##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 [Mark One]
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-24996
 INTERNET COMMERCE CORPORATION
  Delaware
(State or Other Jurisdiction of Incorporation or Organization)
    
    13-3645702
(I.R.S. Employer Identification No.)6025 The Corners Parkway, Suite 100
Norcross, Georgia
(Address of Principal Executive Offices)
    
    30092
(Zip Code)
 Registrants Telephone Number, Including Area Code: (678) 533-8000
 þ o
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##### Table of Contents



INDEX TO FORM 10-Q
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated balance sheets as of January 31, 2006 (unaudited) and July 31, 2005
    
    
    3Condensed Consolidated statements of operations for the three and six months ended January 31, 2006
(unaudited) and January 31, 2005 (unaudited)
    
    
    4Condensed Consolidated statements of cash flows for the six months ended January 31, 2006 (unaudited)
and January 31, 2005 (unaudited)
    
    
    5Notes to condensed consolidated financial statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    20Item 1A. Risk Factors
    
    
    20Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27EXHIBIT INDEX
    
    
    28CERTIFICATIONSEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEO AND CFO
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Condensed Consolidated Balance Sheets
 January 31,
    
    
    July 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,294,386
    
    
    $
    3,983,005Accounts receivable, net of allowance for doubtful accounts and
allowance for sales returns and allowances of $569,150 and
$581,907, respectively
    
    
    3,622,605
    
    
    
    3,476,211Prepaid expenses and other current assets
    
    
    519,548
    
    
    
    403,659Total current assets
    
    
    8,436,539
    
    
    
    7,862,875Restricted cash
    
    
    417,330
    
    
    
    417,330Property and equipment, net
    
    
    682,843
    
    
    
    629,919Goodwill
    
    
    3,884,235
    
    
    
    3,842,536Other intangible assets, net
    
    
    1,755,479
    
    
    
    1,772,757Other assets
    
    
    44,852
    
    
    
    32,373Total assets
    
    $
    15,221,278
    
    
    $
    14,557,790LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    509,327
    
    
    $
    226,097Accrued expenses
    
    
    625,952
    
    
    
    1,490,604Accrued
dividends  preferred stock
    
    
    33,973
    
    
    
    232,329Deferred revenue
    
    
    142,037
    
    
    
    152,434Capital lease obligation
    
    
    
    
    
    
    3,645Other current liabilities
    
    
    418,244
    
    
    
    894,199Total current liabilities
    
    
    1,729,533
    
    
    
    2,999,308Long-term lease liability from acquisition
    
    
    1,087,420
    
    
    
    1,216,280Total liabilities
    
    
    2,816,953
    
    
    
    4,215,588Stockholders Equity:Preferred
stock  5,000,000 shares authorized, including 10,000 shares of series A,
10,000 shares of series C, 250 shares of series D and 175 shares of series S:Series A  par value $.01 per share, none issued and outstanding
    
    
    
    
    
    
    Series C  par value $.01 per share, 44.76 votes per share; 10,000 shares issued
and outstanding (liquidation value of $10,033,973)
    
    
    100
    
    
    
    100Series D  par value $.01 per share, 769 votes per share; 250 shares issued and
outstanding (liquidation value of $250,000)
    
    
    3
    
    
    
    3Series S  par value $.01 per share, none issued and outstanding
    
    
    
    
    
    
    Common stock:Class A  par value $.01 per share, 40,000,000 shares authorized, one vote per share;
19,859,006 and 19,414,420 shares issued and outstanding, respectively
    
    
    198,590
    
    
    
    194,144Class B  par value $.01 per share, 2,000,000 shares authorized, six votes per share;
none issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    96,776,989
    
    
    
    95,813,761Accumulated deficit
    
    
    (84,571,357
    )
    
    
    (85,665,806
    )Total stockholders equity
    
    
    12,404,325
    
    
    
    10,342,202Total liabilities and stockholders equity
    
    $
    15,221,278
    
    
    $
    14,557,790
 See notes to condensed consolidated financial statements.
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Condensed Consolidated Statements of Operations (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Service revenues
    
    $
    5,012,240
    
    
    $
    3,493,144
    
    
    $
    10,030,073
    
    
    $
    7,239,684Expenses:Cost of services (including non-cash compensation of
$4,850 and $10,720 for the three and six months ended
January 31, 2006 respectively, and of $855 and
$2,998 for the three and six months ended January 31,
2005 respectively)
    
    
    1,750,182
    
    
    
    1,341,201
    
    
    
    3,655,579
    
    
    
    2,760,771Product development and enhancement (including
non-cash compensation of $5,114 and $8,303 for the
three and six months ended January 31, 2006
respectively, and of $7,551 and $15,103 for the three
and six months ended January 31, 2005 respectively)
    
    
    206,928
    
    
    
    248,847
    
    
    
    309,911
    
    
    
    479,110Selling and marketing (including non-cash compensation
of $18,154 and $23,818 for the three and six months
ended January 31, 2006 respectively, and of $8,030
and $10,673 for the three and six months ended January
31, 2005 respectively)
    
    
    577,301
    
    
    
    710,640
    
    
    
    992,658
    
    
    
    1,551,401General and administrative (including non-cash
compensation of $259,469 and $431,844 for the three
and six months ended January 31, 2006 respectively,
and of $177,039 and $375,534 for the three and six
months ended January 31, 2005 respectively)
    
    
    2,080,540
    
    
    
    1,488,195
    
    
    
    3,934,795
    
    
    
    3,148,8544,614,951
    
    
    
    3,788,883
    
    
    
    8,892,943
    
    
    
    7,940,136Operating Income/(loss)
    
    
    397,289
    
    
    
    (295,739
    )
    
    
    1,137,130
    
    
    
    (700,452
    )Other income and (expense):Interest and investment income
    
    
    34,563
    
    
    
    8,101
    
    
    
    60,233
    
    
    
    14,199Interest expense
    
    
    (77,507
    )
    
    
    (786
    )
    
    
    (113,293
    )
    
    
    (3,782
    )Other income
    
    
    10,465
    
    
    
    
    
    
    
    27,551
    
    
    
    (32,479
    )
    
    
    7,315
    
    
    
    (25,509
    )
    
    
    10,417Income (loss) before income taxes
    
    
    364,810
    
    
    
    (288,424
    )
    
    
    1,111,621
    
    
    
    (690,035
    )Provision (benefit) for income taxes, current
    
    
    (7,093
    )
    
    
    
    
    
    
    17,172
    
    
    
    Net income (loss)
    
    
    371,903
    
    
    
    (288,424
    )
    
    
    1,094,449
    
    
    
    (690,035
    )Dividends on preferred stock
    
    
    (101,822
    )
    
    
    (100,547
    )
    
    
    (201,644
    )
    
    
    (201,093
    )Income/(loss) attributable to common stockholders
    
    $
    270,081
    
    
    $
    (388,971
    )
    
    $
    892,805
    
    
    $
    (891,128
    )Basic income/(loss) per common share
    
    $
    0.01
    
    
    $
    (0.02
    )
    
    $
    0.05
    
    
    $
    (0.05
    )Diluted income/(loss) per common share
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    0.05
    
    
    $
    (0.05
    )Anti-dilutive stock options and warrants outstanding
    
    
    1,652,695
    
    
    
    7,514,464
    
    
    
    2,527,457
    
    
    
    7,814,464Weighted
average number of common shares outstanding 
Basic
    
    
    19,462,025
    
    
    
    19,130,186
    
    
    
    19,560,428
    
    
    
    19,094,325Weighted
average number of common shares outstanding 
Diluted
    
    
    22,124,182
    
    
    
    19,932,294
    
    
    
    21,865,940
    
    
    
    19,730,300
 See notes to condensed consolidated financial statements.
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Condensed Consolidated Statements of Cash Flows (Unaudited)
 Six Months Ended January 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    1,094,449
    
    
    $
    (690,035
    )Adjustments to reconcile net income/(loss) to net cash provided by/ (used in)
operating activities:Depreciation and amortization
    
    
    614,745
    
    
    
    740,568Bad debt expense
    
    
    333,611
    
    
    
    115,525Non-cash interest expense
    
    
    113,871
    
    
    
    Non-cash charges for equity instruments issued for compensation and
services
    
    
    474,685
    
    
    
    404,308Changes in:Accounts receivable
    
    
    (123,068
    )
    
    
    (280,795
    )Prepaid expenses and other assets
    
    
    (119,882
    )
    
    
    (28,405
    )Accounts payable
    
    
    275,551
    
    
    
    (271,771
    )Accrued expenses
    
    
    (900,881
    )
    
    
    (319,908
    )Deferred revenue
    
    
    (26,927
    )
    
    
    35,436Other liabilities
    
    
    (703,294
    )
    
    
    (4,620
    )Net cash provided by/ (used in) operating activities
    
    
    1,032,860
    
    
    
    (299,697
    )Cash flows from investing activities:Payment for purchase of acquisition, net of cash acquired
    
    
    (886,619
    )
    
    
    Additional costs of previous acquisition
    
    
    (65,000
    )
    
    
    (121,296
    )Purchases of property and equipment
    
    
    (114,848
    )
    
    
    (158,205
    )Net cash used in investing activities
    
    
    (1,066,467
    )
    
    
    (279,501
    )Cash flows from financing activities:Common stock issued for services related to 2004 private placement
    
    
    
    
    
    
    (23,512
    )Payments of capital lease obligations
    
    
    (3,645
    )
    
    
    (36,277
    )Proceeds from exercise of employee stock options
    
    
    348,633
    
    
    
    Net cash provided by/ (used in) financing activities
    
    
    344,988
    
    
    
    (59,789
    )Net increase (decrease) in cash and cash equivalents
    
    
    311,381
    
    
    
    (638,987
    )Cash and cash equivalents, beginning of period
    
    
    3,983,005
    
    
    
    3,789,643Cash and cash equivalents, end of period
    
    $
    4,294,386
    
    
    $
    3,150,656Supplemental disclosure of cash flow information:Cash paid for interest during the period
    
    $
    201
    
    
    $
    3,735Supplemental disclosure of noncash investing activity:Payment for purchase of acquisition
    
    
    23,300
    
    
    
    Supplemental disclosure of noncash financing activity:Issuance of 20,283 shares of Class A Common Stock upon exercise of
40,000 Silicon Valley Bank Warrants
    
    
    203
    
    
    
    Issuance of 50,117 shares of Class A Common Stock upon exercise of
355,713 stock options
    
    
    501
    
    
    
    Issuance of common stock for dividends on preferred stock
    
    
    400,000
    
    
    
    400,000
 See notes to condensed consolidated financial statements.
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##### Table of Contents



Notes to condensed consolidated financial statements (unaudited)
  1. Organization and Nature of Business
  2. Recent Acquisitions
 MEC
 Ô
   6




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##### Table of Contents



Recent Acquisitions (continued)
  Assumption of lease
    
    $
    2,267,735Transaction costs
    
    
    22,746Additional costs since July 31, 2005
    
    
    65,000Total purchase price
    
    $
    2,355,481
 KODIAK GROUP, INC.
   Net working capital
    
    $
    506,206Other net tangible assets
    
    
    121,789Intangible
assets  customer relations
    
    
    372,005Estimated transaction costs
    
    
    53,942Total purchase price
    
    $
    1,053,942
  3. Business Segment Information
  
    
    ICC.NET  ICC.NET is a complete VAN solution designed to meet
electronic data interchange requirements in a secure, reliable, available and
flexible environment regardless of file size, communication protocol or data
format. We charge our customers using the ICC.NET service based upon the
amount of information that customers transmit through our network to their
trading partners. These charges are primarily made on a set price per
kilo-character (every thousand bytes of information through the network).
    
    EC Service Bureau  The EC Service Bureau manages and translates
the data of small and mid-sized companies that exchange EDI data with large
companies and provides various EDI and Universal Product Code (UPC) services.
The EC Service Bureau also licenses EDI software which amounts are immaterial
for all periods presented.
 7




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##### Table of Contents



Business Segment Information (continued)
  EC ServiceICC.NET
    
    
    Bureau
    
    
    TotalThree Months   January 31, 2006Revenues from external customers
    
    $
    3,120,616
    
    
    $
    1,891,624
    
    
    $
    5,012,240Operating income (1)
    
    $
    372,594
    
    
    $
    24,695
    
    
    $
    397,289Other income (expense), net
    
    
    61,845
    
    
    
    (94,324
    )
    
    
    (32,479
    )Income before income taxes
    
    
    434,439
    
    
    
    (69,629
    )
    
    
    364,810Income tax
(benefit) expense
    
    
    (7,093
    )
    
    
    
    
    
    
    (7,093
    )Net income (loss) (1)
    
    $
    441,532
    
    
    $
    (69,629
    )
    
    $
    371,903Supplemental segment information:Amortization and depreciation
    
    $
    102,676
    
    
    $
    107,832
    
    
    $
    210,508Non-cash charges for stock-based
compensation and services
    
    $
    273,057
    
    
    $
    14,530
    
    
    $
    287,587Six
Months  January 31, 2006Revenues from external customers
    
    $
    6,154,632
    
    
    $
    3,875,441
    
    
    $
    10,030,073Operating income (1)
    
    $
    745,537
    
    
    $
    391,593
    
    
    $
    1,137,130Other income (expense), net
    
    
    68,815
    
    
    
    (94,324
    )
    
    
    (25,509
    )Income before income taxes
    
    
    814,352
    
    
    
    297,269
    
    
    
    1,111,621Income tax expense
    
    
    5,916
    
    
    
    11,256
    
    
    
    17,172Net income (1)
    
    $
    808,436
    
    
    $
    286,013
    
    
    $
    1,094,449Supplemental segment information:Amortization and depreciation
    
    $
    397,915
    
    
    $
    216,830
    
    
    $
    614,745Non-cash charges for stock-based
compensation and services
    
    $
    455,879
    
    
    $
    18,806
    
    
    $
    474,685As of January 31, 2006Property and equipment, net
    
    $
    507,822
    
    
    $
    175,021
    
    
    $
    682,843Goodwill
    
    
    26,132
    
    
    
    3,858,103
    
    
    
    3,884,235Acquired identified intangibles, net
    
    
    404,674
    
    
    
    1,350,805
    
    
    
    1,755,479Long lived assets, net
    
    $
    938,628
    
    
    $
    5,383,929
    
    
    $
    6,322,557Capital expenditures
    
    $
    112,364
    
    
    $
    2,484
    
    
    $
    114,848
 
 1)
    
    Certain costs for selling and marketing functions were allocated to the EC Service Bureau from ICC.NET based on the
level of service performed. ICC.NET allocated $104,000 and $149,000 of selling and marketing costs to the EC Service Bureau
during the three and six months ended January 31, 2006, respectively. Also, certain costs for executive management, MIS,
human resources and accounting and finance functions were allocated to the EC Service Bureau from ICC.NET based on the
level of service performed. ICC.NET allocated $445,000 and $700,000 of general and administrative costs for these services
to the EC Service Bureau for the three and six months ended January 31, 2006, respectively. 8




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##### Table of Contents



Business Segment Information (continued)
 EC ServiceICC.NET
    
    
    Bureau
    
    
    TotalThree Months   January 31, 2005Revenues from external customers
    
    $
    2,741,415
    
    
    $
    751,729
    
    
    $
    3,493,144Operating loss (2)
    
    $
    (164,193
    )
    
    $
    (131,546
    )
    
    $
    (295,739
    )Other income (expense), net
    
    
    7,315
    
    
    
    
    
    
    
    7,315Net loss (2)
    
    $
    (156,878
    )
    
    $
    (131,546
    )
    
    $
    (288,424
    )Supplemental segment information:Amortization and depreciation
    
    $
    286,453
    
    
    $
    72,855
    
    
    $
    359,307Non-cash charges for stock-based
compensation and services
    
    $
    193,475
    
    
    $
    
    
    
    $
    193,475Six
Months  January 31, 2005Revenues from external customers
    
    $
    5,566,657
    
    
    $
    1,673,027
    
    
    $
    7,239,684Operating loss (2)
    
    $
    (641,906
    )
    
    $
    (58,546
    )
    
    $
    (700,452
    )Other income (expense), net
    
    
    10,417
    
    
    
    
    
    
    
    10,417Net loss (2)
    
    $
    (631,489
    )
    
    $
    (58,546
    )
    
    $
    (690,035
    )Supplemental segment information:Amortization and depreciation
    
    $
    595,164
    
    
    $
    145,403
    
    
    $
    740,567Non-cash charges for stock-based
compensation and services
    
    $
    404,308
    
    
    $
    
    
    
    $
    404,308As of January 31, 2005Property and equipment, net
    
    $
    272,277
    
    
    $
    46,054
    
    
    $
    318,331Goodwill
    
    
    1,211,925
    
    
    
    1,448,609
    
    
    
    2,660,534Acquired identified intangibles, net
    
    
    717,000
    
    
    
    960,732
    
    
    
    1,677,732Long lived assets, net
    
    $
    2,201,202
    
    
    $
    2,455,395
    
    
    $
    4,656,597
 
 2)
    
    Certain costs for selling and marketing functions were allocated to the EC Service Bureau from
ICC.NET based on the level of service performed. ICC.NET allocated $24,000 and $48,000 of selling
and marketing costs to the EC Service Bureau during the three and six months ended January 31, 2005,
respectively. Also, certain costs for executive management, MIS, human resources and accounting and
finance functions were allocated to the EC Service Bureau from ICC.NET based on the level of service
performed. ICC.NET allocated $135,000 and $270,000 of general and administrative costs for these
services to the EC Service Bureau for the three and six months ended January 31, 2005, respectively. 9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
    
    
    ICC.NET segment, which is composed primarily of our VAN operations,
professional services and mapping activities, and
    
    Electronic Commerce Service Bureau (EC Service Bureau) segment, whose
operations primarily focus on facilitating the EDI communications of small and medium
sized businesses with their trading partners.
  Critical Accounting Policies and Estimates
  10




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Stock-Based Compensation
   11




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##### Table of Contents



Three Months Ended January 31, 2006 Compared with Three Months Ended January 31, 2005.
 Results of Operations  Consolidated
  Three Months EndedJanuary 31,2006
    
    
    2005Income (loss) before income taxes:ICC.NET
    
    $
    434,439
    
    
    $
    (156,878
    )EC Service Bureau
    
    
    (69,629
    )
    
    
    (131,546
    )Income (loss) before income taxes
    
    $
    364,810
    
    
    $
    (288,424
    )
 Results
of Operations  ICC.NET
  Three Months EndedJanuary 31,
    
    
    
    Variance2006
    
    
    2005
    
    
    
    $
    
    
    
    %Revenues:VAN services
    
    $
    2,834,978
    
    
    $
    2,609,072
    
    
    
    225,906
    
    
    
    9Professional services
    
    
    249,739
    
    
    
    81,023
    
    
    
    168,716
    
    
    
    208Mapping services
    
    
    35,900
    
    
    
    51,320
    
    
    
    (15,420
    )
    
    
    (30
    )3,120,617
    
    
    
    2,741,415
    
    
    
    379,202
    
    
    
    14Expenses:Cost of services
    
    
    829,060
    
    
    
    1,055,398
    
    
    
    (226,338
    )
    
    
    (21
    )Product development and enhancement
    
    
    143,344
    
    
    
    159,674
    
    
    
    (16,330
    )
    
    
    (10
    )Selling and marketing
    
    
    328,162
    
    
    
    554,108
    
    
    
    (225,946
    )
    
    
    (41
    )General and administrative
    
    
    1,174,400
    
    
    
    942,952
    
    
    
    231,448
    
    
    
    25Non-cash charges for stock-based compensation
    
    
    273,057
    
    
    
    193,476
    
    
    
    79,581
    
    
    
    41Total expenses
    
    
    2,748,023
    
    
    
    2,905,608
    
    
    
    (157,585
    )
    
    
    (5
    )Operating income (loss)
    
    
    372,594
    
    
    
    (164,193
    )
    
    
    536,787
    
    
    
    327Other income (expense), net
    
    
    61,845
    
    
    
    7,315
    
    
    
    838,280
    
    
    
    11,460Net Income (loss) before income taxes
    
    $
    434,439
    
    
    $
    (156,878
    )
    
    
    1,375,067
    
    
    
    877
 Revenues  ICC.NET 
 12




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##### Table of Contents



Cost
of services  ICC.NET
 Product development and enhancement  ICC.NET
 Selling and marketing  ICC.NET
 General and administrative ICC.NET
 Non-cash charges  ICC.NET
 Results of Operations  EC Service Bureau
  Three Months EndedJanuary 31,
 
    
    
    Variance2006
    
    
    2005
    
    
    
 $
 
    
    
    %Revenues:Services
    
    $
    1,891,624
    
    
    $
    751,729
    
    
    
    1,139,895
    
    
    
    152Expenses:Cost of services
    
    
    916,272
    
    
    
    284,948
    
    
    
    631,324
    
    
    
    222Product development and enhancement
    
    
    58,470
    
    
    
    81,622
    
    
    
    (23,152
    )
    
    
    (28
    )Selling and marketing
    
    
    230,985
    
    
    
    148,501
    
    
    
    82,484
    
    
    
    56General and administrative
    
    
    646,671
    
    
    
    368,204
    
    
    
    278,467
    
    
    
    76Non-cash charges for stock-based compensation
    
    
    14,530
    
    
    
    
    
    
    
    14,530
    
    
    
    Total expenses
    
    
    1,866,928
    
    
    
    883,275
    
    
    
    983,653
    
    
    
    111Operating income (loss)
    
    
    24,695
    
    
    
    (131,546
    )
    
    
    156,252
    
    
    
    119Other income (expense), net
    
    
    (94,324
    )
    
    
    
    
    
    
    (94,324
    )
    
    
    Net Loss before income taxes
    
    $
    (69,629
    )
    
    $
    (131,546
    )
    
    
    61,917
    
    
    
    47
 13




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##### Table of Contents



Revenue  EC Service Bureau
 Cost of services  EC Service Bureau
 Product development and enhancement  EC Service Bureau
 Selling and marketing  EC Service Bureau
 General and administrative  EC Service Bureau
 Non-cash charges  EC Service Bureau
 Six Months Ended January 31, 2006 Compared with Six Months Ended January 31, 2005.
 Results of Operations  Consolidated
  Six Months EndedJanuary 31,2006
    
    
    2005Income (loss) before income taxes:ICC.NET
    
    $
    814,352
    
    
    $
    (631,489
    )EC Service Bureau
    
    
    297,269
    
    
    
    (58,546
    )Income (loss) before income taxes
    
    $
    1,111,621
    
    
    $
    (690,035
    )
 14




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##### Table of Contents



Results
of Operations  ICC.NET
  Six Months EndedJanuary 31,
 
    
    
    Variance2006
    
    
    2005
        
    
    
$
        
    
    
%Revenues:VAN services
    
    $
    5,688,554
    
    
    $
    5,230,910
    
    
    
    457,644
    
    
    
    9Professional services
    
    
    383,588
    
    
    
    219,798
    
    
    
    163,790
    
    
    
    75Mapping services
    
    
    82,490
    
    
    
    115,949
    
    
    
    (33,459
    )
    
    
    (29
    )6,154,632
    
    
    
    5,566,657
    
    
    
    587,975
    
    
    
    11Expenses:Cost of services
    
    
    1,835,026
    
    
    
    2,255,555
    
    
    
    (420,529
    )
    
    
    (19
    )Product development and enhancement
    
    
    170,986
    
    
    
    293,751
    
    
    
    (122,765
    )
    
    
    (42
    )Selling and marketing
    
    
    573,165
    
    
    
    1,242,421
    
    
    
    (669,256
    )
    
    
    (54
    )General and administrative
    
    
    2,374,039
    
    
    
    2,012,527
    
    
    
    361,512
    
    
    
    18Non-cash charges for stock-based compensation
    
    
    455,879
    
    
    
    404,308
    
    
    
    51,571
    
    
    
    13Total Expenses
    
    
    5,409,095
    
    
    
    6,208,562
    
    
    
    (799,467
    )
    
    
    (13
    )Operating income (loss)
    
    
    745,537
    
    
    
    (641,905
    )
    
    
    1,387,442
    
    
    
    216Other income (expense), net
    
    
    68,815
    
    
    
    10,417
    
    
    
    842,148
    
    
    
    8,084Net Income (loss) before income taxes
    
    $
    814,352
    
    
    $
    (631,488
    )
    
    
    2,229,590
    
    
    
    353
 Revenues  ICC.NET 
 Cost
of services  ICC.NET
 Product development and enhancement  ICC.NET
 Selling and marketing  ICC.NET
 15




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##### Table of Contents



General and administrative ICC.NET
 Non-cash charges  ICC.NET
 Results of Operations  EC Service Bureau
  Six Months EndedJanuary 31,
 
    
    
    Variance2006
    
    
    2005
        
    
    
$
        
    
    
%Revenues:Services
    
    $
    3,875,441
    
    
    $
    1,673,027
    
    
    
    2,202,414
    
    
    
    132Expenses:Cost of services
    
    
    1,809,833
    
    
    
    502,217
    
    
    
    1,307,616
    
    
    
    260Product development and enhancement
    
    
    130,622
    
    
    
    170,256
    
    
    
    (39,634
    )
    
    
    (23
    )Selling and marketing
    
    
    395,675
    
    
    
    298,307
    
    
    
    97,368
    
    
    
    33General and administrative
    
    
    1,128,912
    
    
    
    760,793
    
    
    
    368,119
    
    
    
    48Non-cash charges for stock-based compensation
    
    
    18,806
    
    
    
    
    
    
    
    18,806
    
    
    
    Total expenses
    
    
    3,483,848
    
    
    
    1,731,573
    
    
    
    1,752,275
    
    
    
    101Operating income (loss)
    
    
    391,593
    
    
    
    (58,546
    )
    
    
    450,139
    
    
    
    769Other income (expense), net
    
    
    (94,324
    )
    
    
    
    
    
    
    (94,324
    )
    
    
    Net Income (loss) before income taxes
    
    $
    297,269
    
    
    $
    (58,546
    )
    
    
    355,815
    
    
    
    608
 Revenue  EC Service Bureau
 Cost of services  EC Service Bureau
 16




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##### Table of Contents



Product development and enhancement  EC Service Bureau
 Selling and marketing  EC Service Bureau
 General and administrative  EC Service Bureau
 Non-cash charges  EC Service Bureau
 Liquidity and Capital Resources
     17




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##### Table of Contents



Consolidated Working Capital
  Analysis of Cash Flows
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  18




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##### Table of Contents



Item 4. Controls and Procedures
  19




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 See Item 3. Defaults Upon Senior Securities
 
 Item 1A. Risk Factors
 If we are not successful in selling our products and services, particularly from our EC Service
Bureau segment, our results of operations will suffer.
 Risks Relating to Our Company
 We have only recently begun to realize a profit, and may incur losses again.
 We must continue to grow our business in order to remain competitive.
 If we are not successful in selling our products and services, particularly from our EC
Service Bureau segment, our results of operations will suffer
 20




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##### Table of Contents



We may not be successful in competing against our competitors.
 If we are unable to maintain or replace our existing interconnect arrangements, our results of
operations would suffer.
 We must continue to develop new products and services.
 We may need to obtain additional financing on satisfactory terms to continue to compete
successfully.
 21




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##### Table of Contents



We rely on third parties to provide our services, and any failure of such third parties could
adversely affect our business.
 We may suffer systems failures and business interruptions that would harm our business.
 If we are unable to manage our growth or successfully integrate acquisitions, our financial
results will suffer.
 If we lose our net operating loss carryforward, our financial results will suffer.
 If we cannot successfully expand our business outside of the United States, our revenues and
operating results will be adversely affected.
 If we cannot hire and retain highly qualified employees, our business and financial results
will suffer.
 22




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##### Table of Contents



We depend on our intellectual property, which may be difficult and costly to protect.
 Intellectual property infringement claims against us could harm our business.
 We must comply in the future with new and costly reporting requirements.
 Risks Relating to the Internet and Online Commerce Aspects of Our Business
 If Internet usage does not continue to grow or if its infrastructure fails, our business will
suffer.
 Privacy concerns may prevent customers from using our services.
 Government regulation and legal uncertainties relating to the Internet could harm our
business.
 23




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##### Table of Contents



Risks Relating to our Class A Common Stock
 The market price of our common stock is likely to be highly volatile.
 Shares eligible for future sale by our existing stockholders may adversely affect our stock
price.
 There is not a significant demand for our common stock, which may make it difficult to sell.
 Our Board of Directors can issue preferred stock with rights adverse to the holders of Class A
Common Stock.
 We may have to use significant resources indemnifying our officers and directors or paying for
damages caused by their conduct.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  24




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##### Table of Contents



See Item 1. Legal Proceedings.
 
 Item 4. Submission of Matters to a Vote of Security Holders
   Name
    
    Votes For
    
    
    Votes WithheldPaul D. Lapides
    
    
    15,347,013
    
    
    
    275,268Richard J. Berman
    
    
    15,191,591
    
    
    
    430,690Arthur R. Medici
    
    
    15,330,358
    
    
    
    291,923
      
 Item 5. Other Information
  25




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##### Table of Contents



Item 6. Exhibits
 2.1
    
    Share Purchase Agreement, by and among Internet Commerce Corporation,
Connective Commerce Associates, the shareholders of the Seller listed on the signature
page as Operating Shareholders and The Kodiak Group, Inc. (incorporated by reference to
the Companys Current Report on Form 8-K as filed with the Securities and Exchange
Commission on November 3, 2005 (File No. 000-24996))10.1
    
    Internet Commerce Corporation 2005 Stock Incentive Plan (incorporated by
reference to Annex B of the Companys Definitive Proxy Statement on Schedule 14A filed
with the Securities and Exchange Commission on November 28, 2005 (File No. 000-24996)).10.2
    
    Form of Stock Option Agreement under the Internet Commerce Corporation 2005
Stock Incentive Plan (incorporated by reference to the Companys Current Report on Form
8-K as filed with the Securities and Exchange Commission on January 10, 2006 (File No.
000-24996)).10.3
    
    Form of Restricted Stock Agreement under the Internet Commerce Corporation 2005
Stock Incentive Plan (incorporated by reference to the Companys Current Report on Form
8-K as filed with the Securities and Exchange Commission on January 10, 2006 (File No.
000-24996)).31.1
    
    Certificate of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    
    In accordance with Release No. 34-47986, this Exhibit is hereby
furnished to the SEC as an accompanying document and is not deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise
subject to the liabilities of that Section, nor shall it be deemed incorporated
by reference into any filing under the Securities Act of 1933.
 26




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##### Table of Contents



SIGNATURES
   INTERNET COMMERCE CORPORATIONBy:
    /s/ Thomas J. StallingsThomas J. StallingsChief Executive OfficerBy:
    /s/ Glen E.  ShipleyGlen E. ShipleyChief Financial Officer 27




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    DocumentExhibit 31.1
    
    Certificate of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
    
    Certificate of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
 
 *
    
    In accordance with Release No. 34-47986, this Exhibit is hereby furnished to the SEC as an
accompanying document and is not deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be
deemed incorporated by reference into any filing under the Securities Act of 1933. 28