in 2001. Additionally, S,G&A expenses in 2000 include costs associated with the Company's subsidiary, Return.com, which was formed in May 2000.

Income Taxes. The Company's effective tax rate for the three months ended September 30, 2000 and 1999 was 39.5%.



Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999

Revenues. The Company's net revenues decreased 15.6% to $149.0 million for the nine months ended September 30, 2000 from $176.5 million for the nine months ended September 30, 1999. The decrease in revenue is consistent with
the Company's switch to a fee for service model, offset by an increase in DSL modems fulfilled.

Cost of Revenues. The Company's cost of revenues decreased 10.2% to $117.8 million for the nine months ended September 30, 2000 compared to $131.2 million for the nine months ended June 30, 1999. Cost of revenues decreased
primarily due to the decrease in units sold and fulfilled by the Company.

Special charges. The Company recorded special charges of $7.5 million for inventory writedowns and write-offs during the three months ended June 30, 2000.

Gross Margin. For the nine months ended September 30, 2000, the Company's gross margin decreased 47.6% to $23.8 million compared to $45.3 million for the nine months ended September 30, 1999. The decrease in gross margin was due
primarily to special charges of $7.5 million plus the decrease in units sold and fulfilled. Exclusive of the special charges, gross margins decreased to 21.0% of net revenues from 25.7% of net revenues.

Selling, General and Administrative Expenses. S,G&A expenses for the nine months ended September 30, 2000 increased 7.7% to $29.0 million or 19.4% of revenues compared to $26.9 million or 15.3% of revenues for the nine
months ended September 30, 1999. This increase is due to a significant investment, beyond normal levels, being expended on information technology during 2000 to complete the Company's migration to a new fully integrated warehouse management, procurement,
inventory, billing and general ledger system. Management expects such expenditures to return to normal levels in 2001. Additionally, S,G&A expenses in 2000 include costs associated with the Company's subsidiary, Return.com, which was formed in May 2000.

Special charges. The Company recorded special charges of $8.4 million for accounts receivable and other write-offs during the three months ended June 30, 2000. The majority of the special charges were related to the fee for
service conversion, as previously discussed.

Income Taxes. The Company's effective tax rate for the nine months ended September 30, 2000 and 1999 was 39.5%.



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 $18.4 million at September 30, 2000, including $3.0 million, that is committed to the startup and development of Return.com. The Company maintains a $40.0 million revolving line of credit with a bank, maturing in June 2002.
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 September 30, 2000, the interest rate on the line of credit was 7.88%, and the
weighted average interest rate for the nine months ended September 30, 2000 was 7.49%. At September 30, 2000, there was no outstanding balance under the line of credit.

During the nine months ended September 30, 2000, the Company generated $32.8 million in cash flow from operating activities compared to the use of $31.4 million in cash flow from operating activities in the same period in 1999. The
generation of cash flow from operating activities for the nine months ended September 30, 2000 compared to the use of cash flow from operating activities in the same period in 1999 was due primarily to the decrease in inventory levels attributable to the
Company's migration towards a fee for service business model, decrease in accounts receivable and the timing of various payables.

During the nine months ended September 30, 2000, net cash used in investing activities was $9.1 million in 2000 as compared to $3.8 million in 1999. This increase was primarily due to an increase in technology purchases for e-commerce
applications and internal systems development.

During the nine months ended September 30, 2000, the net cash used in financing activities was $6.2 million compared to $32.4 million provided by financing activities in the same period in 1999. This use of cash was primarily due to
repayments of borrowings under the Company's line of credit.

The Company estimates that its cash and financing needs through 2000 will be met by cash flows from operations and 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.



Item 3-- Quantitative and Qualitative Disclosure About Market Risks

Reference is made to item 7A, Part II of the Company's annual report on Form 10-K for the fiscal year ended December 31, 1999, for discussion pertaining to the Company's exposure to certain market risk. There have been no material
changes in the disclosure for the nine months ended September 30, 2000.



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PART II- OTHER INFORMATION

ITEM 6 -EXHIBITS AND REPORTS ON 8-K

|    |                                                                                                    |                                                                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Exhibits                                                                                           |                                                                                                                                                                                           
|    |                                                                                                    |                                                                                                                                                                                           
|    | Exhibit                                                                                            |                                                                                                                                                                                           
|    | Number                                                                                             | Description                                                                                                                                                                               
|    |                                                                                                    |                                                                                                                                                                                           
|    | 10.1                                                                                               | Letter Agreement, dated August 9, 2000 relating to modification/waiver and consent under that certain Amended Loan and Security Agreement between Innotrac Corporation and SouthTrust Bank
|    |                                                                                                    |                                                                                                                                                                                           
|    | 10.2                                                                                               | Employment Agreement, dated August 31, 2000, between Scott D. Dorfman and Innotrac Corporation                                                                                            
|    |                                                                                                    |                                                                                                                                                                                           
|    | 10.3                                                                                               | Employment Agreement, dated August 31, 2000, between David L. Ellin and Innotrac Corporation                                                                                              
|    |                                                                                                    |                                                                                                                                                                                           
|    | 10.4                                                                                               | Employment Agreement, dated August 31, 2000, between Larry C. Hanger and Innotrac Corporation                                                                                             
|    |                                                                                                    |                                                                                                                                                                                           
|    | 27                                                                                                 | Financial Data Schedule (for SEC use only)                                                                                                                                                
|    |                                                                                                    |                                                                                                                                                                                           
|(b) | Reports on Form 8-K -- There were no Form 8-K filings during the quarter ended September 30, 2000.





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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 13, 2000 | By: /s/ Scott D. Dorfman                       
|                        | Scott D. Dorfman                               
|                        | President, Chief Executive Officer and Chairman
|                        | of the Board                                   
|                        |                                                
|                        |                                                
|Date: November 13, 2000 | By: /s/ David L. Gamsey                        
|                        | David L. Gamsey                                
|                        | Senior Vice President , Chief Financial Officer
|                        | and Secretary (Principal Financial Officer)    







---



EXHIBIT INDEX



|Exhibit |                                                                                                                                                                                           
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                               
|        |                                                                                                                                                                                           
|10.1    | Letter Agreement, dated August 9, 2000 relating to modification/waiver and consent under that certain Amended Loan and Security Agreement between Innotrac Corporation and SouthTrust Bank
|        |                                                                                                                                                                                           
|10.2    | Employment Agreement, dated August 31, 2000, between Scott D. Dorfman and Innotrac Corporation                                                                                            
|        |                                                                                                                                                                                           
|10.3    | Employment Agreement, dated August 31, 2000, between David L. Ellin and Innotrac Corporation                                                                                              
|        |                                                                                                                                                                                           
|10.4    | Employment Agreement, dated August 31, 2000, between Larry C. Hanger and Innotrac Corporation                                                                                             
|        |                                                                                                                                                                                           
|27      | Financial Data Schedule (for SEC use only)