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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

OR

(  )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934

For the transition period from _________ to __________

Commission file number 000-23740           

INNOTRAC CORPORATION

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.

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INNOTRAC CORPORATION

INDEX

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Part I – Financial Information

Item 1 – Financial Statements

The following condensed consolidated financial statements of Innotrac Corporation, a Georgia corporation (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles. In the opinion of management, all adjustments are of a normal and recurring nature, except those specified otherwise, and include those necessary for a fair presentation of the financial information for the interim periods reported. Results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results for the entire year ending December 31, 2002. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2001 Annual Report on Form 10-K.

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INNOTRAC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

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

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Financial Statements-Continued

INNOTRAC CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2002 and 2001
(in thousands, except per share amounts)

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

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Financial Statements-Continued

INNOTRAC CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2002 and 2001
(in thousands, except per share amounts)

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

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Financial Statements-Continued

INNOTRAC CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(in thousands)

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

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INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001
(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 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2002 for the year ended December 31, 2001.

2.    SPECIAL CHARGES

At June 30, 2002 and December 31, 2001, the Company had approximately $2.0 million and $4.6 million, respectively, in accruals related to the special charges incurred during the year ended December 31, 2000. The remaining accruals at June 30, 2002 included $652,000 for the Company’s shift to a fee-for-service business model and $1.3 million for e-commerce costs. Cash payments relating to these accruals for the three and six months ended June 30, 2002 were approximately $377,000 and $466,000, respectively. The Company reversed to income approximately $359,000 and $1.6 million in special charge accruals during the three and six months ended June 30, 2002, respectively as these accruals were no longer required for certain accounts receivable and inventory items related to the shift to a fee-for-service business model. The majority of the remaining accruals, except for that associated with one specific client which represents about 40% of the remaining accrual and is classified as long-term, are expected to be utilized during the remainder of the year ending December 31, 2002. Any unused accruals will be reversed to income and reported as a special credit.

3.    FINANCING OBLIGATIONS

The Company has a revolving credit agreement with a bank for borrowings up to $40 million. In May 2002, the Company extended its credit facility through June 1, 2005 under similar terms and conditions as the previous revolving credit agreement. The Company and its subsidiaries have pledged all of its assets and provided guarantees to the lender as collateral under this revolving credit agreement. At June 30, 2002 and 2001, the Company did not have any outstanding borrowings under the line of credit. The revolving line of credit agreement contains various restrictive financial and change of ownership control covenants. The May 2002 amendment added provisions limiting borrowings under the agreement to a margin or borrowing base, as defined, which totaled $25.3 million at June 30, 2002 and tightened certain of the financial covenants. At June 30, 2002, the Company was in compliance with all covenants under the credit agreement.

	Interest on borrowings is payable monthly at rates equal to the prime rate, or at the Company’s option, LIBOR plus up to 225 basis points. During the three and six months ended June 30, 2002, the Company incurred interest expense related to the line of credit of approximately $15,400 and $49,400, respectively, resulting in a weighted average interest rate of 4.22% and 4.33%, respectively.

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INNOTRAC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and 2001
(Unaudited)

4.    MINORITY INTERESTS

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

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

5.    EARNINGS PER SHARE

The following table shows the amounts used in computing earnings per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128 and the effects on income and the weighted average number of shares of potential diluted common stock. Certain options outstanding to purchase shares of the Company’s common stock aggregating 1.1 million and 871,000 were not included in the computation of diluted EPS for both the three months ended June 30, 2002 and 2001, respectively, because their effect was anti-dilutive. For the six months ended June 30, 2002 and 2001, certain options outstanding to purchase shares of the Company’s common stock aggregating 1.1 million and 1.2 million, respectively, were not included in the computation of diluted EPS because their effect was anti-dilutive. Shares used to compute diluted EPS for the three and six months ended June 30, 2002 and 2001 are as follows (in 000’s):