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, 1999

                                       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 October 3, 1999
                                         ------------------------------

Common Stock at $.10 par value                11,209,995 Shares




<PAGE>





PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                                            INNOTRAC CORPORATION
                                               BALANCE SHEETS
                               AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
                                                  (IN 000S)
<TABLE>
<CAPTION>

                                   ASSETS                             September 30, 1999  December 31, 1998
                                   ------                             ------------------  -----------------
                                                                         (Unaudited)
<S>                                                                         <C>               <C>
Current assets:
      Cash and cash equivalents ..................................          $    575          $ 3,379
      Accounts receivable, net ...................................            65,436           44,354
      Inventories ................................................            40,953           14,381
      Deferred tax assets ........................................               958            2,866
      Prepaid expenses and other current assets ..................               856            1,436
                                                                            --------          -------
                Total current assets .............................           108,778           66,416
                                                                            --------          -------

Property and equipment:
      Rental equipment ...........................................             5,567            6,891
      Computer, machinery and transportation equipment ...........             7,595            4,949
      Furniture, fixtures and leasehold improvements .............             2,434            1,390
                                                                            --------          -------
                                                                              15,596           13,230
      Less accumulated depreciation and amortization .............             7,331            5,767
                                                                            --------          -------
                                                                               8,265            7,463
                                                                            --------          -------

Other assets, net ................................................               427              113
                                                                            --------          -------
                                                                            $117,470          $73,992
                                                                            ========          =======


                    LIABILITIES AND PARTNERS', MEMBERS',
                             AND SHAREHOLDERS' EQUITY                 September 30, 1999  December 31, 1998
                    ------------------------------------              ------------------  -----------------
                                                                         (Unaudited)


Current liabilities:
      Current portion of long-term debt .................                   $      8          $    68
      Line of credit ....................................                     13,081           15,736
      Accounts payable ..................................                     19,594            9,387
      Distributions payable .............................                          0               70
      Accrued expenses ..................................                      5,266           12,336
      Other .............................................                      1,125            1,966
                                                                            --------          -------
                Total current liabilities ...............                     39,074           39,563
                                                                            --------          -------

Noncurrent liabilities ..................................                         64              135
                                                                            --------          -------
                Total liabilities .......................                     39,138           39,698
                                                                            --------          -------

Partners', members' and shareholders' equity:
      Common stock ......................................                      1,121              900
      Additional paid-in capital ........................                     59,801           24,838
      Retained earnings .................................                     17,410            8,556
                                                                            --------          -------
               Total shareholders' equity ...............                     78,332           34,294
                                                                            --------          -------
               Total liabilities and shareholders' equity                   $117,470          $73,992
                                                                            ========          =======

    The accompanying condensed notes to financial statements are an integral part of these balance sheets
 </TABLE>
<PAGE>
Financial Statements-Continued
<TABLE>
<CAPTION>
                                                 INNOTRAC CORPORATION
                                                   INCOME STATEMENTS
                            THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                                                      (UNAUDITED)


                                                    Three Months Ended September 30,  Nine Months Ended September 30,
                                                          1999              1998           1999             1998
                                                          ----              ----           ----             ----
<S>                                                    <C>              <C>             <C>             <C>
Revenues, net .................................        $ 51,661         $ 35,233        $ 176,477       $ 94,143
Cost of revenues ..............................          43,901           27,533          150,923         70,460
                                                       --------         --------        ---------       --------
               Gross Profit ...................           7,760            7,700           25,554         23,683
                                                       --------         --------        ---------       --------

Operating expenses:
       Selling, general and
           administrative expenses ............           3,261            3,801            8,617         12,332
       Depreciation and amortization ..........             424              230            1,210            603
                                                       --------         --------        ---------       --------
                Total operating expenses ......           3,685            4,031            9,827         12,935
                                                       --------         --------        ---------       --------
Operating income ..............................           4,075            3,669           15,727         10,748
                                                       --------         --------        ---------       --------

Other (income) expense:
       Interest expense, net ..................             270               90            1,115            663
       Other ..................................            --                 (1)             (20)            20
                                                       --------         --------        ---------       --------
                Total other expenses ..........             270               89            1,095            683
                                                       --------         --------        ---------       --------

Income before income taxes ....................           3,805            3,580           14,632         10,065
Income tax provision ..........................          (1,502)          (1,411)          (5,778)        (2,493)
                                                       --------         --------        ---------       --------
                Net income ....................        $  2,303         $  2,169        $   8,854       $  7,572
                                                       ========         ========        =========       ========

                Proforma net income ...........        $  2,303         $  2,169        $   8,854       $  6,098
                                                       ========         ========        =========       ========

Proforma net income per share:
       Basic ..................................        $   0.22         $   0.24        $    0.94       $   0.78
                                                       ========         ========        =========       ========

       Diluted ................................        $   0.22         $   0.24        $    0.92       $   0.78
                                                       ========         ========        =========       ========

Shares used for computing net income per share:
       Basic ..................................          10,392            9,000           9,419          7,800
                                                       ========         ========        =========       ========

       Diluted ................................          10,583            9,011            9,577          7,816
                                                       ========         ========        =========       ========

        The accompanying condensed notes to financial statements are an integral part of these statements.
</TABLE>
<PAGE>
Financial Statements-Continued
<TABLE>
<CAPTION>
                                                   INNOTRAC CORPORATION
                                                  STATEMENT OF CASH FLOWS
                                   FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                                                        (UNAUDITED)


                                                                                                1999               1998
                                                                                                ----               ----
<S>                                                                                          <C>                <C>
Cash flows from operating activities:
      Net income ..................................................................          $  8,854           $  7,572
      Adjustments to reconcile net income to net cash used in operating activities:
            Depreciation and amortization .........................................             1,210                603
            Depreciation-rental equipment .........................................             1,434              2,300
            Loss on disposal of rental equipment ..................................               412              1,560
            Deferred income taxes .................................................             1,487                568
            Increase in accounts receivable .......................................           (21,082)           (20,862)
            Increase in inventories ...............................................           (26,572)            (2,382)
            Decrease (increase) in prepaid expenses and other assets ..............               534               (483)
            Increase in accounts payable ..........................................            10,207              5,072
            (Decrease) increase in accrued expenses ...............................            (7,070)             1,605
            Other .................................................................              (803)               668
                                                                                             --------           --------
                  Net cash used in by operating activities ........................           (31,389)            (3,779)
                                                                                             --------           --------

Cash flows from investing activities:
      Purchase of property and equipment ..........................................            (3,811)            (3,635)
                                                                                             --------           --------
                  Net cash used in investing activities ...........................            (3,811)            (3,635)
                                                                                             --------           --------

Cash flows from financing activities:
      Net repayment under lines of credit .........................................            (2,655)              (144)
      Repayment of long-term debt .................................................               (63)            (1,066)
      Repayment of subordinated debt ..............................................                 0             (3,500)
      Proceeds from common stock offering, net ....................................            35,064             26,743
      Proceeds from excerised stock options .......................................               120                  0
      Redemption of redeemable capital stock ......................................                 0               (388)
      Distributions to shareholders, members and partners .........................               (70)           (10,729)
                                                                                             --------           --------
                  Net cash provided by financing activities .......................            32,396             10,916
                                                                                             --------           --------

Net (decrease) increase  in cash and cash equivalents .............................            (2,804)             3,502
Cash and cash equivalents, beginning of period ....................................             3,379                554
                                                                                             --------           --------
Cash and cash equivalents, end of period ..........................................          $    575           $  4,056
                                                                                             ========           ========

Supplemental cash flow disclosures:
      Cash paid for interest ......................................................          $  1,173           $    774
                                                                                             ========           ========

      Cash paid for income taxes, net of refunds received .........................          $  5,132           $  1,257
                                                                                             ========           ========

Non cash transactions:
      Accreted dividends on redeemable capital stock ..............................          $      0           $     48
                                                                                             ========           ========

        The accompanying condensed notes to financial statements are an integral part of these statements
</TABLE>
<PAGE>
Financial Statements-Continued


                              INNOTRAC CORPORATION
                     CONDENSED NOTES TO FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


1.      Certain  information and footnote  disclosures  normally included in
        financial  statements prepared in accordance with generally accepted
        accounting  principles  have been  condensed or omitted  pursuant to
        Article  10  of  Regulation  S-X  of  the  Securities  and  Exchange
        Commission.   The   accompanying   unaudited   condensed   financial
        statements  reflect,  in the opinion of management,  all adjustments
        necessary  to achieve a fair  statement  of  financial  position and
        results for the interim periods presented.  All such adjustments are
        of a  normal  and  recurring  nature.  It is  suggested  that  these
        condensed  financial  statements  be read in  conjunction  with  the
        financial  statements  and notes  thereto  included in the Company's
        10-K filing and annual report.

2.      On July 30, 1999, the Company completed a secondary  offering of its
        common  stock.  The Company  issued 2.2  million  shares at a public
        offering  price of  $17.00  per  share.  The total  proceeds  of the
        offering, net of underwriting discounts and offering expenses,  were
        approximately $35.1 million. Additionally, certain shareholders sold
        an additional 675,000 shares in the same offering. Proceeds from the
        offering were used to pay down  borrowings  under the Company's line
        of credit facility.

3.      The pro forma net income and  earnings per share  reflect the  Company's
        results on a fully taxed basis to reflect  consolidation  of the various
        affiliated  pass-through  entities into a C corporation  in  conjunction
        with the initial public offering.

4.      Basic earnings per share is computed by dividing pro forma net income by
        the  weighted  average  number of  common  shares  outstanding.  Diluted
        earnings per share  includes the effect of the  Company's  stock options
        (using  the  treasury  stock  method).  The  following  table  shows the
        computation of the number of shares outstanding:
<TABLE>
<CAPTION>
                            Three Months Ended September 30,   Nine Months Ended September 30,
                                  1999            1998              1999           1998
                                  ----            ----              ----           ----
<S>                              <C>             <C>               <C>            <C>
         Basic Shares            10,392          9,000             9,419          7,800
         Stock Options              191             11               158             16
                                 ------          -----             -----          -----
         Diluted Shares          10,583          9,011             9,577          7,816
                                 ======          =====             =====          =====
</TABLE>

<PAGE>
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
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  oral
contracts;  risks  associated with buying,  warehousing and renting  products to
customers;  risks  of  entering  new  lines  of  businesses;   reliance  on  the
telecommunications  industry;  ability to continue and manage growth; the impact
of the trend toward  outsourcing;  dependence on labor force;  risks  associated
with rapidly changing  technology and the Company's  conversion to new software;
risks  associated  with  competition;  risks  associated  with  fluctuations  in
operating and quarterly results;  dependence on key personnel;  risks associated
with Year 2000  compliance;  compliance with government  regulation;  control by
management;  difficulties of completing and integrating  acquisitions  and other
factors discussed in Innotrac's S-1 Registration Statement,  Commission File No.
333-79929 that is on file with the Securities and Exchange Commission.

OVERVIEW

Innotrac   provides   customized,   technology-based   marketing   support   and
distribution  services to large  corporations  that outsource  these  functions.
Since 1994, we have focused on the  telecommunications  industry  because of its
high growth characteristics and increasing marketing needs. We provide marketing
support services and  distribution of Caller ID units,  Caller ID telephones and
other telecommunications products to BellSouth,  Pacific Bell, Southwestern Bell
and US West and  their  customers.  Recently,  we began  providing  services  to
customers of Ameritech  Services  Inc.,  Cincinnati  Bell Inc. and Bell Atlantic
Corporation.

In  1991,  we  initiated  a  fulfillment  program  to  sell or  rent  Caller  ID
stand-alone devices to BellSouth customers. Customers paid us for these products
by check or credit  card.  In 1993,  we began  billing the charges on  BellSouth
customers'  telephone  bills  in  interest-free  installments.  As  part of that
program, we acquired Caller ID and other telecommunications equipment from third
party manufacturers,  while assuming  collections risk on customer payments.  In
November 1998, we entered into a new contract with  BellSouth  pursuant to which
we continue to provide Caller ID hardware and other equipment,  including corded
and cordless telephones with built-in Caller ID, to BellSouth customers.  We now
bill BellSouth, rather than BellSouth customers, for these products.

Upon receipt of an order, we ship the product,  track inventory levels and sales
and  marketing  data and  maintain  call center  operations  to handle  customer
service and technical  support.  From time to time,  rather than acquiring units
and selling or leasing them to BellSouth  customers,  we distribute,  for a fee,
Caller ID hardware that  BellSouth or other clients have  purchased from various
third-party manufacturers.

Under  our  programs  with  Southwestern  Bell and  Pacific  Bell,  like our new
contract  with  BellSouth,  we bill the  respective  telecommunications  clients
directly for the telecommunications  units that are sold to their end users. The
clients are then responsible for billing and collecting from their customers. As
a result of this change in our payment  model,  unit prices and our gross margin
are lower than  historical  levels (See  "Results of  Operations"  "Revenue" and
"Gross Profit" below).  We generally  experience lower bad debt expenses,  which
are  included  in  selling,   general  and  administrative   expenses,   because
telecommunications clients, rather than their end user customers, pay us for the
equipment.  These  lower  expenses  substantially  offset  the  decline in gross
margin.  The change in our payment  model has had little effect on our operating
margin to date.

We have experienced  significant  growth in revenue in recent years. This growth
stems  primarily  from  growth in Caller ID market  penetration  and  Innotrac's
consultative  selling with respect to product-based  marketing support services.
According to industry sources,  market  penetration of Caller ID services in the
United States as of December 31, 1998 was  approximately  30% and is expected to
reach  approximately  75% by 2007.  BellSouth  indicates that through the end of
first  quarter  1999  its  Caller  ID  penetration  was  38%.  We  believe  that
opportunities  exist,  for example,  in the market areas served by Pacific Bell,
where market  penetration for Caller ID lags behind the national average because
regulatory  issues  delayed the release of Caller ID. Caller ID equipment  sales
may  eventually  level off as the Caller ID market  matures.  We believe that by
distributing other telecommunications  products for existing customers,  growing
our  telecommunications  company client base and expanding customer distribution
channels through e-commerce,  we will be able to offset any eventual maturity in
our Caller ID business.

<PAGE>
The following table sets forth the percentage of total net revenues derived from
services  provided to each of the following clients for the years ended December
31, 1998, 1997 and 1996 and the nine months ended September 30, 1999 and 1998.
Percentages may not sum due to rounding.
<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                             Year Ended December 31,                September 30,
                          ------------------------------        ------------------
                          1998         1997         1996         1999         1998
                          ----         ----         ----         ----         ----
<S>                        <C>          <C>          <C>          <C>          <C>
BellSouth .......          59%          85%          82%          36%          67
Pacific Bell ....          25            8            5           32           18
Southwestern Bell          11           --           --           21            7
US West .........           2            2            2            4            2
Bell Atlantic ...          --           --           --            3           --
Ameritech .......          --           --           --            1           --
                          ----         ----         ----         ----         ----

            Total          97%          95%          89%          97%          97%
                          ====         ====         ====         ====         ====
</TABLE>

The  decline in revenues  from  BellSouth  customers  as a  percentage  of total
revenues  for the  nine  months  ended  September  30,  1999  results  from  the
diversification  of our client  base,  increased  revenue  from Pacific Bell and
Southwestern Bell and the impact of the new pricing model with BellSouth.

Revenues  are  recognized  on the  accrual  basis as  services  are  provided to
customers or as units are shipped (including  installment  sales).  Revenues are
reduced for estimated  product  returns and  allowances,  which are based on our
historical experience.

The largest component of our expenses is our cost of revenues, which includes:

*     the product costs of telecommunications equipment,
*     depreciation on Caller ID rental equipment,
*     the costs of labor associated with marketing support services
      for a particular client,
*     telecommunications  services costs (including call center support),
*     information  technology  support,
*     materials and freight charges and
*     directly allocable facilities costs.

Most of these costs are variable in nature.

A second component of our expenses includes selling, general and administrative,
or SG&A,  expenses.  This  expense item is  comprised  of (1)  financial,  human
resources,  administrative  and  marketing  functions  that are not allocable to
specific client services and (2) bad debt expense.

Bad debt expense  represents a provision for  installments and rentals that will
be deemed uncollectible based on Innotrac's  historical  experience,  as well as
billing adjustments from telecommunications  providers. SG&A expenses tend to be
fixed in nature,  with the  exception of bad debt  expense,  which is related to
revenues.

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth unaudited summary operating data,  expressed as a
percentage of revenues, for the three months and nine months ended September 30,
1999 and 1998, respectively. The data has been prepared on the same basis as the
annual  financial  statements.  In the opinion of the Company's  management,  it
reflects all adjustments,  consisting only of 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  rounded  percentages  below are  calculated  using the
detailed information  contained in the financial statements in order to simplify
its  presentation.  However,  the  percentages  below are  calculated  using the
detailed information contained in the financial statements included in Item 1 of
this filing.

<TABLE>
<CAPTION>
                                                           Three Months                   Nine Months
                                                        Ended September 30             Ended September 30
                                                        ------------------             ------------------
                                                        1999          1998            1999          1998
                                                        ----          ----            ----          ----

<S>                                                     <C>           <C>             <C>           <C>
Cost of revenues ...........................            85.0%         78.1            85.5%         74.8%
Gross profit ...............................            15.0          21.9            14.5           25.2
Selling, general and administrative expenses             6.3          10.8             4.9           13.1
Operating income ...........................             7.9          10.4             8.9           11.4
Interest expense ...........................             0.5           0.3             0.6            0.7
Income before income taxes .................             7.4%         10.2%            8.3%          10.7%
</TABLE>

THREE MONTHS ENDED  SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998

REVENUES.  Net revenues  increased  46.6% to $51.7  million for the three months
ended September 30, 1999 from $35.2 million for the three months ended September
30,  1998.  The  increase in revenue was  primarily  due to a 98.4%  increase in
Caller ID units  distributed  to 1.2  million  units,  which  included  a 152.9%
increase in units sold over the same period in 1998.  For the three months ended
September  30, 1999 the  percentage of units sold was 79.4% versus 62.2% for the
same period in 1998. The percentage of units fulfilled for promotional  giveaway
programs  for which we are paid a fee was 20.6% versus 37.8% for the same period
in 1998,  due to an increase in promotional  sales programs by certain  clients.
Net  revenues was  partially  offset by a decrease in average per unit prices of
Caller ID units due to the impact of our new pricing model where we reduced unit
prices to reflect the lower credit risks as described above in the "Overview". A
dispute between  BellSouth and U.S.  Electronics,  Inc., a third party vendor of
Caller ID equipment and caller ID telephones, has resulted in a lawsuit filed by
BellSouth  against the vendor on October 22, 1999. The Company believes that the
dispute  could  result in a  decrease  in the  number  of Caller ID  promotional
programs that the Company undertakes for BellSouth during the fourth quarter and
possibly beyond.  The Company cannot estimate the impact of any such decrease in
promotional programs on its net revenues. Our reserve for returns and allowances
decreased  from $3.1 million  (8.8% of net  revenues) for the three months ended
September  30, 1998 to $2.4 million  (4.6% of net revenues) for the three months
ended September 30, 1999.

COST OF  REVENUES.  Cost of revenues  increased  59.4% to $43.9  million for the
three months ended  September  30, 1999  compared to $27.5 million for the three
months ended  September  30, 1998.  During the three months ended  September 30,
1999,  the Company opened a new call center in Pueblo,  Colorado.  The impact of
the new  call  center  was an  increase  in cost of  revenues  by  approximately
$900,000.  Cost of revenues  increased  primarily  due to an increase in cost of
equipment  associated  with the  increase in units we sold and the impact of the
new call center in Pueblo, Colorado.

GROSS  PROFIT.  Gross  profit for the three  months  ended  September  30,  1999
increased  0.8% to $7.8  million  compared to $7.7  million for the three months
ended  September 30, 1998, and gross margin  decreased from 21.9% of revenues to
15.0% of revenues,  respectively.  The decrease in gross profit and gross margin
was  primarily  due  to  the  increased  percentage  of  business  derived  from
Southwestern  Bell, Pacific Bell and BellSouth where the Company does not assume
the bad debt risk,  as  described  under  "-Overview."  Therefore  it is able to
charge lower unit prices and, as a result, experiences lower gross margins. This
decline  is offset by lower bad debt  expense,  which is  included  in  selling,
general and administrative expenses.


<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses for the three months
ended September 30, 1999 decreased 8.6% to $3.3 million or 6.3% of revenues from
$3.8 million or 10.8% of revenues for the three months ended September 30, 1998.
The  Company's  bad debt expense was $1.1 million (2.1% of net revenues) for the
three months ended  September  30, 1999 as compared to $2.1 million (6.0% of net
revenues)  for the three months ended  September  30, 1998.  The decrease in bad
debt  expense as a  percentage  of revenue is due  primarily  to the  increasing
percentage  of  business  derived  from  Southwestern  Bell,  Pacific  Bell  and
BellSouth,  which  generally  pay the Company  directly  for  telecommunications
equipment  sold to  end-users.  The  increase  in other SG&A  expenses is due to
increased  sales and  marketing  efforts and increased  administrative  costs to
support the Company's growth.

INCOME TAXES.  Our effective tax rates for the three months ended  September 30,
1999 and 1998 were 39.5% and 39.4%, respectively.


NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED 1998


REVENUES.  Net revenues  increased  87.5% to $176.5  million for the nine months
ended  September 30, 1999 from $94.1 million for the nine months ended September
30,1998.  Consistent with the quarter's results, the increase in revenue was due
primarily  to  increased  Caller  ID  volume.  Total  Caller  ID units  sold and
fulfilled  during the nine months ended  September 30, 1999 increased  134.2% to
4.9 million units from 2.1 million units for the nine months ended September 30,
1998.  The  percentage  of units sold was 58.1% versus 56.1% for the nine months
ended  September  30,  1999 and  1998,  respectively.  The  percentage  of units
fulfilled  for  promotional  giveaway  programs  for which we are paid a fee was
41.9%  versus  43.9%  for  the  same  period  in  1998,  due to an  increase  in
promotional  sales programs by certain clients.  The increase in unit volume was
partially  offset by a decrease in the average per unit price of Caller ID units
due to the impact of the new pricing model where we have reduced our unit prices
to reflect  the lower  credit risk as  described  above in the  "Overview".  The
Company's  reserve for returns and allowances  decreased from $8.6 million (9.2%
of net  revenues)  for the nine months ended  September 30, 1998 to $6.5 million
(3.7% of net revenues) for the nine months ended September 30, 1999.

COST OF REVENUES.  Cost of revenues  increased  114.2% to $150.9 million for the
nine months  ended  September  30, 1999  compared to $70.5  million for the nine
months ended  September  30, 1998.  During the three months ended  September 30,
1999,  the Company opened a new call center in Pueblo,  Colorado.  The impact of
the new  call  center  was an  increase  in cost of  revenues  by  approximately
$900,000.  This increase was due to increased unit volume  described  above plus
the opening of the new call center in Pueblo, Colorado.

GROSS  PROFIT.  Gross  profit  for the nine  months  ended  September  30,  1999
increased  7.9% to $25.6  million  or 14.5% of  revenues  as  compared  to $23.7
million or 25.2% of revenues for the nine months ended  September 30, 1998.  The
increase in gross profit was due  primarily  to the  increase in revenue.  Gross
margins declined for several reasons. First, for strategic reasons, in the first
quarter  the Company  conducted a  promotional  program  that  resulted in $11.0
million in revenues  and $11.0  million in cost of sales.  The Company  chose to
conduct the program in order to strengthen its relationship  with the client. In
addition,  gross margins were  impacted by the increased  percentage of business
derived from  Southwestern  Bell,  Pacific Bell and BellSouth  where the Company
does not assume the bad debt risk, as described under "-Overview."  Therefore it
is able to charge  lower unit  prices and as a result,  experiences  lower gross
margins. This decline is offset by lower bad debt expense,  which is included in
selling, general and administrative expenses.

SELLING,  GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses for the nine months
ended September 30, 1999 were $8.6 million or 4.9% of revenues compared to $12.3
million or 13.1% of revenues for the nine months ended  September 30, 1998.  The
Company's  bad debt expense was $2.2 million (1.3% of net revenues) for the nine
months  ended  September  30,  1999 as  compared  to $7.0  million  (7.4% of net
revenues)  for the nine months ended  September  30, 1998.  Consistent  with the
results for the quarter,  the  decrease in bad debt  expense as a percentage  of
revenue is due primarily to the increasing  percentage of business  derived from
Southwestern Bell,  Pacific Bell and BellSouth,  which generally pay the Company
directly for  telecommunications  equipment  sold to end-users.  The increase in
other selling, general and administrative expenses is due to increased sales and
marketing  efforts and increased  administrative  costs to support the Company's
growth.

<PAGE>
INCOME TAXES.  Our  effective tax rates for the nine months ended  September 30,
1999 and 1998 were 39.5% and 24.8%,  respectively.  The  effective tax rates are
lower than statutory  rates for the nine months ended  September 30, 1998 due to
the amount of income  attributable to the pass-through  entities involved in the
combination  of Innotrac  and related  pass-through  entites at the same time as
consummation of our initial public offering in May 1998. We expect our effective
tax rate in future  periods to  approximate  the level for the nine months ended
September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

We fund our operations and capital expenditures primarily through cash flow from
operations,  borrowings from banks, and, from time to time,  offerings of equity
and  debt.  We had  cash and  cash  equivalents  of  approximately  $575,000  at
September 30, 1999. We maintain a $40.0 million  revolving line of credit with a
bank,  maturing in June 2002,  which was  increased  from $35.0 million in April
1999.  Borrowings  under the line of credit  bear  interest at our option at the
bank's base rate, as adjusted from time to time, or LIBOR, subject to adjustment
in certain circumstances at the lender's option, plus up to 200 basis points. At
September 30, 1999,  the interest rate on the line of credit was 6.25%,  and the
weighted  average interest rate for the nine months ended September 30, 1999 was
6.09%. At September 30, 1999,  $13.1 million was  outstanding  under the line of
credit.  In June, we entered into a lease for a new call center and distribution
facility. As a result of that lease, rental expense will increase  approximately
$550,000 a year through 2004 beginning with the current quarter.

During the nine months ended  September 30, 1999, the Company used $31.4 million
in cash flow from  operating  activities  compared to the use of $3.8 million in
cash flow from operating  activities in the same period in 1998. The decrease in
cash flow from operating  activities in 1998 was due to higher  working  capital
requirements  resulting  from  increases  in  accounts  receivable  (principally
receivables  from Pacific  Bell,  Southwestern  Bell and  BellSouth)  due to the
increased sales volume and similar  increases in inventory,  offset by increased
payables  during the first nine months of 1999 as compared to the same period in
1998.

During the nine months  ended  September  30,  1999,  net cash used in investing
activities  was $3.8 million in 1999 as compared to $3.6  million in 1998.  This
decrease was primarily due to a decrease in the number of purchases of Caller ID
units for rent plus reductions in the level of expenditures  associated with the
Company's computer and software additions to handle growth in business.

During the nine  months  ended  September  30,  1999,  the net cash  provided by
financing  activities  was $32.4  million  compared to $10.9 million in the same
period in 1998. This increase was primarily due to a public  offering  completed
in July 1999 of 2.2 million shares (the "July Offering") of common stock for net
proceeds of approximately $35.1 million.  The increased equity supported working
capital requirements  resulting from increases in accounts receivable due to the
increased sales volume and similar  increases in inventory during the first nine
months of 1999 as  compared  to the same  period in 1998.  The  proceeds of this
offering was principally used to reduce borrowings outstanding under our line of
credit facility.

We estimate that our cash and  financing  needs through 1999 will be met by cash
flows from operations,  proceeds from the July Offering,  and our line of credit
facility.  However,  any increase in the  Company's  growth rate,  shortfalls in
anticipated   revenues,   increases  in  anticipated  expenses,  or  significant
acquisitions could have a material adverse effect on the Company's liquidity and
capital  resources.  Any of these might require the Company to raise  additional
capital  from  public or  private  equity or debt  sources  in order to  finance
operating losses,  anticipated growth and contemplated capital expenditures.  If
such sources of financing are  insufficient or unavailable,  the Company will be
required to modify its growth and operating  plans in accordance with the extent
of available funding. The Company may need to raise additional funds in order to
take advantage of unanticipated opportunities. These opportunities could include
acquisitions of complementary  businesses or the development of new products, or
otherwise  respond  to  unanticipated  competitive  pressures.  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.

<PAGE>
YEAR 2000 COMPLIANCE

The  efficient  operation  of our  business is dependent in part on our computer
software programs and operating systems.  These programs and systems are used in
inventory management,  pricing, sales, shipping and financial reporting, as well
as in various administrative functions. Management believes that our information
technology,  or IT,  systems,  and other  non-IT  systems  are either  Year 2000
compliant or substantially compliant. The cost of the upgrades is expected to be
approximately  $120,000,  approximately  $110,000  of which  has  been  incurred
through October 1999. We do not anticipate  additional material expenditures for
Year 2000 compliance issues.

Our Year 2000  compliance  efforts for both IT and non-IT systems  include three
major phases: (1) inventory all systems,  assess whether there are any Year 2000
issues and develop a compliance  plan for all systems;  (2)  remediate  any Year
2000 problems and (3) test systems  subsequent to  remediation.  The chart below
shows the  estimated  completion  status of each of these phases  expressed as a
percentage of completion as of September 30, 1999:
<TABLE>
<CAPTION>
          PHASE:                                             I                  II                 III
          ------                                             -                  --                 ---

          <S>                                               <C>                <C>                <C>
          IT Systems.................................       100%                99%                95%
          Non-IT Systems.............................       100%               100%               100%
</TABLE>

While the remediation phase and the testing phase are substantially complete, we
intend to continue to test for any  potential  unidentified  Year 2000 issues of
which we may not be currently aware through the remainder of 1999.

We are in the process of obtaining  documentation  from our suppliers,  clients,
financial institutions and others as to the status of their Year 2000 compliance
programs and the possibility of any interface difficulties relating to Year 2000
compliance that may affect us. We have obtained  documentation  from most of the
entities we have  contacted  and, to date,  no  significant  concerns have  been
identified.  However,  there is a risk that Year 2000-related operating problems
or expenses  will arise with our computer  systems and software or in connection
with our  interface  with the computer  systems and  software of our  suppliers,
clients, financial institutions and others. Because these third-party systems or
software  may not be Year 2000  compliant,  we are in the process of  developing
contingency  plans to address Year 2000 failures of these entities with which we
interface. Our contingency plans are being developed to address issues like: (1)
the inability to receive  customer  order  information  electronically  from our
major clients and (2) the inability of one or more of the  manufacturers  of the
Caller ID products we sell to produce  products due to that  company's Year 2000
failure.  If the first scenario were to happen,  we would be required to receive
and enter this  information  manually into our order  processing  system,  which
could increase our labor costs.  If the second  scenario were to occur, we would
be required to find alternate  vendors and potentially incur additional costs to
do so. We could be  required  to incur  unanticipated  expenses  to  remedy  any
problems, which could have a material adverse effect on our business, results of
operations and financial condition.


RECENT ACCOUNTING PRONOUNCEMENTS

The Financial  Accounting Standards Board ("FASB") has issued Statement No. 133,
Accounting  for Derivative  Instruments  and Hedging  Activities,  which must be
adopted by the year 2000.  In June 1999,  the FASB  issued  Statement  No.  137,
ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES - DEFERRAL OF THE
EFFECTIVE  DATE OF FASB  STATEMENT  NO. 133,  which amends  Statement  133 to be
effective for all fiscal  quarters of all fiscal years  beginning after June 15,
2000 (that is,  January 1, 2001 for companies with  calendar-year  fiscal year).
This statement  establishes  accounting  and reporting  standards for derivative
instruments--including   certain  derivative   instruments   embedded  in  other
contracts--and  for  hedging  activities.  Adoption  of  this  statement  is not
expected to have a material impact on our financial statements.

In March 1998, the American  Institute of Certified Public  Accountants issued a
new  Statement  of  Position,  Accounting  for the  Costs of  Computer  Software
Developed or Obtained for Internal Use. This statement  requires  capitalization
of certain costs of internal-use  software.  Innotrac  adopted this statement in
January 1999, and it did not have a material impact on the financial statements.

<PAGE>

Item 3 - Quantitative and Qualitative Disclosure About Market Risks

We believe our  exposure to market risks is  immaterial.  We hold no market risk
sensitive  instruments for trading  purposes.  At present,  we do not employ any
derivative  financial  instruments,  other  financial  instruments or derivative
commodity  instruments to hedge any market risks and we do not currently plan to
employ them in the future.  To the extent  that we have  borrowings  outstanding
under our credit  facility,  we have market risk  relating to the amounts of our
borrowings  because  interest rates under the credit facility are variable.  Our
exposure is immaterial due to the short-term nature of these borrowings.

<PAGE>

PART II

OTHER INFORMATION

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               10.18    Master  Agreement for Products and Services  between the
                        Company and SBC Operations, Inc. effective July 1, 1999.

               27.      Financial Data Schedule (for SEC use only)

          (b) Reports on Form 8-K - There were no Form 8-K filings.

<PAGE>

                                   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 9, 1999             By:  /s/ Scott D. Dorfman
                                             Scott D. Dorfman
                                             President and Chief
                                               Executive Officer and Chairman
                                               of the Board


Date:  November 9, 1999             By: /s/ John H. Nichols III
                                            John H. Nichols III
                                            Senior Vice President,
                                              Chief Financial Officer
                                              and Secretary (Principal
                                               Financial Officer)