A 1099 form is for misc income. You are sending goods for BTC, so at most, the recipient would be liable to pay sales tax in his jurisdiction, and that is hard to do since the government doesn't want 9% in BTC. If you paid an independent contractor for services, that is where the 1099 would be used, although there are no places to fill in amounts in BTC on that form either.
The gov't will only care about your income in dollars. The amount you cash out in dollars from an exchange likely has little correlation with your net profit, so it is best to think about all of your Bitcoin transactions as a business, and only when things are turned back into dollars and you make a net income (minus your business expenses like web hosting, electricity, computer depreciation, etc) should you start thinking taxes. If you made a net profit, why not put it back into BTC as a 'capital expenditure' and you are neutral again. I would try to keep all Bitcoin stuff out of taxes (just keep independent records of your BTC accounting) unless I appear to make a clear profit in dollars that need some matching expenses or explaining.
Remember that gov't doesn't care that you just lost $2000 in a casino, when you finally win $1000 they still want 50% of it. Complete Bitcoin business records can help you and auditors track and offset your expenses and 'losings'.