10-Q

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, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES ACT OF 1934

For the transition period from _______ to _______

Commission file number 000-23740

 INNOTRAC CORPORATION

 (Exact name of registrant as specified in its charter)

Georgia	58-1592285
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer  Identification Number)

6655 Sugarloaf ParkwayDuluth, 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act) Yes o No x

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

	Outstanding at November 10, 2006
Common Stock $.10 par value per share	12,280,610 Shares

INNOTRAC CORPORATION

INDEX

Part I. Financial Information		Page
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets at September 30, 2006 (Unaudited) and December 31, 2005	3
	Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2006 and 2005 (Unaudited)	4
	Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 2006 and 2005 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
Part II. Other Information
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	22
Signatures		23

1

Part I – Financial Information

Item 1 – Financial Statements

The following condensed consolidated financial statements of Innotrac Corporation, a Georgia corporation (“Innotrac” or the “Company”), have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments are of a normal and recurring nature, except those specified as 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 nine months ended September 30, 2006 are not necessarily indicative of the results for the entire year ending December 31, 2006. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2005 Annual Report on Form 10-K, which is available on our website at www.innotrac.com.

2

INNOTRAC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

ASSETS	September 30, 2006			December 31, 2005
	(unaudited)
Current assets:
Cash and cash equivalents	$	1,122		$	2,068
Accounts receivable (net of allowance for doubtful accounts of $280 at September 30, 2006 and $2,791 at December 31, 2005)		14,821			12,745
Inventory		2,077			4,676
Prepaid expenses and other		1,529			1,383
Total current assets		19,549			20,872
Property and equipment:
Rental equipment		363			427
Computer software and equipment		36,992			30,514
Furniture, fixtures and leasehold improvements		5,672			5,133
		43,027			36,074
Less accumulated depreciation and amortization		(27,882	)		(25,320	)
		15,145			10,754
Goodwill		25,169			25,169
Other assets, net		1,355			1,177
Total assets	$	61,218		$	57,972
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,185		$	6,707
Line of credit		5,892			—
Accrued expenses and other		4,386			3,036
Total current liabilities		15,463			9,743
Noncurrent liabilities:
Other noncurrent liabilities		1,080			1,038
Total noncurrent liabilities		1,080			1,038
Commitments and contingencies (see Note 5)
Shareholders’ equity:
Preferred stock: 10,000,000 shares authorized, $0.10 par value, no shares issued or outstanding		—			—
Common stock: 50,000,000 shares authorized, $0.10 par value, 12,280,610 shares issued and outstanding.		1,228			1,228
Additional paid-in capital		65,995			65,911
Accumulated deficit		(22,548	)		(19,948	)
Total shareholders’ equity		44,675			47,191
Total liabilities and shareholders’ equity	$	61,218		$	57,972

See notes to condensed consolidated financial statements.

3

Financial Statements-Continued

INNOTRAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended September 30, 2006 and 2005

(in thousands, except per share amounts)

	Three Months Ended September 30,
	2006			2005
	(unaudited)			(unaudited)
Revenues	$	19,091		$	17,543
Cost of revenues		9,589			8,695
Selling, general and administrative expenses		8,914			8,535
Depreciation and amortization		956			1,091
Total operating expenses		19,459			18,321
Operating (loss)		(368	)		(778	)
Other expense:
Interest expense		120			18
Total other expense		120			18
(Loss) before income taxes		(488	)		(796	)
Income taxes		—			—
Net (loss)	$	(488	)	$	(796	)
(Loss) per share:
Basic	$	(0.04	)	$	(0.06	)
Diluted	$	(0.04	)	$	(0.06	)
Weighted average shares outstanding:
Basic		12,281			12,277
Diluted		12,281			12,277

See notes to condensed consolidated financial statements.

4

Financial Statements-Continued

INNOTRAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2006 and 2005

(in thousands, except per share amounts)

	Nine Months Ended September 30,
	2006			2005
	(unaudited)			(unaudited)
Revenues	$	52,996		$	55,724
Cost of revenues		26,467			28,328
Selling, general and administrative expenses		26,212			25,421
Depreciation and amortization		2,639			3,551
Total operating expenses		55,318			57,300
Operating (loss)		(2,322	)		(1,576	)
Other expense:
Interest expense		278			127
Total other expense		278			127
(Loss) before income taxes		(2,600	)		(1,703	)
Income taxes		—			—
Net (loss)	$	(2,600	)	$	(1,703	)
(Loss) per share:
Basic	$	(0.21	)	$	(0.14	)
Diluted	$	(0.21	)	$	(0.14	)
Weighted average shares outstanding:
Basic		12,281			12,167
Diluted		12,281			12,167

See notes to condensed consolidated financial statements.

5

Financial Statements-Continued

INNOTRAC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2006 and 2005

(in thousands)

	Nine Months Ended September 30,
	2006			2005
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(2,600	)	$	(1,703	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,639			3,551
Provision for bad debts		73			(508	)
Loss on disposal of fixed assets		8			12
Amortization of deferred compensation		84			—
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, gross		(2,149	)		6,066
Decrease (increase) in inventory		2,599			(1,469	)
(Increase) decrease in prepaid expenses and other		(307	)		348
Decrease in accounts payable		(1,522	)		(1,731	)
Increase in accrued expenses and other		1,391			492
Net cash provided by operating activities		216			5,058
Cash flows from investing activity:
Capital expenditures		(7,034	)		(800	)
Net cash used in investing activities		(7,034	)		(800	)
Cash flows from financing activities:
Net borrowings (repayments) under line of credit		5,892			(3,063	)
Loan commitment fees		(20	)		—
Repayment of capital lease and other obligations		—			(54	)
Exercise of employee stock options		—			1,285
Net cash provided by (used in) financing activities		5,872			(1,832	)
Net (decrease) increase in cash and cash equivalents		(946	)		2,426
Cash and cash equivalents, beginning of period		2,068			1,377
Cash and cash equivalents, end of period	$	1,122		$	3,803
Supplemental cash flow disclosures:
Cash paid for interest	$	246		$	145

See notes to condensed consolidated financial statements.

6

INNOTRAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006 and 2005

(Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed for quarterly financial reporting are the same as those disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2005. Certain of the Company’s more significant accounting policies are as follows:

Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Goodwill and Other Acquired Intangibles. Goodwill represents the cost of an acquired enterprise in excess of the fair market value of the net tangible and identifiable intangible assets acquired. The Company tests goodwill annually for impairment as of January 1 or sooner if circumstances indicate.

Impairment of Long-Lived Assets. The Company reviews long-lived assets and certain intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment would be measured based on a projected cash flow model. If the projected undiscounted cash flows for the asset are not in excess of the carrying value of the related asset, the impairment would be determined based upon the excess of the carrying value of the asset over the projected discounted cash flows for the asset.

Accounting for Income Taxes. Innotrac utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance was recorded against the net deferred tax asset as of December 31, 2005 and September 30, 2006 (see Note 4).

Revenue Recognition. Innotrac derives its revenue primarily from two sources: (1) fulfillment operations and (2) the delivery of call center services. Innotrac’s fulfillment services operations record revenue at the conclusion of the material selection, packaging and shipping process. Innotrac’s call center services business recognizes revenue according to written pricing agreements based on the number of calls, minutes or hourly rate basis. All other revenues are recognized as services are rendered.

Stock-Based Compensation Plans.In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payment,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company adopted SFAS No. 123(R) effective January 1, 2006 using the Modified Prospective Application Method. Under this method, SFAS 123(R) applies to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation expense for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is performed on or after the required effective date. The adoption of SFAS No. 123(R) resulted in recording $22,000 and $84,000 in compensation expense for the three and nine months ended September 30, 2006, respectively. As of September 30, 2006, approximately $109,000 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over the following 39 months.

7

INNOTRAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006 and 2005

(Unaudited)

For the three and nine months ended September 30, 2005, if compensation cost for stock options had been determined under a fair value based method, in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” the Company’s net loss and net loss per share would have been the following pro forma amounts (in 000’s, except per share data):

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Net loss	$	(796	)	$	(1,703	)
Pro forma net loss	$	(1,155	)	$	(2,781	)
Basic and diluted net loss per share	$	(0.06	)	$	(0.14	)
Basic and diluted pro forma net loss per share	$	(0.09	)	$	(0.23	)

Under the fair value based method, compensation cost, net of tax would have been $359,000 and $1.1 million for the three and nine months ended September 30, 2005, respectively. During the three and nine months ended September 30, 2005, options representing 4,250 and 279,867 shares were exercised, respectively.

The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Nine months ended
	September 30, 2006		September 30, 2005
Risk-free interest rate		4.72%		4.20%
Expected dividend yield		0%		0%
Expected lives		2.0 Years		2.4 Years
Expected volatility		72.3%		72.2%

2. FINANCING OBLIGATIONS

The Company has a revolving bank credit agreement with a maximum borrowing limit of $25.0 million, which will mature in March 2009. Although the maximum borrowing limit is $25.0 million, the credit facility limits borrowings to a specified percentage of eligible accounts receivable and inventory, which totaled $13.1 million at September 30, 2006. At September 30, 2006 the Company had $5.9 million outstanding and $4.5 million of additional availability under the revolving credit agreement.

8

INNOTRAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006 and 2005

(Unaudited)

The Company has granted a security interest in all of its assets to the lender as collateral under this revolving credit agreement. The revolving credit agreement contains fixed charge coverage ratio, change of ownership controland othercovenants. Noncompliance with any of the covenants allows the lender to declare any outstanding borrowing amounts to be immediately due and payable.

The financial covenants required the Company to maintain a minimum fixed charge coverage ratio of 0.75 to 1.00 for the quarter ended September 30, 2006. The Company was not in compliance at September 30, 2006 with a fixed charge coverage ratio of 0.64 to 1.00. Additionally, the Company’s acquisition of certain assets from ClientLogic (described in Note 7 below) violated additional covenants in the credit agreement regarding debt.

On November 14, 2006, the Company and the bank entered into a Waiver and Amendment Agreement (the “Waiver Agreement”) whereby the bank agreed to waive the Company’s existing defaults under the credit agreement, provided that the Company comply with the terms of the credit agreement, as amended by the Waiver Agreement, and the additional conditions of the Waiver Agreement. Based on current projections, the Company believes that it will be able to comply with the terms and conditions of the credit agreement, as amended, and the Waiver Agreement.

As amended by the Waiver Agreement, the financial covenants require the Company to maintain a minimum fixed charge coverage ratio of between 0.65 and 1.10 to 1.00, depending on the particular fiscal month, for each month through May 2007, and a ratio of 1.15 to 1.00 for each month thereafter. The Waiver Agreement also amends certain other sections of the credit agreement, including increasing the Applicable Margin, instituting an early termination fee, requiring weekly Borrowing Base reporting when availability is below a specified amount, and requiring monthly compliance certification. A copy of the Waiver Agreement is attached to this Form 10-Q as Exhibit 10.4, and this discussion is qualified by the terms of such agreement.

As amended by the Waiver Agreement, interest on borrowings is payable monthly at rates equal to the prime rate, or at the Company’s option,LIBOR plus up to 200 basis points. During any period in which the Company’s fixed charge coverage ratio is less than 1.00 to 1.00, the applicable margin will increase by 100 basis points on prime rate loans and by 85 basis points on LIBOR rate loans.  During the three months ended September 30, 2006 and 2005, the Company incurredinterest expense related to the line of credit of approximately$109,000 and $4,000, respectively, resulting in a weighted average interest rate of 6.84% and 6.33%, respectively. During the nine months ended September 30, 2006 and 2005, the Company incurred interest expense related to the line of credit of approximately $228,000 and $86,000, respectively, resulting in a weighted average interest rate of 6.65% and 5.00%, respectively. The Company also incurred unused revolving credit facility fees of approximately $12,000 and $10,000 during the three months ended September 30, 2006 and 2005, respectively, and $38,000 and $34,000 during the nine months ended September 30, 2006 and 2005, respectively.

3. EARNINGS PER SHARE

The following table shows the shares (in thousands) used in computing diluted earnings per share (“EPS”) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share”:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Diluted earnings per share:
Weighted average shares outstanding		12,281		12,277		12,281		12,167
Employee and director stock options and unvested restricted shares		—		—		—		—
Weighted average shares assuming dilution		12,281		12,277		12,281		12,167

Options outstanding to purchase 1.6 million shares of the Company’s common stock for both the three and nine months ended September 30, 2006, and 1.6 million shares for both the three and nine months ended September 30, 2005, were not included in the computation of diluted EPS because their effect was anti-dilutive.

9

INNOTRAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006 and 2005

(Unaudited)

4. INCOME TAXES

Innotrac utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if the Company considers it is more likely than not that deferred tax assets will not be realized. Innotrac’s gross deferred tax asset as of September 30, 2006 and December 31, 2005 was approximately $17.0 million and $15.6 million, respectively. This deferred tax asset was generated primarily by net operating loss carryforwards created mainly by a special charge of $34.3 million recorded in 2000 and the net losses generated in 2002, 2003 and 2005. Innotrac has a net operating loss carryforward of $37.5 million at December 31, 2005 that expires between 2020 and 2025.

Innotrac’s ability to generate the expected amounts of taxable income from future operations is dependent upon general economic conditions, competitive pressures on sales and margins and other factors beyond management’s control. These factors, combined with losses in recent years, create uncertainty about the ultimate realization of the gross deferred tax asset in future years. Therefore, a valuation allowance of approximately $13.1 million and $12.2 million has been recorded as of September 30, 2006 and December 31, 2005, respectively. Income taxes associated with future earnings will be offset by the utilization of the net operating loss carryforward resulting in a reduction in the valuation allowance. For the nine months ended September 30, 2006, the deferred tax benefit of $895,000 was offset by a corresponding increase of the deferred tax asset valuation allowance. When, and if, the Company can return to consistent profitability, and management determines that it is likely it will be able to utilize the net operating losses prior to their expiration, then the valuation allowance can be reduced or eliminated.

5. COMMITMENTS AND CONTINGENCIES

Shareholder Rights Plan. In December 1997, the Company’s Board of Directors approved a Shareholder Rights Plan (the “Rights Plan”). The Rights Plan provides for the distribution of one right for each outstanding share of the Company’s common stock held of record as of the close of business on January 1, 1998 or that thereafter becomes outstanding prior to the earlier of the final expiration date of the rights or the first date upon which the rights become exercisable. Each right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A participating cumulative preferred stock, par value $.10 per share, at a price of $60.00 (the “Purchase Price”), subject to adjustment. The rights are not exercisable until ten calendar days after a person or group (an “Acquiring Person”) buys, or announces a tender offer for, 15% or more of the Company’s common stock. Such ownership level has been increased to 40% for a particular shareholder that owned approximately 34.0% of the shares outstanding on September 30, 2006. In the event the rights become exercisable, each right will entitle the holder to receive that number of shares of common stock having a market value equal to the Purchase Price. If, after any person has become an Acquiring Person (other than through a tender offer approved by qualifying members of the Board of Directors), the Company is involved in a merger or other business combination where the Company is not the surviving corporation, or the Company sells 50% or more of its assets, operating income, or cash flow, then each right will entitle the holder to purchase, for the Purchase Price, that number of shares of common or other capital stock of the acquiring entity which at the time of such transaction have a market value of twice the Purchase Price. The rights will expire on January 1, 2008, unless extended, unless the rights are earlier exchanged, or unless the rights are earlier redeemed by the Company in whole, but not in part, at a price of $0.001 per right. No shares have been issued under the Rights Plan.

Legal Proceedings. The Company was named as a defendant in a third party complaint filed on October 31, 2006 by Frank Regalbuto and Michael Regalbuto (the “Regalbutos”) in the U.S. District Court for the District in Cleveland, Ohio arising out of the Regalbutos’ investments in the IPOF Fund, L.P. The complaint alleges securities fraud, RICO violations and common law fraud by the Company and unnamed individual defendants who appear to be the Company’s directors. The receiver of the IPOF Fund has filed motions to intervene, sever the third party complaint, and stay the proceedings, and for an order to show cause for why the plaintiffs should not be held in contempt of the court. The court has scheduled a hearing on the receiver’s motions for November 14, 2006. Based on the information available to date, the Company believes that the asserted claims are without merit and believes that this matter will not have a material adverse effect on the Company’s financial position or its results of operations.

The Company is also subject to various legal proceedings and claims that arise in the ordinary course of business. There are no material pending legal proceedings to which the Company is a party.

10

INNOTRAC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2006 and 2005

(Unaudited)

Employment Commitment. In June 1999, in conjunction with the opening of a new call center facility, the Company entered into an employment commitment agreement with the City of Pueblo, Colorado, whereby the Company received cash incentives of $968,000. These funds were accounted for as a reduction in the basis of the assets acquired. In return for this consideration, the Company is obligated to employ a minimum number of full-time employees at its Pueblo facility, measured on a quarterly basis. This obligation, which became effective June 2002, will continue through June 2009. In the event that the number of full-time employees fails to meet the minimum requirement, the Company will incur a quarterly penalty of $96.30 for each employee less than the minimum required amount. During the three and nine months ended September 30, 2006 and 2005, the Company did not meet the minimum employee requirements of 359 full-time employees, as measured on a quarterly basis, incurring a penalty of approximately $3,000 and $5,000 for the three months ended September 30, 2006 and 2005, respectively, and approximately $21,000 and $10,000 for the nine months ended September 30, 2006 and 2005, respectively.

6. RELATED PARTY TRANSACTION

In early 2004, the Company learned that certain trading activity of the IPOF Fund L.P., an owner of more than 5% of the outstanding Common Stock, may have violated the short-swing profit rules under Section 16(b) of the Securities Exchange Act of 1934. The Company promptly conducted an investigation of the matter. IPOF Fund L.P. and its affiliates entered into a settlement agreement with the Company on March 4, 2004 regarding the potential Section 16(b) liability issues that provided for the Company’s recovery of $301,957 no later than March 3, 2006. In December 2005, the United States District Court in Cleveland, Ohio appointed a receiver to identify and administer the assets of the IPOF Fund, L.P. and its general partner, David Dadante. The Company informed the IPOF receiver of such agreement, but the likelihood of recovering such amount from the receiver is doubtful. The Company has not recorded any estimated receivable from this settlement.

7. SUBSEQUENT EVENT

On October 31, 2006, the Company acquired the fulfillment and reverse logistics business of ClientLogic, located in Columbus, Ohio, for $1.8 million plus an earn-out payment equal to ten percent of net revenues for a twelve month period beginning on or before April 1, 2007. The $1.8 million payment is payable in two installments, $1.0 million was paid at closing and the remaining $800,000 is due February 28, 2007. The acquisition will be funded from the Company’s revolving credit facility, reducing the availability under the credit facility.

The approximate book value of the assets acquired is $2.7 million. During the fourth quarter, the Company will determine the fair market value of the tangible and intangible assets acquired and to the extent that the purchase price exceeds the fair value of these net assets, then the excess will be allocated to goodwill.

11

Item 2 –

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion may contain certain forward-looking statements that are subject to conditions that are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, the Company’s reliance on a small number of major clients; risks associated with the terms and pricing of our contracts; reliance on the telecommunications and direct marketing industries and the effect on the Company of the downturns, consolidation and changes in those industries in the past three years; risks associated with the fluctuations in volumes from our clients; risks associated with upgrading, customizing, migrating or supporting existing technology; risks associated with competition; and other factors discussed in more detail under “Item 1A - Risk Factors” in our Annual Report on Form 10-K and in “Part II - Item 1A - Risk Factors” in this Form 10-Q. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Innotrac Corporation (“Innotrac” or the “Company”), founded in 1984 and headquartered in Atlanta, Georgia, is a full-service fulfillment and logistics provider serving enterprise clients and world-class brands. The Company employs sophisticated order processing and warehouse management technology and operates ten fulfillment centers and two call centers in seven cities spanning all time zones across the continental United States.

We receive most of our clients’ orders either through inbound call center services, electronic data interchange (“EDI”) or the Internet. On a same-day basis, depending on product availability, the Company picks, packs, verifies and ships the item, tracks inventory levels through an automated, integrated perpetual inventory system, warehouses data and handles customer support inquiries. Our fulfillment and customer support services interrelate and are sold as a package, however they are individually priced. Our clients may utilize our fulfillment services, our customer support services, or both, depending on their individual needs.

Our core service offerings include the following:

· Fulfillment Services:

· sophisticated warehouse management technology

· automated shipping solutions

· real-time inventory tracking and order status

· purchasing and inventory management

· channel development

· zone skipping for shipment cost reduction

· product sourcing and procurement

· packaging solutions

· back-order management; and

· returns management.

· Customer Support Services:

· inbound call center services

· technical support and order status

· returns and refunds processing

· call centers integrated into fulfillment platform

· cross-sell/up-sell services

· collaborative chat; and

· intuitive e-mail response.

12

Item 2 –

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company is primarily focused on five diverse lines of business, or industry verticals. This is a result of a significant effort made by the Company to diversify both its industry concentration and client base over the past several years.

Business Mix

	Three Months Ended September 30,						Nine Months Ended September 30,
Business Line/Vertical	2006			2005			2006			2005
Telecommunications		6.4	%		12.7	%		7.5	%		13.1	%
Modems		24.4			24.7			25.5			20.6
Retail/Catalog		37.0			29.4			33.4			28.8
Direct Marketing		23.1			21.1			22.3			26.5
Business-to-Business (“B2B”)		9.1			12.1			11.3			11.0
		100.0	%		100.0	%		100.0	%		100.0	%

Telecommunications and Modems. The Company continues to be a major provider of fulfillment and customer support services to the telecommunications industry. In spite of a significant contraction and consolidation in this industry in the past several years, the Company continues to provide customer support services and fulfillment of telephones, caller ID equipment, digital subscriber line (“DSL”) and other telecommunications products to companies such as BellSouth Corporation and Qwest Communications International, Inc. and their customers. Inventory for our telecommunications and DSL modem clients is held on a consignment basis, with the exception of certain BellSouth inventory for which we are contractually indemnified, and includes items such as telephones, caller ID equipment, DSL modems and ancillary equipment. Despite a decline in our telecommunications business as a result of reduced volumes due to the maturity of the telephone and Caller ID equipment business, we anticipate that the percentage of our revenues attributable to telecommunications and DSL modem clients will remain fairly constant during the remainder of 2006 due mainly to increased volumes from our DSL modem business, which we believe is still in a strong growth mode.

Retail, Catalog and Direct Marketing. The Company also provides a variety of fulfillment and customer support services for a significant number of retail, catalog and direct marketing clients, including such companies as Target.com, a Division of Target Corporation, Ann Taylor Retail, Inc., Smith & Hawken, Ltd., Porsche Cars North America, Inc. and Thane International. We take orders for our retail, catalog and direct marketing clients via the Internet, through customer service representatives at our Pueblo and Reno call centers or through direct electronic transmission from our clients. The orders are processed through one of our order management systems and then transmitted to one of our ten fulfillment centers located across the country and are shipped to the end consumer or retail store location, as applicable, typically within 24 hours of when the order is received. Inventory for our retail, catalog and direct marketing clients is held on a consignment basis, with minor exceptions, and includes items such as shoes, dresses, accessories, books, outdoor furniture, electronics, small appliances, home accessories, sporting goods and toys. Our revenues are sensitive to the number of orders and customer service calls received. Our client contracts do not guarantee volumes. We anticipate that the percentage of our revenues attributable to our retail and catalog clients will increase during the remainder of 2006 due to the addition of several new clients, including Target.com, late in the second quarter of 2006, while the revenues attributable to our direct marketing clients will decrease as a percentage of overall revenue due to the increase in revenues related to retail and catalog clients.

13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On October 21, 2004, Tactica International, Inc. (“Tactica”), one of the Company’s direct response clients, filed a voluntary petition for relief under Chapter 11 in U.S. Bankruptcy Court.On October 25, 2004 the Bankruptcy Court approved, on an interim basis, a Stipulation and Consent Order (“Stipulation”) entered into between Tactica and Innotrac, whereby Tactica acknowledged the validity of Innotrac’s claim and Innotrac’s first priority security interest in, and warehouseman’s lien on, Tactica’s inventory held by Innotrac. This Stipulation allowed Tactica to continue to sell its inventory while reducing the receivables owed by Tactica to Innotrac. Tactica defaulted on the Stipulation and on January 18, 2005, Innotrac issued a Notice of Default to Tactica. In March 2005, Innotrac and Tactica reached a verbal agreement that would permit Innotrac to liquidate the Tactica inventory in order to pay down the receivable balance, with any excess proceeds to be remitted to Tactica. Innotrac, Tactica and the Creditor’s Committee in the Tactica bankruptcy case reached an agreement on the terms of the liquidation and an additional amount of the proceeds to be remitted to the unsecured creditors of Tactica, which was approved by the bankruptcy court on June 23, 2005. Based on this agreement and management’s estimate of the net realizable value of the inventory, the reserve associated with the Tactica receivable was reduced from $1.2 million to $775,000 at March 31, 2005. In the fourth quarter 2005, the reserve associated with the Tactica receivable was increased to $2.5 million. The additional reserve was based on management’s estimate of the net realizable value of the inventory, which was considerably reduced in the fourth quarter as a result of buyers not materializing as initially indicated by the third party independent appraiser and a continuing reduction in value of the merchandise. The liquidation was completed and the receivable written off against the reserve during the second quarter of 2006.

Business-to-Business. The Company also provides fulfillment and customer support services for business-to-business (“B2B”) clients, including Books Are Fun, Ltd. (a subsidiary of Reader’s Digest), NAPA and The Walt Disney Company. This is a small, but growing area of our business.

Results of Operations

The following table sets forth unaudited summary operating data, expressed as a percentage of revenues, for the three and nine months ended September 30, 2006 and 2005. The data has been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, it reflects normal and recurring adjustments necessary for a fair presentation of the information for the periods presented. Operating results for any period are not necessarily indicative of results for any future period.

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial information provided below has been rounded in order to simplify its presentation. However, the percentages below are calculated using the detailed information contained in the condensed consolidated financial statements.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		50.2			49.6			49.9			50.8
Selling, general and administrative expenses		46.7			48.6			49.5			45.6
Depreciation and amortization		5.0			6.2			5.0			6.4
Operating (loss) income		(1.9	)		(4.4	)		(4.4	)		(2.8	)
Other expense, net		0.7			0.1			0.5			0.2
(Loss) income before income taxes		(2.6	)		(4.5	)		(4.9	)		(3.0	)
Income tax benefit		—			—			—			—
Net (loss) income		(2.6	)%		(4.5	)%		(4.9	)%		(3.0	)%

Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005

Revenues.Net revenuesincreased 8.8% to $19.1 million for the three months ended September 30, 2006 from $17.5 million for the three months ended September 30, 2005. This increase was primarily attributable to a $1.9 million increase in retail and catalog revenue due to the addition of several new clients, a $559,000 increase in revenue from our direct marketing fulfillment and support services due to increased volumes offset by a $1.0 million decrease in revenue from our telecommunications fulfillment and support services resulting from reduced volumes due to the maturity of the telephone and Caller ID equipment business.

Cost of Revenues.Cost of revenues increased 10.3% to $9.6 million for the three months ended September 30, 2006, compared to $8.7 million for the three months ended September 30, 2005. The cost of revenue increase was primarily due to an increase in labor expense related to the addition of new clients offset by a decrease in labor costs related to the decrease in volumes from our telecommunications clients.

Selling, General and Administrative Expenses. S,G&A expenses for the three months ended September 30, 2006 increased to $8.9 million, or 46.7% of revenues, compared to $8.5 million, or 48.6% of revenues, for the same period in 2005. This net increase was primarily attributable to a $840,000 increase in facility, equipment and management costs associated with the new facility in the three months ended September 30, 2006 as compared to the same period in 2005 offset by cost savings efforts in 2006 that included reductions in information technology costs, account services related costs, travel and meals and entertainment expenses resulting in a $372,000 saving for the three months ended September 30, 2006 as compared to the same period in 2005. SG&A expenses decreased as a percentage of revenue due to the increase in net revenues in 2006 as compared to 2005.

Interest Expense. Interest expense for the three months ended September 30, 2006 and September 30, 2005 was $120,000 and $18,000, respectively. The increase was related to an increase in the amount outstanding under the revolving credit agreement.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Income Taxes. The Company’s effective tax rate for the three months ended September 30, 2006 and 2005 was 0%. At December 31, 2003, a valuation allowance was recorded against the Company’s net deferred tax assets as losses in recent years created uncertainty about the realization of tax benefits in future years. Income taxes associated with losses for the three months ended September 30, 2006 and 2005 were offset by a corresponding increase of this valuation allowance resulting in an effective tax rate of 0% for the three months ended September 30, 2006 and 2005.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005

Revenues.Net revenuesdecreased 4.9% to $53.0 million for the nine months ended September 30, 2006 from $55.7 million for the nine months ended September 30, 2005. This decrease was primarily attributable to $3.3 million reduction in revenue from our telecommunications fulfillment and support services as a result of reduced volumes due to the maturity of the telephone and Caller ID equipment business and a $3.0 million reduction in revenue from our direct marketing vertical due to reduced volumes offset by a $2.1 million increase in revenues from our DSL clients and a $1.6 million increase in revenues from our retail and catalog vertical resulting from the addition of several new clients.

Cost of Revenues.Cost of revenues decreased 6.6% to $26.5 million for the nine months ended September 30, 2006, compared to $28.3 million for the nine months ended September 30, 2005. The cost of revenue decrease was primarily due to a decrease in labor expense related to the decrease in volumes from our telecommunications and direct marketing fulfillment and support services offset by an increase in labor expense related to the increase in volume for our DSL clients and the addition of new retail and catalog clients.

Selling, General and Administrative Expenses. S,G&A expenses for the nine months ended September 30, 2006increased to $26.2 million, or 49.5% of revenues, compared to $25.4 million, or 45.6% of revenues, for the same period in 2005. This net increase was primarily attributable to lower S,G&A expense in the nine months ended September 30, 2005 as a result of a $440,000 reduction in the allowance for doubtful accounts related to the Tactica receivable recorded as a reduction to bad debt expense. Additionally, facility, equipment and management expense increased by approximately $1.6 million for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005 due to additional space taken during the second half of 2005 in our existing facilities and the addition of a new facility in the second quarter of 2006. This increase was offset by a reduction in other professional services of approximately $254,000 for work performed for internal control documentation in 2005 that was not performed in the comparable period in 2006 and a $949,000 reduction in information technology costs, account services related costs, travel and meals and entertainment due to cost savings efforts.

Interest Expense. Interest expense for the nine months ended September 30, 2006 and September 30, 2005 was $278,000 and $127,000, respectively. The increase was related to an increase in the amount outstanding under the revolving credit agreement.

Income Taxes. The Company’s effective tax rate for the nine months ended September 30, 2006 and 2005 was 0%. At December 31, 2003, a valuation allowance was recorded against the Company’s net deferred tax assets as losses in recent years created uncertainty about the realization of tax benefits in future years. Income taxes associated with losses for the nine months ended September 30, 2006 and 2005 were offset by a corresponding increase of this valuation allowance resulting in an effective tax rate of 0% for the nine months ended September 30, 2006 and 2005.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

The Company funds its operations and capital expenditures primarily through cash flow from operations and borrowings under a revolving bank credit facility. The Company had cash and cash equivalents of approximately $1.1 million at September 30, 2006 as compared to $2.1 million at December 31, 2005. Additionally, the Company increased its borrowings under its revolving credit facility (discussed below) to $5.9 million at September 30, 2006, as compared to no borrowings outstanding at December 31, 2005. The Company generated positive cash flow from operations of $216,000 during the nine months ended September 30, 2006, as compared to $5.1 million in the same period in 2005.

The Company has a revolving bank credit agreement with a maximum borrowing limit of $25.0 million, which will mature in March 2009. Although the maximum borrowing limit is $25.0 million, the credit facility limits borrowings to a specified percentage of eligible accounts receivable and inventory, which totaled $13.1 million at September 30, 2006.  At September 30, 2006 the Company had $5.9 million outstanding and $4.5 million of additional availability under the revolving credit agreement.

The Company has granted a security interest in all of its assets to the lender as collateral under this revolving credit agreement. The revolving credit agreement contains fixed charge coverage ratio, change of ownership control and other covenants. The provisions of the revolving credit agreement require that the Company maintain a lockbox arrangement with the lender. Noncompliance with any of the covenants allows the lender to declare any outstanding borrowing amounts to be immediately due and payable.

The financial covenants required the Company to maintain a minimum fixed charge coverage ratio of 0.75 to 1.00 for the quarter ended September 30, 2006. The Company was not in compliance at September 30, 2006, with a fixed charge coverage ratio of 0.64 to 1.00. Additionally, The Company’s acquisition of certain assets from ClientLogic (discussed below) violated additional covenants in the credit agreement regarding debt.

On November 14, 2006, the Company and the bank entered into a Waiver and Amendment Agreement (the “Waiver Agreement”) whereby the bank agreed to waive the Company’s existing defaults under the credit agreement, provided that the Company comply with the terms of the credit agreement, as amended by the Waiver Agreement, and the additional conditions of the Waiver Agreement. Based on current projections, the Company believes that it will be able to comply with the terms and conditions of the credit agreement, as amended, and the Waiver Agreement.

As amended by the Waiver Agreement, the financial covenants require the Company to maintain a minimum fixed charge coverage ratio of between 0.65 and 1.10 to 1.00, depending on the particular fiscal month, for each month through May 2007, and a ratio of 1.15 to 1.00 for each month thereafter. The Waiver Agreement also amends certain other sections of the credit agreement, including increasing the Applicable Margin, institution an early termination fee, requiring weekly Borrowing Base reporting when availability is below a specified amount, and requiring monthly compliance certification. A copy of the Forbearance Agreement is attached to this Form 10-Q as Exhibit 10.4, and this discussion is qualified by the terms of such agreement.

As amended by the Waiver Agreement, interest on borrowings is payable monthly at rates equal to the prime rate, or at the Company’s option,LIBOR plus up to 200 basis points. During any period in which the Company's fixed charge coverage ratio is less than 1.00 to 1.00, the applicable margin will increase by 100 basis points on prime rate loans and 85 basis points on LIBOR rate loans.  During the three months ended September 30, 2006 and 2005, the Company incurredinterest expense related to the line of credit of approximately$109,000 and $4,000, respectively, resulting in a weighted average interest rate of 6.84% and 6.33%, respectively. During the nine months ended September 30, 2006 and 2005, the Company incurred interest expense related to the line of credit of approximately $228,000 and $86,000, respectively, resulting in a weighted average interest rate of 6.65% and 5.00%, respectively. The Company also incurred unused revolving credit facility fees of approximately $12,000 and $10,000 during the three months ended September 30, 2006 and 2005, respectively, and $38,000 and $34,000 during the nine months ended September 30, 2006 and 2005, respectively.

During the nine months ended September 30, 2006, the Company generated $216,000 in cash flow from operating activities compared to $5.1 million in the same period in 2005. The decrease in cash provided from operating activities was primarily the result of a $2.1 million increase in net accounts receivable in 2006 compared to a $5.6 million net decrease in accounts receivable in 2005 and a net loss of $2.6 million in 2006 compared to a net loss of $1.7 million in 2005, offset by a $2.6 million decrease in inventory in 2006 compared to a $1.5 million increase in 2005.

During the nine months ended September 30, 2006, net cash used in investing activities for capital additions was $7.0 million as compared to $800,000 in 2005. The increase in capital expenditures is primarily attributable to purchases associated with the opening of a new fulfillment center in Hebron, Kentucky that will handle the expected volumes from the addition of a new client, Target.com. All of these expenditures were funded through existing cash on hand and borrowings under the Company’s credit facility.

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the nine months ended September 30, 2006, cash provided by financing activities was $5.9 million compared to $1.8 million net cash used in financing activities in the same period in 2005. The primary difference between years is attributable to a reduction in outstanding borrowings of $3.1 million in 2005 compared to borrowings of $5.9 million in 2006. Additionally, during 2005, the Company generated cash of $1.3 million through the exercise of previously granted employee stock options.

The Company estimates that its cash and financing needs through 2006 will be met by cash flows from operations and its credit facility. The Company has generated positive cash flows from operations in each of the last four years and anticipates positive cash flows from operations during the remainder of 2006. The Company may need to raise additional funds in order to take advantage of unanticipated opportunities, such as acquisitions of complementary businesses, or the opening of new facilities. 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.

On October 31, 2006, the Company acquired the fulfillment and reverse logistics business of ClientLogic, located in Columbus, Ohio, for $1.8 million plus an earn-out payment equal to ten percent of net revenues for a twelve month period beginning on or before April 1, 2007. The $1.8 million payment is payable in two installments, $1.0 million was paid at closing and the remaining $800,000 is due February 28, 2007. The acquisition will be funded from the Company’s revolving credit facility, reducing the availability under the credit facility.

The approximate book value of the assets acquired is $2.7 million. During the fourth quarter, the Company will determine the fair market value of the tangible and intangible assets acquired and to the extent that the purchase price exceeds the fair value of these net assets, then the excess will be allocated to goodwill.

Critical Accounting Policies

Critical accounting policies are those policies that can have a significant impact on the presentation of our financial position and results of operations and demand the most significant use of subjective estimates and management judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Specific risks inherent in our application of these critical policies are described below. For all of these policies, we caution that future events rarely develop exactly as forecasted, and the best estimates routinely require adjustment. These policies often require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Additional information concerning our accounting policies can be found in Note 1 to the condensed consolidated financial statements in this Form 10-Q and Note 2 to the consolidated financial statements appearing in our Annual Report on Form 10-K for the year ended December 31, 2005. The policies that we believe are most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below.

Goodwill and Other Acquired Intangibles. The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value.

Innotrac’s goodwill carrying amount as of September 30, 2006 was $25.2 million. This asset relates to the goodwill associated with the Company’s acquisition of Universal Distribution Services (“UDS”) in December 2000 (including an earnout payment made to the former UDS shareholders in February 2002), and the acquisition of iFulfillment, Inc. in July 2001. In accordance with SFAS No. 142, the Company performed a goodwill valuation in the first quarter of 2006. The valuation supported that the fair value of the reporting unit at January 1, 2006 exceeded the carrying amount of the net assets, including goodwill, and thus no impairment was determined to exist. The Company performs this impairment test annually as of January 1 or sooner if circumstances indicate.

18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Accounting for Income Taxes. Innotrac utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if the Company considers it more likely than not that deferred tax assets will not be realized. Innotrac’s gross deferred tax asset as of September 30, 2006 and December 31, 2005 was approximately $17.0 million and $15.6 million, respectively. This deferred tax asset was generated primarily by net operating loss carryforwards created primarily by the special charge of $34.3 million recorded in 2000 and the net losses generated in 2002, 2003 and 2005. Innotrac has a net operating loss carryforward of $37.5 million at December 31, 2005 that expires between 2020 and 2025.

Innotrac’s ability to generate the expected amounts of taxable income from future operations is dependent upon general economic conditions, competitive pressures on sales and margins and other factors beyond management’s control. These factors, combined with losses in recent years, create uncertainty about the ultimate realization of the gross deferred tax asset in future years. Therefore, a valuation allowance of approximately $13.1 million and $12.2 million has been recorded as of September 30, 2006 and December 31, 2005, respectively. Income taxes associated with future earnings will be offset by the utilization of the net operating loss carryforward resulting in a reduction in the valuation allowance. For the nine months ended September 30, 2006, an income tax benefit of $895,000 was offset by a corresponding increase of the deferred tax asset valuation allowance. When, and if, the Company can return to consistent profitability, and management determines that it will be able to utilize net operating losses prior to their expiration, then the valuation allowance can be reduced or eliminated.

Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payment,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation.” The revised Statement clarifies and expands SFAS No. 123’s guidance in several areas, including measuring fair value, classifying an award as equity or as a liability, and attributing compensation cost to reporting periods. The revised statement supercedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and its related implementation guidance. Under the provisions of SFAS No. 123(R), the alternative to use APB 25’s intrinsic value method of accounting that was provided in SFAS No. 123, as originally issued, is eliminated, and entities are required to measure liabilities incurred to employees in share-based payment transactions at fair value. SFAS No. 123(R) became effective for the Company January 1, 2006.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty intax positions. This Interpretation requires that the Company determine whether it is more likely than not that a tax position will be sustained upon audit, based on the technical merits of the position. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The provisions of FIN 48 will be effective as of the beginning of the Company’s 2007 fiscal year, with thecumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings.The Company is currently evaluating the impact of adopting FIN 48 on the Consolidated Financial Statements.

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Item 3 - Quantitative and Qualitative Disclosures About Market Risks

Management believes the Company’s exposure to market risks (investments, interest rates and foreign currency) is immaterial. Innotrac holds no market risk sensitive instruments for trading purposes. At present, the Company does not employ any derivative financial instruments, other financial instruments or derivative commodity instruments to hedge any market risks and does not currently plan to employ them in the future. The Company does not transact any sales in foreign currency. To the extent that the Company has borrowings outstanding under its credit facility, the Company will have market risk relating to the amount of borrowings due to variable interest rates under the credit facility. The Company believes this exposure is immaterial due to the short-term nature of these borrowings. Additionally, all of the Company’s lease obligations are fixed in nature as discussed in our Annual Report on Form 10-K for the year ended December 31, 2005 and other filings on file with the Securities and Exchange Commission.

Item 4 – Controls and Procedures

Our management, with the participation of the Chief Executive Officer and the principal financial officer, evaluated our disclosure controls and procedures (as defined in federal securities rules) as of September 30, 2006. No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. Our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met. Based on the evaluation discussed above, our CEO and principal financial officer have concluded that our disclosure controls and procedures were effective as of the date of that evaluation to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Innotrac’s internal control over financial reporting during the third quarter of 2006.

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Part II – Other Information

Item 1.  Legal Proceedings

The Company was named as a defendant in a third party complaint filed on October 31, 2006 by Frank Regalbuto and Michael Regalbuto (the “Regalbutos”) in the U.S. District Court for the District in Cleveland, Ohio arising out of the Regalbutos’ investments in the IPOF Fund, L.P. The complaint alleges securities fraud, RICO violations and common law fraud by the Company and unnamed individual defendants who appear to be the Company’s directors. The receiver of the IPOF Fund has filed motions to intervene, sever the third party complaint, and stay the proceedings, and for an order to show cause for why the plaintiffs should not be held in contempt of the court. The court has scheduled a hearing on the receiver’s motions for November 14, 2006. Based on the information available to date, the Company believes that the asserted claims are without merit and believes that this matter will not have a material adverse effect on the Company’s financial position or its results of operations.

The Company is also subject to various legal proceedings and claims that arise in the ordinary course of business. There are no material pending legal proceedings to which the company is a party.

Item 1A. Risk Factors

Our common stock lacks liquidity and is held by a small number of investors, one of which is in receivership where its creditors would like to sell our shares as soon as possible.

As of December 31, 2005, Innotrac officers and directors owned approximately 47.3% of the outstanding common stock and an institutional shareholder, IPOF Fund, L.P., and its affiliates held 34.0%. These ownership positions have resulted in a lack of liquidity in our common stock. Additionally, if any of Innotrac’s significant shareholders decided to liquidate its position, our common stock price would likely decline materially.

The United States District Court in Cleveland, Ohio has appointed a receiver to identify and administer the assets of the IPOF Fund, L.P. and its general partner, David Dadante. Based on information from the receiver, the Company understands that the Fund and Mr. Dadante own 4,176,725 shares of common stock of the Company, representing approximately 34.0% of the total shares outstanding, all of which are held as collateral in margin accounts maintained at several financial institutions. The Company has been engaged in discussions with the receiver in an effort to cause the shares to be sold in a manner that causes as little disruption to the market for the Company’s common stock as possible. The court has prohibited the financial institutions holding the Company’s common stock owned by the IPOF Fund and Mr. Dadante in margin accounts from selling any of these shares through at least January 7, 2007. The court has permitted open market sales by the receiver as he may in his sole discretion determine to be consistent with his duty to maximize the value of the assets of IPOF Fund, and as warranted by market conditions. The receiver has indicated to the Company that he does not intend to direct any open market sales during this period except in circumstances in which he believes that there would be no material adverse impact on the market price for the Company’s common stock. Nevertheless, as long as these shares are held in margin accounts where the lenders desire to liquidate the positions, there will be significant downward pressure on the market price of our common stock because the market is concerned that these shares may be sold in a manner that causes the price of our common stock to decline precipitously. This concern is ameliorated to some degree by the continuing prohibition by the court on sales of our shares by financial institutions that hold the shares in margin accounts. The court has extended this prohibition on several occasions, most recently to January 7, 2007, while we and the receiver pursue the sale of these shares in a manner that would not disrupt the market for our common stock. If the court were to not extend this prohibition before the shares have been sold in such a transaction, then the financial institutions might foreclose on some or all of these shares and sell them into the market, which could have an extremely negative impact on the market price for our common stock.

Noncompliance with any of the covenants under our revolving credit agreement allows the lender to declare any outstanding borrowing amounts to be immediately due and payable.

Our revolving line of credit agreement contains financial, change of ownership control and other restrictive covenants. Noncompliance with any of the covenants allows the lender to declare any outstanding borrowed amounts to be immediately due and payable. From time to time in the past, and currently (as of September 30, 2006), we have violated various restrictive covenants, and have been obligated to obtain waivers or amendments from the lender. Pursuant to the Waiver and Amendment Agreement dated November 14, 2006, the lender has agreed to waive our existing defaults under the loan agreement, provided that we comply with the terms of the loan agreement, as amended by the Waiver and Amendment Agreement, and the additional conditions of the Waiver and Amendment Agreement. Although we have been able to obtain waivers and amendments in the past, there is no guarantee that we will be able to do so for any future covenant breaches. If the lender does not waive a future covenant violation, and accelerates the payment date for any amounts outstanding under the credit facility, we might not be able to pay these amounts. Failure to comply with the covenants, even if waived by our lenders, also could adversely affect our credit ratings, which could increase our costs of debt financings and impair our ability to obtain additional debt financing.

There were no other material changes except as disclosed above from risk factors previously disclosed in our 2005 Annual Report on Form 10-K, as filed with the SEC.

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Item 6 – Exhibits

Exhibits:

10.4	Waiver and Amendment Agreement by and Between the Registrant and Wachovia Bank, National Association, Successor by merger to SouthTrust Bank, dated November 14, 2006
10.16	Third Amendment to Lease Agreement dated September 21, 2006 by and between ProLogis-Macquarie Kentucky I LLC and the Registrant
10.20	Second Amendment to Lease Agreement, dated August 15, 2006, by and between Centerpoint 800 LLC, Centerpoint 1000, LLC and the Registrant
10.22	First Amendment to Lease Agreement, dated October 19, 2006, by and between Duke Realty Limited Partnership and the Registrant
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d - 14(a).
31.2	Certification of principal financial officer Pursuant to Rule 13a-14(a)/15d - 14(a).
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350.
32.2	Certification of principal financial officer Pursuant to 18 U.S.C. § 1350.

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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 14, 2006	By:	/s/ Scott D. Dorfman
		Scott D. Dorfman
		President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Date: November 14, 2006	/s/ Christine A. Herren
	Christine A. Herren
	Senior Director and Controller (Principal Financial Officer and Principal Accounting Officer)

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EX-10.4

Exhibit 10.4

WAIVER AND AMENDMENT AGREEMENT

THIS WAIVER AND AMENDMENT AGREEMENT (hereinafter referred to as this “Agreement”) is made and entered into as of November 14, 2006, by and between INNOTRAC CORPORATION, a Georgia corporation (hereinafter referred to as “Borrower”), and WACHOVIA BANK, NATIONAL ASSOCIATION (hereinafter referred to as “Bank”).

BACKGROUND STATEMENT

A. Borrower and Bank are parties to that certain Third Amended and Restated Loan and Security Agreement dated March 28, 2006 (as previously amended, the “Loan Agreement”). Capitalized terms used herein, unless otherwise defined, shall have the meanings ascribed to them in the Loan Agreement.

B. Borrower has informed the Bank that certain Events of Default have occurred and continue to exist under the Loan Agreement by reason of the following (collectively, the "Stipulated Defaults"): (i) Borrower's failure to comply with Section 7(a) (Fixed Charge Coverage Ratio) (the "FCC Covenant") of the Loan Agreement for the Borrower's fiscal quarter ending September 30, 2006, and (ii) Borrower's failure to comply with Section 6.1 (Debt) of the Loan Agreement as a result of Borrower's incurring in connection with Borrower's acquisition of ClientLogic’s fulfillment and reverse logistics business deferred purchase obligations for such purchased assets consisting of (A) a $800,000 deferred purchase payment due in February 2007 and (B) an earn-out payment commencing on or before April 2007 and ending on or before April 2008 (the "Deferred Purchase Price Payments").

C. The Borrower has requested that the Bank waive the Stipulated Defaults and amend the Loan Agreement as hereinafter set forth and the Bank has agreed, subject to all of the terms and conditions set forth below.

AGREEMENT

FOR AND IN CONSIDERATION of the sum of Ten and No/100 Dollars ($10.00), the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank do hereby agree as follows:

1. Waiver of the Stipulated Defaults. Bank hereby waives the Stipulated Defaults and Borrower agrees to strictly comply with the Loan Agreement hereafter. Borrower hereby agrees that nothing herein shall constitute a waiver by Bank of any Default or Event of Default (except as expressly provided in this paragraph 1 with respect to the Stipulated Defaults), whether known or unknown, which may exist under the Loan Agreement or any other Loan Document. Borrower hereby further agrees that no action, inaction or agreement by Bank, including, without limitation, any extension, indulgence, waiver, consent or agreement of modification which may have occurred or have been granted or entered into (or which may be occurring or be granted or entered into hereunder or otherwise) with respect to nonpayment of the Loans or other Obligations or any portion thereof, or with respect to matters involving collateral security for the Loans or other Obligations, or with respect to any other matter relating to the Loans or other Obligations, shall require or imply any further extension, indulgence, waiver, consent or agreement by Bank. Except as expressly provided in this paragraph 1, Borrower hereby acknowledges and agrees that Bank has not made any agreement, and is in no way obligated, to grant any further extension, indulgence, waiver or consent with respect to the Loans, the other Obligations, the Loan Agreement or any other Loan Document.

2. Amendments. The Loan Agreement is amended as set forth below.

(a) The definition of "Applicable Margin" contained in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety as follows:

"Applicable Margin" means, at any time of determination by Bank, as to any Base Rate Loan or LMIR Loan, the relevant percentage below corresponding to the Borrower's Average Excess Availability (90) set forth below:

 

Average Excess Availability (90)	Base Rate Loans	LMIR Loans
< $5,000,000	0.00%	2.00%
> $5,000,000 but < $7,500,000	0.00%	1.50%
> $7,500,000 but < $10,000,000	0.00%	1.25%
> $10,000,000	0.00%	1.00%

In addition, at all times during which the Fixed Charge Coverage Ratio is less than 1.00 to 1.00, the Applicable Margin for Base Rate Loans then in effect shall be increased by an additional 1.00% and the Applicable Margin for LMIR Loans then in effect shall be increased by an additional 0.85%. Nothing in this paragraph shall limit Bank's rights to impose the Default Rate under Section 2.8 of this Agreement, if applicable.

Solely for the purposes of the definition of "Applicable Margin," the Borrowing Base shall be calculated without subtracting (i) the Target Reserve when in effect or (ii) the Availability Reserve when in effect.

(b) The definition of "Availability Reserve" contained in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety as follows:

"Availability Reserve" means, at all times during which the Fixed Charge Coverage Ratio is less than 1.15 to 1.00, an amount equal to $2,000,000.

(c) The definition of "Average Excess Availability" contained in Section 1.1 of the Loan Agreement is hereby deleted and the following new definitions are hereby added to Section 1.1 of the Loan Agreement as follows:

"Average Excess Availability (90)" means, on any date, an amount equal to the total amount of Availability for each day during the immediately preceding 90 day period, as determined by Bank pursuant to the terms hereof, divided by 90.

"Average Excess Availability (30)" means, on any date, an amount equal to the total amount of Availability for each day during the immediately preceding 30 day period, as determined by Bank pursuant to the terms hereof, divided by 30.

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(d) The definition of "Borrowing Base" contained in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety as follows:

"Borrowing Base" means, on any date of determination thereof, an amount equal to:

(i)          up to 85% of the total amount of Eligible Accounts, plus

(ii)         the lesser of (a) $2,000,000 or (b) up to 50% of the total amount of Eligible Inventory; minus

(iii)        any Reserves.

(e)Section 2.13 of the Loan Agreement is hereby amended and restated in its entirety as follows:

2.13 Termination. Upon at least thirty (30) days prior written notice to Bank, Borrower may, at its option, upon payment of the Early Termination Fee (defined below), terminate this Agreement and the Revolver Commitment in its entirety but not partially; provided however, no such termination by Borrower shall be effective until the full, final and indefeasible payment of the Obligations and Early Termination Fee in cash or immediately available funds and in the case of any Obligations consisting of contingent obligations, Bank's receipt of either cash or a direct pay letter of credit naming Bank as beneficiary and in form and substance and from an issuing bank acceptable to Bank, in each case in an amount not less than 105% of the aggregate amount of all such contingent obligations. Any notice of termination given by Borrower shall be irrevocable unless Bank otherwise agrees in writing. "Early Termination Fee" means an amount equal to (i) 1.00% of the Revolver Commitment in the event of termination of the Revolver Commitment on or before November 14, 2007, and (ii) 0.50% of the Revolver Commitment in the event of termination of the Revolver Commitment after November 14, 2007, but before November 14, 2008. Bank may terminate this Agreement and the Revolver Commitment at any time, without notice, upon or after the occurrence of a Default or Event of Default.

(f) Section 5.5 of the Loan Agreement is hereby amended and restated in its entirety as follows:

5.5 Inspections of Books and Records and Field Examinations. Shall permit inspections of the Collateral and the records of such Person pertaining thereto and verification of the Accounts, at such times and in such manner as may be required by Bank and shall further permit such inspections, reviews and field examinations of its other books and records and properties (with such frequency and at such times as Bank may desire) by Bank as Bank may deem necessary or desirable from time to time. The cost of all such field examinations, reviews, verifications and inspections shall be borne by Borrower, provided that the cost of field examinations shall not exceed $850 per examiner per day, plus Bank's reasonable out-of-pocket expenses.

(g) Section 5.6(a) of the Loan Agreement is hereby amended and restated in its entirety as follows:

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(a) Periodic Borrowing Base Information. During all periods in which Average Excess Availability (30) (1) equals or exceeds $5,000,000, within thirty (30) days after the end of each month, or (2) is less than $5,000,000, on the third Business Day of each week, a completed Borrowing Base Certificate in the form attached hereto as Exhibit 5.6(a) for the prior week or month, as applicable (a "Borrowing Base Certificate"). Borrower shall attach the following to each Borrowing Base Certificate delivered on a weekly basis, which shall be certified electronically or manually by the controller or president of Borrower to be accurate and complete and in compliance with the terms of the Loan Documents: copies of the prior week's sales and collections registers. On or before the date which is thirty (30) days after the end of each month, Borrower shall deliver the following to Bank, which shall be certified by the controller or president of Borrower to be accurate and complete and in compliance with the terms of the Loan Documents: (i) only if Borrower is delivering weekly Borrowing Base Certificates hereunder, a reconciliation statement for the Borrowing Base Certificate delivered for the last full week of the prior month, reconciling such Borrowing Base Certificate through the last day of such prior month, (ii) a report listing all Accounts of Borrower as of the last Business Day of the prior month (an "Accounts Receivable Report") which shall include the amount and age of each Account on an original invoice date aging basis, the name and mailing address of each Account Debtor, a detailing of all Accounts which do not constitute Eligible Accounts, and such other information as Bank may require in order to verify the Eligible Accounts, all in reasonable detail and in form acceptable to Bank, (iii) a report listing all Inventory and all Eligible Inventory of Borrower as of the last Business Day of the prior month, the cost thereof, specifying raw materials, work-in-process, finished goods and all Inventory which has not been timely sold by Borrower in the ordinary course of business, and such other information as Bank may require relating thereto, all in form acceptable to Bank (an "Inventory Report"), and (iv) any other report as Bank may from time to time require in its sole discretion, each prepared with respect to such periods and with respect to such information and reporting as Bank may require.

(h) Section 5.6(d) of the Loan Agreement is hereby amended and restated in its entirety as follows:

(d) Compliance and No Default Certificates. Together with each report required to be delivered by Subsection (b) in connection with the end of each month (or quarter if tested on a quarterly basis as permitted by Section 7(a)) and required to be delivered by Subsection (c), a compliance certificate in the form annexed hereto as Exhibit 5.6(d) and a certificate of its president or controller certifying that no Default then exists or if a Default exists, the nature and duration thereof and Borrower's intention with respect thereto, and in addition, shall cause Borrower's independent auditors (if applicable) to submit to Bank, together with its audit report, a statement that, in the course of such audit, it discovered no circumstances which it believes would result in a Default or if it discovered any such circumstances, the nature and duration thereof.

(i) Section 5.6(i) of the Loan Agreement is hereby amended and restated in its entirety as follows:

(i) Projections. On or before January 15, 2007, deliver Projections (as hereinafter defined) to Bank for Borrower for fiscal year 2007. "Projections" means Borrower's forecasted consolidated and consolidating balance sheet, income statement, cash flow statement (including a detail of capital expenditures), Borrowing Base projection and financial covenant compliance prepared on a month by month basis, all of the foregoing to be on a consistent basis with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.

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(j) Section 6.13 of the Loan Agreement is hereby amended and restated in its entirety as follows:

6.13 Liquidation, Mergers, Consolidations and Dispositions of Substantial Assets, Name and Good Standing. Shall not (i) merge, reorganize, consolidate or amalgamate with any Person, liquidate, wind up its affairs or dissolve itself, (ii) acquire by purchase, lease or otherwise all or substantially all of the assets of any Person, or the assets of any division or line of business of any Person, or any other substantial amount of the assets of any Person outside of the ordinary course of business, (iii) sell, transfer, lease or otherwise dispose of any of its property or assets, except for the sale of Inventory in the ordinary course of business and the voluntary termination of Swap Agreements to which Borrower or such Subsidiary is a party or sell or dispose of any equity ownership interests in any Subsidiary, in each case whether in a single transaction or in a series of related transactions or (iv) change its name or jurisdiction of organization or conduct business under any new fictitious name; change its Federal Employer Identification Number; or fail to remain in good standing and qualified to transact business as a foreign entity in any state or other jurisdiction in which it is required to be qualified to transact business as a foreign entity and in which the failure to be so qualified could reasonably be expected to have a Material Adverse Effect.

(k) Section 7(a) of the Loan Agreement is hereby amended and restated in its entirety as follows:

(a) Fixed Charge Coverage Ratio. At the end of each month (or in the event that the Fixed Charge Coverage Ratio for the last period tested is greater than 1.15 to 1.00, then at the end of each quarter, but only so long as the Fixed Charge Coverage Ratio thereafter is greater than 1.15 to 1.00), commencing with the month of December 2006, Borrower shall maintain a Fixed Charge Coverage Ratio of not less than the following amounts for the following months:

 

Required Fixed Charge Coverage Ratio	Month
0.65 to 1.0	December 2006
0.75 to 1.0	January 2007
0.80 to 1.0	February 2007
0.90 to 1.0	March 2007
1.00 to 1.0	April 2007
1.10 to 1.0	May 2007
1.15 to 1.0	June 2007 and thereafter

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As used herein, "Fixed Charge Coverage Ratio" means during any period of determination (i) EBITDA, plus rent expense incurred during any Applicable Period less the sum of (A) all unfinanced Capital Expenditures (excluding from such unfinanced Capital Expenditures all (1) Target Capital Expenditures in an amount not exceeding $5,400,000 on a cumulative basis for all periods through December 31, 2006, but including in such unfinanced Capital Expenditures all Target Capital Expenditures in an amount exceeding $5,400,000 during such periods and (2) all Capital Expenditures incurred in connection with Borrower's acquisition of ClientLogic’s fulfillment and reverse logistics business in 2006 (the "ClientLogic Acquisition") made in the Applicable Fiscal Period, and (B) any dividends and distributions paid in the Applicable Fiscal Period and (C) cash taxes paid in the Applicable Fiscal Period (without benefit of any refunds), divided by (ii) the sum of (A) the current portion of scheduled principal amortization on Funded Debt coming due in the next 12 months as of the end of the most recent fiscal quarter plus (B) cash interest payments paid in the Applicable Fiscal Period, plus (C) rent expense paid during any Applicable Period plus (D) all cash payments made by Borrower during the Applicable Period consisting of the following consideration paid for the ClientLogic Acquisition (1) the $1,000,000 initial purchase payment made in October 2006 (2) the $800,000 deferred purchase payment due in February 2007, (3) the earn-out payment due on or before April 2008, and (4) any other consideration paid in connection with the ClientLogic Acquisition. As used herein, (i) "EBITDA" means the sum of (A) consolidated net income of Borrower and its Subsidiaries in the Applicable Fiscal Period (computed without regard to any extraordinary items of gain or loss) plus (B) to the extent deducted from revenue in computing consolidated net income for such period, the sum of (1) interest expense, (2) income tax expense, (3) depreciation and amortization and (4) with respect to the bad debt reserve for Accounts owed to Borrower from Tactica International, any increases thereto occurring after September 30, 2005, but not exceeding $2,000,000 in such increases in the aggregate less (C) non-cash gains; (ii) "Capital Expenditures" means for any period the aggregate cost of all capital assets acquired by Borrower and its Subsidiaries during such period, as determined in accordance with GAAP; (iii)"Applicable Fiscal Period" means a period of four (4) consecutive, trailing fiscal quarters ending at the end of each prescribed fiscal quarter of Borrower; and (iv) "Funded Debt" means (A) Debts for borrowed funds, and (B) Debt for the deferred payment by one (1) year or more of any purchase money obligation.

3. Acknowledgments and Stipulations. Borrower hereby acknowledges, stipulates, and agrees: (a) that (i) the total outstanding principal balance of the Revolver Loans on the date of this Agreement is due and owing, in accordance with the terms of the Loan Agreement and the Revolver Note, without any defense, counterclaim, deduction, recoupment or offset and (ii) to the extent that Borrower has any defense, counterclaim, deduction, recoupment or offset with respect to the payment by the Borrower of the Obligations or the payment or performance of Borrower of its obligations under the terms of any Loan Agreement to which it is a party, the same is hereby waived; and (b) the Loan Documents executed by the Borrower are legal, valid, and binding obligations enforceable against the Borrower in accordance with their terms (subject to bankruptcy, insolvency, reorganization, arrangement, moratorium, or other similar laws relating to or affecting the rights of creditors generally and general principles of equity).

4. Representations and Warranties. Borrower represents and warrants that (a) no Default or Event of Default exists under the Loan Documents, except for the Stipulated Defaults that are waived under the terms of this Agreement; (b) subject to the existence of the Stipulated Defaults, the representations and warranties of Borrower contained in the Loan Documents were true and correct in all material respects when made and continue to be true and correct in all material respects on the date hereof; (c) the execution, delivery, and performance by Borrower of this Agreement and the consummation of the transactions contemplated hereby are within the power and authority of Borrower and have been duly authorized by all necessary corporate action on the part of Borrower, do not require any governmental approvals, do not violate any provisions of any applicable law or any provision of the organizational documents of Borrower, and do not result in a breach of or constitute a default under any agreement or instrument to which Borrower are parties or by which they or any of their properties are

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bound; (d) this Agreement constitutes the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with its terms (subject to bankruptcy, insolvency, reorganization, arrangement moratorium or other similar laws relating to or affecting the rights of creditors generally and general principles of equity); and (e) Borrower has freely and voluntarily agreed to the releases and undertakings set forth in this Agreement.

5. Relationship of Parties. This Agreement is not intended, nor shall it be construed, to create a partnership or joint venture relationship between or among any of the parties hereto. No Person other than a party hereto is intended to be a beneficiary hereof, and no Person other than a party hereto shall be authorized to rely upon or enforce the contents of this Agreement.

6. No Novation. This Agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Loan Documents shall remain in full force and effect. Notwithstanding any prior mutual temporary disregard of any of the terms of any of the Loan Documents, the parties agree that the terms of each of the Loan Documents shall be strictly adhered to on and after the date hereof, except as expressly modified by this Agreement.

7. Bank's Waiver Fee; Reimbursement of Expenses. Borrower agrees to pay Bank a fully earned and non-refundable waiver fee on the date of this Agreement in immediately available funds in the amount of $20,000.00 (the "Waiver Fee"). Borrower agrees to reimburse the Bank, on demand, for any costs and expenses, including, without limitation, legal fees, incurred by Bank in connection with the drafting, negotiation, execution, closing and execution of the transactions contemplated by this Agreement.

8. Release. To induce the Bank to enter into this Agreement, Borrower hereby releases, acquits, and forever discharges Bank and its respective officers, directors, attorneys, agents, employees, successors, and assigns, from all liabilities, claims, demands, actions, or causes of action of any kind (if there be any), whether absolute or contingent, due or to become due, disputed or undisputed, liquidated or unliquidated, at law or in equity, or known or unknown, that any one or more of them now have or, prior to the date hereof, ever have had against Bank, whether arising under or in connection with any of the Loan Documents or otherwise, and Borrower covenants not to sue at law or at equity Bank with respect to any of the foregoing liabilities, claims, demands, actions, or causes of action (if there be any). Borrower hereby acknowledges and agrees that the execution of this Agreement by Bank shall not constitute an acknowledgment of or admission by Bank of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted. Borrower further acknowledges and agrees that, to the extent any such claims may exist, they are of a speculative nature so as to be incapable of objective valuation and that, in any event, the value to Borrower of the agreements of Bank contained in this Agreement and any other documents executed and delivered in connection with this Agreement substantially and materially exceeds any and all value of any kind or nature whatsoever of any such claims. Borrower further acknowledges and agrees Bank is in no way responsible or liable for the previous, current or future condition or deterioration of the business operations and/or financial condition of Borrower and that Bank has not breached any agreement or commitment to loan money or otherwise make financial accommodations available to Borrower or to fund any operations of Borrower at any time. Borrower represents and warrants to Bank that Borrower has not transferred or assigned to any Person any claim, demand, action or cause of action that Borrower has or ever had against Bank.

9. Miscellaneous. This Agreement and the Loan Documents constitute the entire understanding of the parties with respect to the subject matter hereof and thereof; may not be modified, altered, or amended except by agreement in writing signed by all the parties hereto; shall be governed by and construed in accordance with the internal laws of the State of Georgia; shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; and may be executed

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and then delivered via facsimile transmission, via the sending of PDF or other copies thereof via email and in one or more counterparts, each of which shall be an original but all of which taken together shall constitute one and the same instrument. Time is of the essence of this Agreement. A default by Borrower under this Agreement shall constitute a Default and Event of Default under the Loan Agreement and the other Loan Documents. This Agreement is a Loan Document.

10. Conditions Precedent; Post-Execution Agreements. This Agreement shall become effective only upon (i) payment by Borrower to Bank of the Waiver Fee in immediately available funds and (ii) execution and delivery of this Agreement by all parties hereto. Borrower agrees to deliver to the Bank on or before the date which is 15 days after the date of this Agreement copies of all purchase agreements (including all exhibits and schedules thereto) and all other documents relating to the ClientLogic Acquisition.

[signatures set forth on the next page]

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IN WITNESS WHEREOF, this Agreement has been duly executed and under seal by Borrower and Bank, as of the day and year first above written.

BORROWER:

INNOTRAC CORPORATION, a Georgia corporation (SEAL)

By:  /s/Chrissy Herren                                                      

Chrissy Herren, Principal Financial and Accounting Officer,

Corporate Controller, Treasurer and Assistant Secretary

BANK:

WACHOVIA BANK, NATIONAL ASSOCIATION

By:  /s/ Jeanette Childress                                     

Jeanette Childress, Director

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EX-10.16

Exhibit 10.16

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE is entered into as of the 21st day of September 2006, by and between ProLogis-Macquarie Kentucky I LLC, (“Landlord”) and Innotrac Corporation (“Tenant”).

WITNESSETH:

WHEREAS, Landlord and Tenant have entered into a Lease, dated as of April 23, 2002, and as amended by the First Amendment To Lease Agreement dated October 15, 2002, and as amended by the Second Amendment To Lease Agreement dated March 5, 2003, pursuant to which Landlord leased to Tenant approximately 396,000 rentable square feet of space located at 1226 Aviation Blvd., Hebron, Kentucky, (such lease, as heretofore and hereafter modified, being herein referred to as the “Lease”).

WHEREAS, Landlord and Tenant desire to extend the term of the Lease and to modify certain terms and provisions of the LEASE, all as herein more particularly set forth.

NOW THEREFORE, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Landlord and Tenant agree as follows:

1. The term of the Lease is extended for thirty-six (36) months, such that the Lease shall terminate on July 31, 2010. All of the terms and conditions of the Lease shall remain in full force and effect during such extension period except that the Monthly Base Rent shall be $94,710.00 during such extension.

2. Addendum 5 of the Original Lease, captioned “Cancellation Option,” is hereby deleted and no longer in force or effect.

3. With the exception of those terms and conditions specifically modified and amended herein, the Lease shall remain in full force and effect in accordance with all its terms and conditions. In the event of any conflict between the terms and provisions of this Amendment and the terms and provisions of the Lease, the terms and provisions of this Amendment shall supersede and control.

4. Any obligation or liability whatsoever of ProLogis-Macquarie Kentucky I LLC, a Delaware limited liability company, which may arise at any time under the Lease or this Amendment or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby, shall not be personally binding upon, nor shall resort for the enforcement thereof be had to the property of, its trustees, directors, shareholders, officers, employees, or agents regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.

IN WITNESS WHEREOF, the parties hereto have signed this Third Amendment To Lease as of the day and year first above written.

	LANDLORD: ProLogis-Macquarie Kentucky I LLC, a Delaware limited liability company
	By:	ProLogis Management Incorporated, a Delaware corporation, Agent
Signed and Acknowledged In the Presence of:	By:	/s/ Brian N. Marsh
	Name:	Brian N. Marsh
	Title:	Senior Vice President

	TENANT: Innotrac Corporation
Signed and Acknowledged In the Presence of:	By:	/s/ Robert Toner
/s/ Shanin Crowther	Name:	Robert Toner
9/21/06	Title:	Vice President

EX-10.20

Exhibit 10.20

SECOND AMENDMENT TO LEASE AGREEMENT

This Second Amendment to Lease Agreement (the “Amendment”) by and among CENTERPOINT 800 LLC, a Delaware limited liability company (“800 Centerpoint”), CENTERPOINT 1000 LCC, a Delaware limited liability company (“1000 Centerpoint”) and INNOTRAC CORPORATION, a Georgia corporation (“Tenant”) is made as of the 10^th day of August, 2006 (the “Execution Date”).

WHEREAS, 800 Centerpoint and Tenant are parties to a lease dated August 16, 2004 as amended by a First Amendment to Lease Agreement dated May 1, 2005 (collectively the “Lease”) which Lease demises approximately 118,722 square feet (the “800 Centerpoint Premises”) in the building known as 800 Centerpoint Boulevard in New Castle County, Delaware (the “800 Centerpoint Building”);

WHEREAS, 800 Centerpoint, 1000 Centerpoint and Tenant desire to further amend the Lease for purposes of having 1000 Centerpoint lease to Tenant approximately 50,000 square feet (the “1000 Centerpoint Premises”) in the building known as 600 Centerpoint Boulevard, New Castle County, Delaware (the “1000 Centerpoint Building”), which 1000 Centerpoint Premises is more fully described on the plan constituting Exhibit “A”, in lieu of and substitution for the 800 Centerpoint Premises; and

THEREFORE, for good and valuable consideration, receipt of which is acknowledged, intending to be legally bound, 800 Centerpoint, 1000 Centerpoint and Tenant agree as follows:

1. 800 Centerpoint Surrender Date. Upon the occurrence of the 800 Centerpoint Surrender Date (as hereinafter defined): (i) the Leased Premises shall mean and refer to and consist of the 1000 Centerpoint Premises and the Landlord shall mean and refer to 1000 Centerpoint and the Building shall mean and refer to the 1000 Centerpoint Building; and (ii) the 800 Centerpoint Premises shall no longer constitute the Leased Premises and 800 Centerpoint shall no longer be the Landlord and the 800 Centerpoint Building shall no longer be the Building. Provided that La-Z-Boy (as hereinafter defined) does not impede its relocation activities, Tenant shall vacate the 800 Centerpoint Premises by no later than September 24, 2006 (the “800 Centerpoint Surrender Date”) and shall leave such space in clean condition and otherwise in accordance with the requirements of the Lease. Any failure of Tenant to vacate the 800 Centerpoint Premises by the 800 Centerpoint Surrender Date shall constitute an event of default under the Lease. Effective as of the 800 Centerpoint Surrender Date, the square foot area of the Leased Premises shall be deemed to be Fifty Thousand (50,000) square feet, the total square foot area of the Building shall be deemed to be One Hundred Forty-Two Thousand Three Hundred Twenty-Four (142,324) square feet and Tenant’s proportionate share for all purposes of the Lease including without limitation the allocation of costs set forth in Paragraphs 4, 5 and 6 of the Lease shall refer to the percentage relationship between the foregoing, namely thirty-five and fifty-one one hundredths percent (35.51%).

2. Lease Term; Real Property. The term of the Lease is hereby extended until October 31, 2007 (the “Termination Date”). Effective as of the 800 Centerpoint Surrender Date the Real Property shall consist of the lot or parcel of land known as 600 Centerpoint Boulevard, New Castle County, Delaware more fully described in Exhibit “B”.

3. Basic Rental; Tenant Relocation Costs. Until the occurrence of the 800 Centerpoint Surrender Date Tenant shall pay Basic Rental as currently set forth in the Lease. Effective as of the 800 Centerpoint Surrender Date, Basic Rental shall be due in the amount of Sixteen Thousand Four Hundred Fifty-Eight Dollars and Thirty-Three Cents ($16,458.33) per month and One Hundred Ninety- Seven Thousand Five Hundred Dollars ($197,500) per annum provided, however, Tenant shall not be required to pay Basic Rental during the first month after the 800 Centerpoint Surrender Date. Tenant shall be solely responsible for the payment of all costs and expenses related to the relocation of its activities to the 1000 Centerpoint Premises including data and cabling costs, if any. However Landlord shall reimburse to Tenant up to $15,000 of its relocation costs incurred in connection with Tenant’s move to the 1000 Centerpoint Premises upon Landlord’s receipt from Tenant of invoices or other evidence reasonably satisfactory to Landlord of Tenant’s incurring of such costs.

4. Condition of 1000 Centerpoint Premises; Security Deposit. Effective as of the 800 Centerpoint Surrender Date Tenant shall accept the 1000 Centerpoint Premises in its “AS-IS” and “WHERE-IS” condition. Exhibits C and D of the Lease are hereby null and void and of no further force and effect. Promptly after the Execution Date 1000 Centerpoint shall return to Tenant a portion of the Security Deposit in the amount of $7,812.50. 1000 Centerpoint and Tenant acknowledge and agree that upon 1000 Centerpoint’s return of such amount the amount of Tenant’s Security Deposit shall be $15,625. The Security Deposit shall be held and may be utilized as set forth in Paragraph 3C of the Lease.

5. Option Premises. If Tenant is not then in default under the Lease Tenant shall have the option to rent (the “Option”) an additional 26,800 square feet (the “Option Premises”) [but not a portion of the Option Premises] upon sixty (60) days prior written notice to Landlord. Effective as of the date that any existing tenant(s) vacates the Option Premises the Option Premises shall be deemed a portion of the Leased Premises for all purposes of the Lease and in the event Tenant exercises the Option: (i) Tenant shall pay Basic Rental for the Option Premises at the rate of $3.95 per square foot through the Termination Date and during each Renewal Term (as hereinafter defined) at the rate of $4.30 per square foot; and (ii) Tenant’s proportionate interest for all purposes of the Lease shall be increased from thirty-five and fifty-one one hundredths percent (35.51%) to fifty-three and ninety-six one hundredths percent (53.96%). Tenant shall accept the Option Premises in its “AS-IS” “WHERE-IS” condition.

6. Renewal Term. Tenant shall have the right to renew the Lease for three (3) renewal terms of one (1) year each (each year period a “Renewal Term”) immediately following the expiration of the initial term or the then pending Renewal Term whichever is applicable upon the same terms, conditions and provisions as set forth in the Lease, save that the annual Basic Rental during each Renewal Term shall be Two Hundred Fifteen Thousand Dollars ($215,000) payable in equal monthly installments of Seventeen Thousand Nine Hundred Sixteen Dollars and Sixty-Eight Cents ($17,916.68) each. Tenant’s right to renew the Lease shall be subject to the conditions that: (i) Tenant provides 1000 Centerpoint with six (6) months prior written notice of each election to renew; and (ii) Tenant is not in default under the Lease at the time of its exercise of its renewal option or as of the commencement of the then applicable Renewal Term. The provisions of Exhibits F and H of the Lease hereby are null and void and of no further force and effect.

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7. Right of First Offer; Signage. Tenant’s On-Going Right of First Offer set forth in Exhibit G of the Lease is hereby supplemented by the terms of this Paragraph 6. Effective as of the date the Tenant exercises its On-Going Right of First Offer: (i) the premises concerning which Tenant exercises such right; which may not be less than the Option Premises in its entirety (the “ROFO Space”) shall be deemed a portion of the Leased Premises for all purposes of the Lease; (ii) Tenant shall pay Basic Rent for the ROFO Space in the same per square foot amount as for the Leased Premises; and (iii) Tenant’s proportionate interest for all purposes of the Lease shall be proportionally increased. The ROFO Space shall be turned over to Tenant in its “AS-IS” and “WHERE-IS” condition. Effective as of the 800 Centerpoint Surrender Date Exhibit I of the Lease shall be deemed replaced in its entirety by Exhibit “C” which sets forth the location of Tenant’s sign at the 1000 Centerpoint Premises.

8. Set Up Space; La-Z-Boy Indemnity Agreement. Effective as of the Execution Date Tenant shall make available for access by Montgomeryville Home Furnishings, Inc. t/a La-Z-Boy Furniture Galleries (“La-Z-Boy”) access to the 800 Centerpoint Premises to allow La-Z-Boy to begin to set up its operations in the 800 Centerpoint Premises prior to the 800 Centerpoint Surrender Date. The portion of the 800 Centerpoint Premises which shall be made available to La-Z-Boy is more fully set forth on Exhibit “D” (the “Set Up Space”). Tenant shall not charge either La-Z-Boy or Landlord for La-Z-Boy’s use of the Set Up Space. However within three (3) days after the Execution Date Landlord will provide to Tenant an executed copy of an indemnity agreement from La-Z-Boy concerning its activities in the 800 Centerpoint Premises in favor of Landlord and Tenant (the “La-Z-Boy Indemnity Agreement”). The La-Z-Boy Indemnity Agreement shall be in the form attached as Exhibit “E”.

9. Brokers. Tenant represents and warrants to 800 Centerpoint and 1000 Centerpoint that it has not employed, dealt with or negotiated with any broker or agent other than McConnell Johnson Real Estate Company, LLC (“McConnell”) and CB Richard Ellis, Inc. (“CBREI”) in connection with this Amendment. Tenant agrees to indemnify, defend and hold 800 Centerpoint and 1000 Centerpoint harmless from and against any and all demands, actions, loss, damage or liability, including, without limitation, attorneys’ fees, to which 800 Centerpoint or 1000 Centerpoint may now or hereafter become subject as a result of a breach by Tenant of its representation contained in the immediately preceding sentence. 800 Centerpoint and 1000 Centerpoint acknowledge any sums due McConnell or CBREI in connection with this Amendment shall be the responsibility of 800 Centerpoint and/or 1000 Centerpoint.

10. Miscellaneous.

(a) In the event any of the terms of this Amendment are inconsistent with the terms of the Lease, the terms of this Amendment shall take precedence.

(b) All capitalized terms in this Amendment not otherwise defined herein shall have the meaning set forth in the Lease. This Amendment may be signed in counterparts.

(c) All of the recitals set forth above are hereby ratified and confirmed by 800 Centerpoint, 1000 Centerpoint and Tenant and incorporated herein by reference.

(d) The individual signing below on behalf of the Tenant represents that she/he has the authority and power to bind Tenant.

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(e) The submission by 800 Centerpoint and 1000 Centerpoint to Tenant of this Amendment shall have no binding force or effect, nor confer any rights or impose any obligations upon either party until the execution thereof by 800 Centerpoint and 1000 Centerpoint and the delivery of an executed original copy thereof to Tenant.

(f) All of the terms, conditions and provisions of the Lease are incorporated herein by reference as fully as though set forth in this Amendment. All exhibits referred to in this Amendment are attached thereto and incorporated herein by reference.

(g) 800 Centerpoint, 1000 Centerpoint and Tenant hereby ratify and confirm the Lease, which, except as specifically modified herein, shall remain in full force and effect unmodified.

IN WITNESS WHEREOF, the parties have executed this Amendment the date first above written.

CENTERPOINT 800, LLC, a Delaware limited liability company
By:	/s/ Paul M. McConnell	(Seal)
	Paul M. McConnell Managing Member

CENTERPOINT 1000, LLC, a Delaware limited liability company
By:	/s/ Paul M. McConnell	(Seal)
	Paul M. McConnell Managing Member

INNOTRAC CORPORATION, a Georgia corporation
By:	/s/ Robert Toner	(Seal)
	Name: Robert Toner Title: VP of Logistics

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EXHIBIT “A”

Floor Plan of 1000 Centerpoint Premises

EXHIBIT “B”

Legal Description of 1000 Centerpoint Site

  Parcel Nos. 21-013.00-116 & 117 Microfilm/Plan No. 13752   Prepared by/Return to: Donald Nelson Isken, Esquire Morris, Nichols, Arsht & Tunnell P.O. Box 1347 Wilmington, DE 19899-1347

THIS DEED, Made this 12^th day of March,Nineteen hundred ninety-nine (1999)

BETWEEN,	K/M CENTERPOINT LAND DEVELOPMENT CORPORATION, a Delaware corporation, party of the first part,
AND	CENTERPOINT 1000, LLC, a Delaware limited liability company, party of the second part;

WITNESSETH, That the said party of the first part, for and in consideration of the sum of TEN AND 00/100 DOLLARS ($10.00) lawful money of the United States of America, the receipt whereof is hereby acknowledged, hereby grants and conveys unto the said party of the second part, its successors and/or assigns, in fee,

ALL that certain lot, piece or parcel of land, with the improvements thereon, situate in the City of New Castle, New Castle County and State of Delaware, being Parcel 5A as shown on the Record Minor Subdivision Plan for CENTERPOINT BUSINESS COMPLEX, Parcel 5 and Part of Parcel 3, prepared by Karins and Associates, Professional Engineers and Land Surveyors, dated November 20, 1996 and recorded January 22, 1997 in the Office of the Recorder of Deeds in and for New Castle County and State of Delaware at Microfilm No. 13076, and being more particularly bounded and described as follows, to-wit:

BEGINNING at a point on the southeasterly side of Centerpoint Boulevard(60.00 feet wide R/W), a common corner for the herein described property andParcel 4 (Building 400); thence, from said point of Beginning, leaving saidsoutheasterly side of Centerpoint Boulevard along lands of said Parcel 4 (Building400), the following two (2) described courses and distances: (1) South 23 degrees 56minutes 17 seconds East, 416.62 feet to a point, and (2) North 66 degrees 03minutes 43 seconds East, 369.85 feet to a point, a corner in common with Parcel 5B (Building 1600); thence, along lands of said Parcel 5B (Building 1600), South 01 degree 02 minutes 32 seconds East, 482.98 feet to a point, a corner in common with Private Open Space (Stormwater Management Area); thence, along lands of said Private Open Space, South 88 degrees 57 minutes 28 seconds West, 414.41 feet to a point, a corner in common with Parcel 3 (Building 800); thence, along lands of said Parcel 3 (Building 800), the following two (2) described courses and distances: (1) North 01 degree 02 minutes 32 seconds West, 307.97 feet to a point, and (2) North 23 degrees 56 minutes 17 seconds West, 403.54 feet to a point along the aforementioned southeasterly side of Centerpoint Boulevard; thence, thereby, northeasterly along a 1722.54 feet radius curve to the right, said curve having a chord bearing of North 56 degrees 46 minutes 34 seconds East and a chord distance of 81.06 feet, an arc distance of 81.07 feet to the point and place of Beginning.

BEING A PART OF the same lands and premises which Hoover Universal, Inc., by Deed dated September 28, 1989 and recorded June 30, 1993 in the Office of the Recorder of Deeds in and for New Castle County and State of Delaware at Deed Record Book 1547, Page 283, did grant and convey unto K/M Centerpoint Land Development Corporation.

UNDER AND SUBJECT to all applicable covenants, conditions, easements, rights-of-way, reservations, restrictions, and agreements of record in the Office of the Recorder of Deeds in and for New Castle County and State of Delaware, including but not limited to notes and conditions as shown and set forth on the aforementioned Record Minor Subdivision Plan for Centerpoint Business Complex, Parcel 5 and Part of Parcel 3, dated November 20, 1996 and recorded January 22, 1997 at Microfilm No. 13076, as said plan has been superseded in part by the Record Minor Subdivision Plan of Parcels 2A, 2C, 3, 4, 5A, Private Open Space and Airport Holdings Parcel, Centerpoint Business Park, dated December 29, 1998 and recorded January 22, 1999 at Microfilm No. 13752.

TOGETHER with all and singular the tenements, hereditaments, and appurtenances thereunto belonging, or in any wise appertaining, and the reversion and reversions, remainder and remainders, rents, issues and profits thereof, and all the estate, right, title, interest, property, claim and demand whatsoever of it, the said party of the first part, as well at law as in equity or otherwise howsoever, of, in and to the same and every party thereof, RESERVING and SUBJECT to as aforesaid.

EXHIBIT “C”

Location of Tenant’s Sign at 1000 Centerpoint Boulevard

EXHIBIT “D”

Location of Set Up Space

EXHIBIT “E”

INDEMNITY AGREEMENT

THIS INDEMNITY AGREEMENT (the “Agreement”) is dated as of the _____ day of August, 2006 and is made and entered into by MONTGOMERYVILLE HOME FURNISHINGS, INC., a Delaware corporation t/a La-Z-Boy Furniture Galleries (“La-Z-Boy”).

WHEREAS, Centerpoint 800, LLC, a Delaware limited liability company (“Centerpoint 800”) and Innotrac Corporation, a Georgia corporation (“Innotrac”) are parties to a lease dated August 16, 2004 as amended to date (collectively the “Lease”) which Lease demises certain premises (the “800 Centerpoint Innotrac Premises”) in the building known as 800 Centerpoint Boulevard in New Castle County, Delaware (the “800 Centerpoint Building”);

WHEREAS, Centerpoint 800 is the process of relocating from the 800 Centerpoint Innotrac Premises to new premises (the “1000 Centerpoint Premises”) in the building known as 1000 Johnson Way, New Castle County, Delaware;

WHEREAS, Centerpoint 800 and La-Z-Boy are parties to a lease dated as of August __, 2006 (the “La-Z-Boy Lease”) pursuant to which La-Z-Boy will occupy premises in the 800 Centerpoint Building (the “La-Z-Boy Premises”) which includes a portion of the 800 Centerpoint Innotrac Premises;

WHEREAS, La-Z-Boy has requested that it be granted early access to the La-Z-Boy Premises prior to the complete relocation of Innotrac from the 800 Centerpoint Innotrac Premises to the 1000 Centerpoint Premises (the “Innotrac Relocation”) in order to allow La-Z-Boy to begin its fit-out of the La-Z-Boy Premises (the “La-Z-Boy Fit Out”);

WHEREAS, Centerpoint 800 and Innotrac are willing to provide La-Z-Boy such access to the La-Z-Boy Premises so long as La-Z-Boy agrees to indemnify and hold harmless Centerpoint 800 and Innotrac in the manner set forth herein;

THEREFORE, for good and valuable consideration, receipt of which is acknowledged, intending to be legally bound, La-Z-Boy hereby agrees as follows:

1. Recitals. The foregoing recitals are hereby incorporated into the body of this Agreement.

2. Indemnity. La-Z-Boy shall defend, indemnify and hold harmless Centerpoint 800 and Innotrac and their respective agents, representatives, and employees (collectively, the “Indemnified Parties”) from and against all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including reasonable attorneys’ fees, which may be imposed upon or incurred by or asserted by reason of La-Z-Boy and its employees, agents, service providers, suppliers and invitees (collectively, the La-Z-Boy Parties”) being permitted access to the La-Z- Boy Premises prior to the Innotrac Relocation excluding those arising from the negligence or willful misconduct of the Indemnified Parties but including without limitation La-Z-Boy’s use and occupancy of the La-Z-Boy Premises or any other portion of the 800 Centerpoint Building or the real property on which it is located (collectively, the “Property”) and/or any accident, injury or damage to any person or property resulting therefrom occurring in, on or about the La-Z-Boy Premises or any other portion of the Property.

3. La-Z-Boy Activities. All of the activities of the La-Z-Boy Parties in connection with the La-Z-Boy Fit Out shall be subject to such rules and regulations as Centerpoint 800 shall reasonably establish (including without limitation concerning the hours of the La-Z-Boy Fit Out; responsibilities for clean up; and limitations on the extent of third party invitees). The La-Z-Boy Parties shall conduct all activities in connection with the La-Z-Boy Fit Out (collectively, the “La-Z-Boy Fit Out Activities”) in such a manner so as not to interfere with the activities of 800 Centerpoint and/or Innotrac. In no event shall any of the La-Z-Boy Fit Out Activities be of such a nature as would be contrary to the insurance requirements established by Centerpoint 800’s insurer. Prior to the date the La-Z-Boy Fit Out Activities commence La-Z-Boy shall provide Centerpoint 800 and Innotrac with evidence of insurance in form and substance reasonably satisfactory to Centerpoint 800 and Innotrac concerning the La-Z-Boy Fit Out Activities naming Centerpoint 800 and Innotrac as additional insureds.

4. Legal Defense. La-Z-Boy shall provide each of the Indemnified Parties at La-Z-Boy’s sole cost and expense, a legal defense for all claims for which indemnification is provided under Paragraph 2 of this Agreement. All aspects of the litigation and defense in connection with such claim including, without limitation, the selection of counsel in all pleadings filed in connection therewith shall be subject to the approval of the Indemnified Parties which approval shall not be unreasonably withheld.

5. Ratification of La-Z-Boy Lease. Notwithstanding anything contained in this Agreement to the contrary in no event shall the terms of this Agreement serve to limit or modify any of the terms and conditions of the La-Z-Boy Lease all of which terms and conditions are hereby ratified by La-Z-Boy in their entirety.

6. Miscellaneous. This Agreement may be modified only by a written instrument signed by the party hereto, and no waiver of any provisions of this Agreement shall be effective unless expressed in a writing signed by the party to be charged. The validity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision. If any provision is held to be unenforceable as a matter of law, the other provisions of this Agreement shall not be affected thereby and shall remain in full force and affect. This Agreement may be executed in any number of counterparts each of which counterparts when so executed and delivered shall be deemed to be an original and all such counterparts shall together constitute one and the same agreement. This Agreement shall be governed by and enforced in accordance with the laws of the State of Delaware.

IN WITNESS WHEREOF, the party hereto has executed this Indemnity Agreement the day and year first above written.

MONTGOMERYVILLE HOME FURNISHINGS, INC.
By:		(Seal)
	Name:
	Title:

EX-10.22

 Exhibit 10.22

FIRST LEASE AMENDMENT

THIS FIRST LEASE AMENDMENT (the “Amendment”) is effective as of the 16^th day of August, 2006 and is executed this 19^th day of October, 2006, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership (“Landlord”), and INNOTRAC CORPORATION, a Georgia corporation (“Tenant”).

WITNESSETH:

WHEREAS, Landlord and Tenant entered into a certain lease dated February 28, 2005 (the “Lease”), whereby Tenant leased from Landlord certain premises consisting of approximately 646,468 rentable square feet of space (the “Original Premises”) in a building commonly known as Building 1 in Hebron Industrial Park (the “Building”), located at 2305 Litton Lane, Hebron, Kentucky 41048; and

WHEREAS, Tenant desires to lease from Landlord temporary space in the Building (the “Temporary Space”); and

WHEREAS, Landlord and Tenant desire to amend certain provisions of the Lease to reflect such Temporary Space and other changes to the Lease;

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants herein contained and each act performed hereunder by the parties, Landlord and Tenant hereby agree that the Lease is amended as follows:

1. Incorporation of Recitals. The above recitals are hereby incorporated into this Amendment as if fully set forth herein.

2. Temporary Space. Effective October 27, 2006, Landlord and Tenant hereby agree that Landlord shall provide Tenant with temporary space in the Building in increments of approximately 1,722 rentable square feet, which represents the approximate size of each bay area (the “Bay Area”). Each Bay Area shall hereinafter collectively be referred to as the “Temporary Space”. The area in which the Temporary Space may be located is shown on Exhibit A-2 attached hereto and made a part hereof. If Tenant shall use or occupy any portion of a Bay Area, the entire Bay Area shall be deemed a part of the Temporary Space. Tenant shall pay to Landlord as rent an amount equal to Three Dollars and Twelve Cents ($3.12) per rentable square foot of the Temporary Space plus Tenant’s Proportionate Share of Operating Expenses for the Temporary Space, which shall be determined by multiplying the Operating Expenses by a percentage determined by dividing the rentable square fee of the Temporary Space by the rentable square feet of the Building. Tenant hereby agrees to notify Landlord one (1) day prior to taking or giving back a Bay Area. Landlord shall measure the Temporary Space each Friday and shall invoice Tenant monthly for the use of the Temporary Space. Tenant accepts the Temporary Space “AS-IS” without representation or warranty by Landlord of any kind and with the understanding that Landlord shall have no responsibility with respect thereto. The Temporary Space shall be subject to all other terms and conditions of this Lease not specifically addressed herein.

3. Term. The term for the temporary space shall expire on the earlier of (a) the date that Tenant surrenders all of the Temporary Space to Landlord in accordance with the provisions of Section 2.03 or (b) April 30, 2007.

4. Patriot Act. Each of Landlord and Tenant, each as to itself, hereby represents its compliance with all applicable anti-money laundering laws, including, without limitation, the USA Patriot Act, and the laws administered by the United States Treasury Department’s Office of Foreign Assets Control, including, without limitation, Executive Order 13224 (“Executive Order”). Each of Landlord and Tenant further represents (i) that it is not, and it is not owned or controlled directly or indirectly by any person or entity, on the SDN List published by the United States Treasury Department’s Office of Foreign Assets Control and (ii) that it is not a person otherwise identified by government or legal authority as a person with whom a U.S. Person is prohibited from transacting business. As of the date hereof, a list of such designations and the text of the Executive Order are published under the internet website address www.ustreas.gov/offices/enforcement/ofac.

5. Brokerage Commissions. The parties hereby represent and warrant that the only real estate brokers involved in the negotiation and execution of this Amendment are Duke Realty Services Limited Partnership, representing itself as Landlord and Grubb & Ellis and West Shell, representing Tenant. Each party shall indemnify the other party from any and all liability for the breach of this representation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto.

6. Tenant’s Representations and Warranties. The undersigned represents and warrants to Landlord that (i) Tenant is duly organized, validly existing and in good standing in accordance with the laws of the state under which it was organized; (ii) all action necessary to authorize the execution of this Amendment has been taken by Tenant; and (iii) the individual executing and delivering this Amendment on behalf of Tenant has been authorized to do so, and such execution and delivery shall bind Tenant. Tenant, at Landlord’s request, shall provide Landlord with evidence of such authority.

7. Examination of Amendment. Submission of this instrument for examination or signature to Tenant does not constitute a reservation or option, and it is not effective until execution by and delivery to both Landlord and Tenant.

8. Definitions. Except as otherwise provided herein, the capitalized terms used in this Amendment shall have the definitions set forth in the Lease.

9. Incorporation. This Amendment shall be incorporated into and made a part of the Lease, and all provisions of the Lease not expressly modified or amended hereby shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed on the day and year first written above.

LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP, an Indiana limited partnership
	By:	Duke Realty Corporation, its general partner
		By:	/s/ Daniel P. Ruh
			Daniel P. Ruh Senior Vice President Cincinnati Operations

TENANT:
INNOTRAC CORPORATION, a Georgia corporation
By:	/s/ Robert Toner
Printed:	Robert Toner
Title:	VP of Logistics

STATE OF OHIO	)
	) SS:
COUNTY OF HAMILTON	)

Before me, a Notary Public in and for said County and State, personally appeared Daniel P. Ruh, by me known and by me known to be the Senior Vice President, Cincinnati Operations of Duke Realty Corporation, an Indiana corporation, the general partner of Duke Realty Limited Partnership, an Indiana limited partnership, who acknowledged the execution of the foregoing “First Lease Amendment” on behalf of said partnership.

WITNESS my hand and Notarial Seal this 19^thday of October, 2006.

	/s/ Rose Andriacco
	Notary Public
	(Printed Signature)

My Commission Expires: ____________________

My County of Residence: Clermont                           

STATE OF GEORGIA	)
	) SS:
COUNTY OF GWINNETT	)

Before me, a Notary Public in and for said County and State, personally appeared Robert J. Toner, by me known and by me known to be the Sr. Vice President of Innotrac Corporation, a Georgia corporation, who acknowledged the execution of the foregoing “First Lease Amendment” on behalf of said corporation.

WITNESS my hand and Notarial Seal this 16^th day of October, 2006.

/s/ Shanin Crowther

Notary Public

/s/ Shanin Crowther

(Printed Signature)

My Commission Expires: 6/19/09

My Country of Residence: Gwinnett

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Scott D. Dorfman, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2006	/s/ Scott D. Dorfman
	Scott D. Dorfman President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Christine A. Herren, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2006	/s/ Christine A. Herren
	Christine A. Herren Senior Director and Controller (Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

I, Scott D. Dorfman, Chief Executive Officer of Innotrac Corporation (the “Company”), certify, pursuant to 18 U.S.C. § 1350 as adopted by § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 14, 2006

/s/ Scott D. Dorfman

Scott D. Dorfman

President, Chief Executive Officer and

Chairman of the Board

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

I, Christine A. Herren, Principal Financial and Accounting Officer of Innotrac Corporation (the “Company”), certify, pursuant to 18 U.S.C. § 1350 as adopted by § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 14, 2006

/s/ Christine A. Herren

Christine A. Herren

Senior Director and Controller (Principal

Financial Officer and Principal Accounting

Officer)