**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,DC  20549**

**FORM 10-Q**

**[Mark One]**
| **x**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
|------------|------------|--------------------------------------------------------------|
| ** ** | ** ** | **SECURITIES  EXCHANGE ACT OF 1934**                         |

 

** **

**For the quarterly period endedJanuary 31, 2007**

** **

**OR**

 
|            |       | ** **                                                    |
|------------|------------|---------------------------------------------------------------|
| o          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| ** ** |       | **SECURITIES  EXCHANGE ACT OF 1934**                          |

 

**For the transition period from             to             **

**CommissionFile Number:  000-24996**

**INTERNET COMMERCE CORPORATION**

(Exact Name ofRegistrant as Specified in Its Charter)

| **Delaware**                                                    |   | **13-3645702**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **6025  The Corners Parkway, Suite 100**                        |   |                                  |
| **Norcross,  Georgia**                                          |   | **30092**                             |
| (Address of  Principal Executive Offices)                       |   | (Zip Code)                            |

 

Registrant’sTelephone Number, Including Area Code:**  (678) 533-8000**

Indicate by check mark whether the Registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

Large accelerated filer o                    Accelerated Filer  o                            Non-acceleratedfiler  x

Indicate by check mark whether the Registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

As of March 13, 2007, the Registrant had outstanding22,737,653 shares of class A common stock.

 

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**INDEX TO FORM 10-Q**
|                    | ** ** | ** **                                                                                                                                         | ** ** | **PAGE** |
|--------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| **PART I.**        |       | **FINANCIAL INFORMATION**                                                                                                                          |       |     |
| ** **         |       | ** **                                                                                                                                         |       |     |
| Item 1.            |       | Financial Statements                                                                                                                               |       |     |
|               |       |                                                                                                                                               |       |     |
|               |       | Condensed  Consolidated Balance Sheets as of January 31, 2007 (unaudited) and July 31,  2006                                                       |       | 3        |
|               |       |                                                                                                                                               |       |     |
|               |       | Condensed  Consolidated Statements of Operations for the three and six months ended  January 31, 2007 (unaudited) and January 31, 2006 (unaudited) |       | 4        |
|               |       |                                                                                                                                               |       |     |
|               |       | Condensed  Consolidated Statements of Cash Flows for the six months ended January 31,  2007 (unaudited) and January 31, 2006 (unaudited)           |       | 5        |
|               |       |                                                                                                                                               |       |     |
|               |       | Notes to  Condensed Consolidated Financial Statements (unaudited)                                                                                  |       | 6        |
|               |       |                                                                                                                                               |       |     |
| Item 2.            |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                        |       | 11       |
|               |       |                                                                                                                                               |       |     |
| 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 2.            |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                       |       | 26       |
|               |       |                                                                                                                                               |       |     |
| Item 3.            |       | Defaults Upon  Senior Securities                                                                                                                   |       | 26       |
|               |       |                                                                                                                                               |       |     |
| Item 4.            |       | Submission of  Matters to a Vote of Security Holders                                                                                               |       | 26       |
|               |       |                                                                                                                                               |       |     |
| Item  5.           |       | Other  Information                                                                                                                                 |       | 26       |
|               |       |                                                                                                                                               |       |     |
| Item  6.           |       | Exhibits                                                                                                                                           |       | 27       |
|               |       |                                                                                                                                               |       |     |
| **SIGNATURES**     |       | 28                                                                                                                                                 |
| ** **         |       |                                                                                                                                               |
| **EXHIBIT  INDEX** |       | 29                                                                                                                                                 |
| ** **         |       |                                                                                                                                               |
| **CERTIFICATIONS** |       |                                                                                                                                               |

 

2

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**PARTI.  FINANCIAL INFORMATION**

**Item1.  Financial Statements**

**CondensedConsolidated Balance Sheets**
| ** **                                                                                                                                                                                                                         | ** ** | **January 31,** | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                                         | ** ** | **2007**             | ** ** | **2006**          | ** ** |
| ** **                                                                                                                                                                                                                         | ** ** | **(unaudited)**      | ** ** | ** **        | ** ** |
| **ASSETS**                                                                                                                                                                                                                         | ** ** | ** **           | ** ** | ** **        | ** ** |
| Current  assets:                                                                                                                                                                                                                   | ** ** | ** **           | ** ** | ** **        | ** ** |
| Cash and cash equivalents                                                                                                                                                                                                          | ** ** | $                    | 6,094,972  |              | $          | 6,988,753 | ** ** |
| Accounts receivable, net of allowance for doubtful accounts and allowance  for sales returns and allowances of $518,314 and $458,061, respectively                                                                                 | ** ** | 3,878,283            | ** ** | 3,631,135         | ** ** |
| Prepaid expenses and other current assets                                                                                                                                                                                          |       | 630,985              |       | 461,778           |       |
| Total current assets                                                                                                                                                                                                               |       | 10,604,240           |       | 11,081,666        |       |
| ** **                                                                                                                                                                                                                         | ** ** | ** **           | ** ** | ** **        | ** ** |
| Restricted  cash                                                                                                                                                                                                                   |       | 433,322              |       | 432,974           |       |
| Property  and equipment, net                                                                                                                                                                                                       |       | 1,141,729            |       | 1,113,701         |       |
| Goodwill                                                                                                                                                                                                                           |       | 6,168,883            |       | 6,148,332         |       |
| Other  intangible assets, net                                                                                                                                                                                                      |       | 4,375,732            |       | 4,829,772         |       |
| Other  assets                                                                                                                                                                                                                      |       | 40,554               |       | 37,822            |       |
| Total assets                                                                                                                                                                                                                       | ** ** | $                    | 22,764,460 |              | $          | 23,644,267 | ** ** |
|                                                                                                                                                                                                                               |       |                 |       |              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                     |       |                 |       |              |       |
| Current  liabilities:                                                                                                                                                                                                              |       |                 |       |              |       |
| Accounts payable                                                                                                                                                                                                                   | ** ** | $                    | 500,473    |              | $          | 662,151 | ** ** |
| Accrued expenses                                                                                                                                                                                                                   |       | 756,945              |       | 574,783           |       |
| Accrued dividends – preferred stock                                                                                                                                                                                           |       | 16,986               |       | 232,329           |       |
| Deferred revenue                                                                                                                                                                                                                   |       | 239,061              |       | 261,214           |       |
| Lease liability from acquisition                                                                                                                                                                                                   |       | 304,759              |       | 249,940           |       |
| Other current liabilities                                                                                                                                                                                                          |       | 138,634              |       | 116,280           |       |
| Total current liabilities                                                                                                                                                                                                          |       | 1,956,858            |       | 2,096,697         |       |
|                                                                                                                                                                                                                               |       |                 |       |              |       |
| Long-term  lease liability from acquisition                                                                                                                                                                                        |       | 841,843              |       | 967,442           |       |
| Total liabilities                                                                                                                                                                                                                  |       | 2,798,701            |       | 3,064,139         |       |
|                                                                                                                                                                                                                               |       |                 |       |              |       |
| Stockholders’  equity:                                                                                                                                                                                                        |       |                 |       |              |       |
| Preferred  stock – 5,000,000 shares authorized, 5,000 and 10,000 shares of series C,  respectively, and 250 shares of series D:                                                                                               |       |                 |       |              |       |
| Series C – par value $.01 per share, 44.76 votes per share; 5,000 shares  issued and outstanding (liquidation value of $5,016,986) and 10,000 shares  issued and outstanding (liquidation value of $10,333,151), respectively |       | 50                   |       | 100               |       |
| Series D – par value $.01 per share, 769 votes per share; 250 shares  issued and outstanding (liquidation value of $250,000)                                                                                                  |       | 3                    |       | 3                 |       |
| Common stock:                                                                                                                                                                                                                      |       |                 |       |              |       |
| Class A - par value $.01 per share, 40,000,000 shares authorized, one  vote per share; 22,702,653 and 22,712,944 shares issued and outstanding,  respectively                                                                      |       | 227,027              |       | 227,129           |       |
|                                                                                                                                                                                                                               |
| Class B - par value $.01 per share, 2,000,000 shares authorized, six  votes per share; none issued and outstanding                                                                                                                 |       | —               |       | —            |       |
| Additional  paid-in capital                                                                                                                                                                                                        |       | 101,150,524          |       | 103,042,746       |       |
| Accumulated  deficit                                                                                                                                                                                                               |       | (81,411,845          | )          | (82,689,850       | )          |
| Total stockholders’ equity                                                                                                                                                                                                    |       | 19,965,759           |       | 20,580,128        |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                                    | ** ** | $                    | 22,764,460 |              | $          | 23,644,267 | ** ** |

 

**See notesto condensed consolidated financial statements.**

3

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**CondensedConsolidated Statements of Operations (Unaudited)**
| ** **                                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **January 31,**             | ** ** | **January 31,**           | ** ** |
| ** **                                                          | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Service revenues                                                    | ** ** | $                                | 5,302,468  |                           | $          | 5,012,240 |   | $ | 11,110,196 |   | $ | 10,030,073 | ** ** |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Expenses:                                                           |       |                             |       |                           |       |   |   |   |   |
| Cost of services                                                    |       | 1,969,683                        |       | 1,750,182                      |       | 3,828,975 |   | 3,655,579 |   |
| Product development and enhancement                                 |       | 585,697                          |       | 206,928                        |       | 1,302,341 |   | 309,911 |   |
| Selling and marketing                                               |       | 369,359                          |       | 577,301                        |       | 889,316 |   | 992,658 |   |
| General and administrative                                          |       | 1,720,310                        |       | 2,080,540                      |       | 3,829,126 |   | 3,934,795 |   |
|                                                                |       | 4,645,049                        |       | 4,614,951                      |       | 9,849,758 |   | 8,892,943 |   |
| Operating income                                                    |       | 657,419                          |       | 397,289                        |       | 1,260,438 |   | 1,137,130 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Other income  (expense):                                            |       |                             |       |                           |       |   |   |   |   |
| Interest and investment income                                      |       | 81,293                           |       | 34,563                         |       | 163,686 |   | 60,233 |   |
| Interest expense                                                    |       | (19,687                          | )          | (77,507                        | )          | (40,274 | ) | (113,293 | ) |
| Other income (expense)                                              |       | 1,044                            |       | 10,465                         |       | (21,576 | ) | 27,551 |   |
| ** **                                                          |       | 62,650                           |       | (32,479                        | )          | 101,836 |   | (25,509 | ) |
| Income before  income taxes                                         |       | 720,069                          |       | 364,810                        |       | 1,362,274 |   | 1,111,621 |   |
| ** **                                                          | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Provision  (benefit) for income taxes, current                      |       | 16,663                           |       | (7,093                         | )          | 84,270 |   | 17,172 |   |
| ** **                                                          | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                          |       | 703,406                          |       | 371,903                        |       | 1,278,004 |   | 1,094,449 |   |
| ** **                                                          | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividends on  preferred stock                                       |       | (83,836                          | )          | (101,822                       | )          | (184,658 | ) | (201,644 | ) |
| Extinguishment  of dividends on retired preferred stock             |       | 200,000                          |       | —                         |       | 200,000 |   | — |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Income  attributable to common stockholders                         | ** ** | $                                | 819,570    |                           | $          | 270,081 |   | $ | 1,293,346 |   | $ | 892,805 | ** ** |
| ** **                                                          | ** ** |                             |       |                           |       |   |   |   | ** ** |
| Basic income per  common share                                      | ** ** | $                                | 0.04       |                           | $          | 0.01 |   | $ | 0.06 |   | $ | 0.05 | ** ** |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Diluted income  per common share                                    | ** ** | $                                | 0.03       |                           | $          | 0.01 |   | $ | 0.05 |   | $ | 0.05 | ** ** |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Anti-dilutive  stock options and warrants outstanding               |       | 1,710,399                        |       | 1,652,695                      |       | 1,710,399 |   | 2,527,457 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Weighted average  number of common shares outstanding – basic  |       | 22,740,594                       |       | 19,462,025                     |       | 22,728,530 |   | 19,560,428 |   |
|                                                                |       |                             |       |                           |       |   |   |   |   |
| Weighted average number  of common shares outstanding –diluted |       | 24,963,417                       |       | 22,124,182                     |       | 25,066,145 |   | 21,865,940 |   |

**Seenotes to condensed consolidated financial statements.**

4

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**CondensedConsolidated Statements of Cash Flows (Unaudited)**
| ** **                                                                                | ** ** | **Six Months Ended January 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **Cash flows from operating activities:**                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Net income                                                                                | ** ** | **$**                                                | 1,278,004  |   | $ | 1,094,449 |   |
| Adjustments to reconcile net income to net cash provided by  operating activities:        |       |                                                 |       |   |   |
| Depreciation and amortization                                                             |       | 993,142                                              |       | 614,745 |   |
| Bad debt expense                                                                          |       | 156,535                                              |       | 333,611 |   |
| Non-cash interest expense                                                                 |       | 40,274                                               |       | 113,871 |   |
| Non-cash charges for equity  instruments issued for compensation and services             |       | 493,999                                              |       | 474,685 |   |
| Changes in assets and  liabilities, net of effects from acquisitions:                     |       |                                                 |       |   |   |
| Accounts receivable                                                                       |       | (362,767                                             | )          | (123,068 | ) |
| Prepaid expenses and other  assets                                                        |       | (165,933                                             | )          | (119,882 | ) |
| Accounts payable                                                                          |       | (161,678                                             | )          | 275,551 |   |
| Accrued expenses                                                                          |       | 167,161                                              |       | (900,881 | ) |
| Deferred revenue                                                                          |       | (22,153                                              | )          | (26,927 | ) |
| Other liabilities                                                                         |       | (88,700                                              | )          | (703,294 | ) |
|                                                                                      |       |                                                 |       |   |   |
| Net cash provided by operating  activities                                                |       | 2,327,885                                            |       | 1,032,860 |   |
|                                                                                      |       |                                                 |       |   |   |
| **Cash flows from investing activities:**                                                 |       |                                                 |       |   |   |
| Payment for purchase of  acquisitions, net of cash acquired                               |       | (300,000                                             | )          | (886,619 | ) |
| Additional costs of previous  acquisition                                                 |       | (20,551                                              | )          | (65,000 | ) |
| Purchases of property and  equipment                                                      |       | (296,084                                             | )          | (114,848 | ) |
|                                                                                      |       |                                                 |       |   |   |
| Net cash used in investing  activities                                                    |       | (616,635                                             | )          | (1,066,467 | ) |
|                                                                                      |       |                                                 |       |   |   |
| **Cash flows from financing activities:**                                                 |       |                                                 |       |   |   |
| Payments of capital lease  obligations                                                    |       | —                                               |       | (3,645 | ) |
| Payment to reacquire class A  common stock                                                |       | (613,587                                             | )          | — |   |
| Payment to reacquire series C  preferred stock                                            |       | (2,261,413                                           | )          | — |   |
| Proceeds from exercise of  warrants                                                       |       | 247,564                                              |       | — |   |
| Proceeds from exercise of  employee stock options                                         |       | 22,405                                               |       | 348,633 |   |
|                                                                                      |       |                                                 |       |   |   |
| Net cash provided by (used in)  financing activities                                      |       | (2,605,031                                           | )          | 344,988 |   |
|                                                                                      |       |                                                 |       |   |   |
| **Net  increase (decrease) in cash and cash equivalents**                                 |       | (893,781                                             | )          | 311,381 |   |
|                                                                                      |       |                                                 |       |   |   |
| Cash and cash equivalents, beginning of period                                            |       | 6,988,753                                            |       | 3,983,005 |   |
| ** **                                                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Cash  and cash equivalents, end of period**                                             | ** ** | **$**                                                | 6,094,972  |   | $ | 4,294,386 |   |
|                                                                                      |       |                                                 |       |   |   |
| **Supplemental  disclosure of cash flow information:**                                    | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Cash paid for interest during the period                                                  | ** ** | **$**                                                | **—** |   | $ | 201 |   |
| Cash paid for income taxes during the period                                              |       | 221,417                                              |       | 4,850 |   |
| ** **                                                                                | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| **Supplemental  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 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                                |       | 200,000                                              |       | 400,000 |   |

 

**See notes to condensed consolidated financial statements.**

5

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**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**The accompanying unauditedcondensed consolidated financial statements of Internet Commerce Corporation(the “Company” or “ICC”) have been prepared in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”) forinterim financial information.  In theopinion of management, such statements include all adjustments (consisting onlyof normal recurring adjustments) necessary for the fair presentation of theCompany’s financial position, results of operations and cash flows at the datesand for the periods indicated.  Pursuantto the requirements of the Securities and Exchange Commission (the “SEC”)applicable to Quarterly Reports on Form 10-Q, the accompanying financialstatements do not include all the disclosures required by GAAP for annualfinancial statements.  While the Companybelieves that the disclosures presented are adequate to make the informationnot misleading, these unaudited interim condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and related notes included in the Company’s Annual Report on Form10-K for the year ended July 31, 2006. Operating results for the six month period ended January 31, 2007 arenot necessarily indicative of the results that may be expected for the fiscalyear ending July 31, 2007 or any future period.**

**1.**                                      ORGANIZATIONAND NATURE OF BUSINESS

ICC creates, deploys andmanages the secure and reliable electronic exchange of essential businessdocuments. With the Company’s value added network (“VAN”), desktop software andhosted applications, managed services, consulting and professional services,ICC is a trusted provider of e-commerce solutions to connect businesses,regardless of size and level of technical sophistication, with their tradingcommunities. Thousands of customers, ranging from sole proprietorships to largecorporations, in a variety of industries rely on the value delivered from ICC’sbroad line of solutions, expertise and 24x7 customer service to help meet theunique requirements for trading partner compliance, coordination andcollaboration.

**2.**                                      RECENTACQUISITIONS

**STEWART TECHNICALSERVICES**

On January 31, 2007, theCompany completed the acquisition of certain assets of Stewart TechnicalServices, Inc. (“STS”) STS provides EDI services and software and will beincluded in our EC Solutions segment.  Inaccordance with the Asset Purchase Agreement (“Agreement”), the Company paid$300,000 upon close and has a contingent payment of up to an additional onetimes revenue for the first year’s revenue less the $300,000 payment made atclosing.  Additionally, if the first year’srevenues are less than $400,000, then no additional earn-out will be paid.   The Company received tangible assets ofapproximately $49,000, which included accounts receivable of $44,000 and fixedassets of $5,000, and intangible assets of approximately $266,000, which arecomprised of internally developed software of $166,000 and customerrelationships of $100,000.  Under theAgreement, the Company also recorded a liability of $15,000 for transitioncosts.  The fixed assets are estimated tohave a useful life of three years and customer relationships and internallydeveloped software are estimated to have useful lives of five and four years,respectively.

**ENABLE**

On May 9, 2006, theCompany acquired all of the outstanding shares of Enable Corp. (“Enable”), aprivately held corporation with offices in New York City that provides trading communityportals, web based EDI trading tools, and EDI professional services to avariety of industries.  Under the termsof the Share Purchase Agreement, the Company paid $4.2 million in cash andissued 686,324 shares of its class A common stock valued at approximately $2.6million.

The following table setsforth the components of the purchase price for Enable as of January 31, 2007.
| Cash on closing                       |   | $         | 4,203,000 |   |
|---------------------------------------|--------|-----------|-----------|--------|
| ICC class A  common stock issued      |   | 2,632,739 |      |
| Transaction  costs                    |   | 416,208   |      |
| Additional costs  since July 31, 2006 |   | 20,551    |      |
| Total purchase price                  |   | $         | 7,272,498 |   |

 

6

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The following tableprovides the estimated fair value of assets acquired and liabilities assumed inthe Enable acquisition:
| Cash                                             |   | $         | 991,747   |   |
|--------------------------------------------------|--------|-----------|-----------|--------|
| Accounts  receivable                             |   | 705,386   |      |
| Restricted cash                                  |   | 15,000    |      |
| Other assets                                     |   | 14,975    |      |
| Fixed assets                                     |   | 246,520   |      |
| Intangible  assets – acquired technology    |   | 1,775,000 |      |
| Intangible  assets – trade names            |   | 250,000   |      |
| Intangible  assets – customer relationships |   | 1,500,000 |      |
| Liabilities                                      |   | (510,778  | )         |
|                                             |   |      |      |
| Fair value of  net assets acquired               |   | $         | 4,987,850 |   |
|                                             |   |      |      |
| Goodwill                                         |   | $         | 2,284,648 |   |
|                                             |   |      |      |
| Total purchase  price                            |   | $         | 7,272,498 |   |

 

The recorded fixed andother assets are estimated to have a life of two to three years.  The acquired technology intangibles areestimated to have a life between one and four years, and the customerrelationship and trade names intangibles are estimated to have a life of sevenyears.  We recorded $2,285,000 ingoodwill resulting from the Enable acquisition.  Revenue from the Enable acquisition includeshosting and transaction fees, administrative fees and professional services,which are part of our EC Solutions segment. Goodwill and intangible assets aredeductible for tax purposes. The results of operations of Enable areconsolidated with the results of operations of the Company subsequent to theacquisition date. The acquisition of Enable was made to strengthen the Company’sweb based trading technology offering and customer base.

**3.**                                      **REPURCHASE OF PREFERRED STOCK**

On December14, 2006, two subsidiaries of 3V Capital LLC (3V Capital Fund Ltd. andDistressed/High Yield Trading Opportunities, Ltd. (collectively, the “3VEntities”)) acquired from Omega Liquidating Trust, the liquidating trust forthe bankrupt Cable & Wireless USA, 10,000 shares of the series C preferredstock and 381,111 shares of the class A common stock of Internet CommerceCorporation (“ICC” or the “Company”).  Thereafter, on December 20, 2006,ICC entered into a Stock Purchase Agreement with each of the 3V Entities,pursuant to which ICC reacquired a total of 5,000 shares of its series Cpreferred stock and 190,555 shares of its class A common stock for an aggregatepurchase price of $2,875,000.  Following this reacquisition of shares byICC, the 3V Entities together continue to own the remaining 5,000 shares of ICC’sseries C preferred stock and 190,556 shares of ICC’s class A commonstock.  The repurchased shares were subsequently retired during thequarter.

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**4.**                                      BUSINESSSEGMENT INFORMATION

The Company’s tworeportable segments are:

·                  ElectronicCommerce Solutions (“EC Solutions”) segment, which includes ICC.NET VANservices, browser-based and hosted applications, and desktop software; and

·                  ElectronicCommerce Services (“EC Services “) segment, which is comprised of the ECservice center, EC outsourcing, mapping and professional services.

The Companychanged its reportable segments as of August 1, 2006 to coincide withmanagement’s realignment of the business operations to follow our service andproduct lines. The EC Solutions segment was formed to consolidate the servicesand products offered with direct or indirect connections to our VAN. The ECServices segment was formed and consolidates all of our professional, managedand outsourcing services. Specifically, professional service revenue andmapping revenue were moved from the old ICC.NET segment to the EC Servicessegment. Hosted applications and desktop software were moved to the ECSolutions segment from the old EC Service Bureau segment. The browser-based andhosted applications acquired from Enable were also added to the EC Solutionssegment. In addition, the Company will no longer allocate 100% of its operatingexpenses to the reporting segments. Only those expenses that are directly relatedto the development and delivery of a reporting segment’s products and serviceswill be allocated. The Company has restated the previous period’s reportingsegments for comparability purposes between the periods.

The tables belowsummarize information about operations for the three and six month periodsended January 31, 2007 and 2006.
|                                           | ** ** | **EC Solutions** | ** ** | **EC Services** | ** ** | **Total**  | ** ** |
|-------------------------------------------|------------|-----------------------|------------|----------------------|------------|------------|------------|
| **Three  Months – January 31, 2007** | ** ** | ** **            | ** ** | ** **           | ** ** | ** ** | ** ** |
| Revenues from  external customers         |       | $                     | 3,880,022  |                 | $          | 1,422,446  |       | $ | 5,302,468 |   |
| Segment operating  income                 |       | $                     | 2,259,701  |                 | $          | 385,219    |       | $ | 2,644,920 |   |

 

The following is areconciliation of operating segment income to net income for the three monthperiod ending January 31, 2007:
| Segment operating income    |   | $          | 2,644,920 |   |
|-----------------------------|--------|------------|-----------|--------|
| Corporate expenses          |   | (1,987,501 | )         |
| Operating income            |   | 657,419    |      |
| Other income (expense), net |   | 62,650     |      |
| Income before income taxes  |   | 720,069    |      |
| Income tax expense          |   | 16,663     |      |
| **Net income**              |   | $          | 703,406   |   |

 

8

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|                                         | ** ** | **EC Solutions** | ** ** | **EC Services** | ** ** | **Total**  | ** ** |
|-----------------------------------------|------------|-----------------------|------------|----------------------|------------|------------|------------|
| **Six  Months – January 31, 2007** | ** ** | ** **            | ** ** | ** **           | ** ** | ** ** | ** ** |
| Revenues from  external customers       |       | $                     | 7,816,663  |                 | $          | 3,293,533  |       | $ | 11,110,196 |   |
| Segment operating  income               |       | $                     | 4,631,303  |                 | $          | 1,174,530  |       | $ | 5,805,833 |   |

 

The following is areconciliation of operating segment income to net income for the six monthperiod ending January 31, 2007:
| Segment operating income    |   | $          | 5,805,833 |   |
|-----------------------------|--------|------------|-----------|--------|
| Corporate expenses          |   | (4,545,395 | )         |
| Operating income            |   | 1,260,438  |      |
| Other income (expense), net |   | 101,836    |      |
| Income before income taxes  |   | 1,362,274  |      |
| Income tax expense          |   | 84,270     |      |
| **Net income**              |   | $          | 1,278,004 |   |

 
|                                           | ** ** | **EC Solutions** | ** ** | **EC Services** | ** ** | **Total**  | ** ** |
|-------------------------------------------|------------|-----------------------|------------|----------------------|------------|------------|------------|
| **Three  Months – January 31, 2006** | ** ** | ** **            | ** ** | ** **           | ** ** | ** ** | ** ** |
| Revenues from  external customers         |       | $                     | 3,156,784  |                 | $          | 1,855,456  |       | $ | 5,012,240 |   |
| Segment  operating income                 |       | $                     | 2,130,144  |                 | $          | 874,038    |       | $ | 3,004,182 |   |

 

The following is areconciliation of operating segments income to net income for the three monthperiod ending January 31, 2006:
| Segment operating income     |   | $          | 3,004,182 |   |
|------------------------------|--------|------------|-----------|--------|
| Corporate expenses           |   | (2,606,893 | )         |
| Operating income             |   | 397,289    |      |
| Other income (expense), net  |   | (32,479    | )         |
| Income before income taxes   |   | 364,810    |      |
| Income tax (benefit) expense |   | (7,093     | )         |
| **Net income**               |   | $          | 371,903   |   |

 
|                                         | ** ** | **EC Solutions** | ** ** | **EC Services** | ** ** | **Total**  | ** ** |
|-----------------------------------------|------------|-----------------------|------------|----------------------|------------|------------|------------|
| **Six Months  – January 31, 2006** | ** ** | ** **            | ** ** | ** **           | ** ** | ** ** | ** ** |
| Revenues from  external customers       |       | $                     | 6,370,747  |                 | $          | 3,659,326  |       | $ | 10,030,073 |   |
| Segment operating  income               |       | $                     | 4,261,777  |                 | $          | 1,703,328  |       | $ | 5,965,105 |   |

 

The following is areconciliation of operating segments income to net income for the six monthperiod ending January 31, 2006:
| Segment operating income    |   | $          | 5,965,105 |   |
|-----------------------------|--------|------------|-----------|--------|
| Corporate expenses          |   | (4,827,975 | )         |
| Operating income            |   | 1,137,130  |      |
| Other income (expense), net |   | (25,509    | )         |
| Income before income taxes  |   | 1,111,621  |      |
| Income tax expense          |   | 17,172     |      |
| **Net income**              |   | $          | 1,094,449 |   |

 

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**5.            ****RecentAccounting proNouncements**

InJuly 2006, the Financial Accounting Standards Board issued FASB InterpretationNo. 48, *Accounting for Uncertainty in Income Taxes,an interpretation of FASB Statement No. 109*  (“FIN 48”).FIN 48 clarifies the accounting for uncertainty in income taxes recognized inan enterprise’s financial statements in accordance with FASB StatementNo. 109, *Accounting for IncomeTaxes*.  FIN 48 describes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return and alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006 and will be effective forthe Company in fiscal 2008.  The Company is currently evaluating theimpact of this new accounting interpretation on its financial statements.

In September 2006, the FASB issued Statement ofFinancial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”.SFAS No. 157 clarifies the principle that fair value should be based on theassumptions market participants would use when pricing an asset or liabilityand establishes a fair value hierarchy that prioritizes the information used todevelop those assumptions. SFAS No. 157 requires fair value measurements to beseparately disclosed by level within the fair value hierarchy. SFAS No. 157 iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years. The Companyis currently evaluating the impact of adopting SFAS No. 157 on its financialstatements.

In September 2006,the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”)No. 108, “Considering the Effects of Prior Year Misstatements When QuantifyingMisstatements in Current Year Financial Statements”. SAB No. 108 provides interpretiveguidance on the consideration of the effects of prior year misstatements inquantifying current year misstatements for the purpose of assessingmateriality. SAB No. 108 is effective for fiscal years ending after November15, 2006. The Company is currently evaluating the impact of adopting SAB No.108 on its financial statements.

**6.             INCOME TAXES**

Aprovision for income taxes has been provided for the three and six months endedJanuary 31, 2007 and 2006 for estimated federal alternative minimum taxes andcertain state income taxes, as the Company has sufficient net operating losscarryforwards to offset regular taxable income. As of January 31, 2007, the Company continues to maintain a valuationallowance against the total net deferred tax balance.  The Company will continue to evaluate itsprospects going forward. If the Company’s operations continue at current levelsand future business projections indicate continued profitability, the Companywill review the valuation allowance and may reverse, in the near future, aportion of the deferred tax asset valuation reserve.

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**Item 2.  Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

This QuarterlyReport on Form 10-Q contains a number of “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”), and Section 21E of the Securities Exchange Actof 1934, as amended (the “Exchange Act”). Specifically, all statements other than statements of historical factsincluded in this Quarterly Report regarding our financial position, businessstrategy and plans and objectives of management for future operations areforward-looking statements.  Theseforward-looking statements are based on the beliefs of management, aswell as assumptions made by and information currently available tomanagement.  When used in this Report,the words “anticipate,” “believe,” “estimate,” “expect,” “may,” “will,” “hope,”“continue” and “intend,” and words or phrases of similar import, as they relateto our financial position, business strategy and plans, or objectives ofmanagement, are intended to identify forward-looking statements.  These statements reflect our current viewwith respect to future events and are subject to risks, uncertainties andassumptions related to various factors including, without limitation, thosefactors discussed in Item 1 (Business) of Part I and Item 7 (Management’sDiscussion and Analysis of Financial Condition and Results of Operations) ofPart II of our Annual Report on Form 10-K filed on October 30, 2006, Item 2 andItem 1A of Part II of our Quarterly Reports. You should carefully review thoserisks, as well as additional risks described in other documents we file fromtime to time with the Securities and Exchange Commission.

Although we believe thatour expectations are reasonable, we cannot assure you that our expectationswill prove to be correct.  Should any oneor more of these risks or uncertainties materialize, or should any underlyingassumptions prove incorrect, actual results may vary materially from thosedescribed in this Quarterly Report as anticipated, believed, estimated,expected or intended.

**Overview**

Internet Commerce Corporation creates, deploys andmanages the secure and reliable electronic exchange of essential businessdocuments. With our value added network (“VAN”), desktop software and hostedapplications, managed services, consulting and professional services, we are atrusted provider of e-commerce solutions to connect businesses, regardless oftheir size and level of technical sophistication, with their tradingcommunities. Thousands of customers, ranging from sole proprietorships to largecorporations, in a variety of industries rely on the value delivered from ICC’sbroad line of solutions, expertise and 24x7 customer service to help meet theunique requirements for trading partner compliance, coordination andcollaboration.

We pioneered the use ofthe Internet for electronic data interchange (“EDI”) business-to-business (B2B)solutions and continue to lead as new technologies and requirements emerge formore efficient business communication. Organizationally, our two segments ofbusiness are known as the:

·                       ECSolutions segment, which includes ICC.NET VAN services, browser-based andhosted applications, and desktop software; and

·                       EC Servicessegment, whose operations primarily focus on facilitating the EDIcommunications of small and mid-sized businesses with their trading partners.The EC Services segment includes the EC service center, EC outsourcing, mappingand professional services.

These segments complimentone another and give us the ability to provide solutions to many differentkinds of enterprises, from sole proprietorships to large corporations,operating in a variety of industries.

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**CriticalAccounting Policies and Estimates**

The discussion andanalysis of our financial condition and results of operations are based uponour condensed consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America.  The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amount of assets, liabilities, revenues and expenses.  We consider certain accounting policiesrelated to revenue recognition, valuation of acquired intangibles andimpairment of long-lived assets including goodwill, and valuation ofinvestments to be critical policies due to the estimation process involved ineach.  Management discusses its estimatesand judgments with the Audit Committee of our Board of Directors.

For a more detaileddescription on the application of these and other accounting policies, see Note2 of the Consolidated Financial Statements included in our Annual Report onForm 10-K for the fiscal year ended July 31, 2006.  Reference is also made to the discussion ofthe application of these critical accounting policies and estimates containedin Management’s Discussion and Analysis in our Annual Report on Form 10-K forfiscal 2006.  During the six months endedJanuary 31, 2007, there were no significant or material changes in theapplication of critical accounting policies that would require an update to theinformation provided in the Form 10-K for fiscal 2006.

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***Three Months Ended January 31, 2007 Compared with Three Months EndedJanuary 31, 2006.***

**Resultsof Operations – EC Solutions**

Our EC Solutionssegment uses the Internet and our proprietary technology to deliver ourcustomers’ documents and data files to members of their tradingcommunities.  The following tablesummarizes operating results for our EC Solutions services for the three monthsended January 31, 2007 and 2006:
|                                     | ** ** | **Three Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **January 31,**             | ** ** | **Variance** | ** ** |
| ** **                          | ** ** | **2007**                         | ** ** | **2006**     | ** ** | **$**      | ** ** | **%** | ** ** |
| Revenues:                           |       |                             |       |         |       |       |       |   |   |
| Services                            |       | $                                | 3,880,022  |         | $          | 3,156,784  |       | 723,238 |   | 23 |   |
|                                |       |                             |       |         |       |       |       |   |   |
| Expenses:                           |       |                             |       |         |       |       |       |   |   |
| Cost of services                    |       | 1,104,319                        |       | 830,655      |       | 273,664    |       | 33 |   |
| Product development and enhancement |       | 438,841                          |       | 148,458      |       | 290,383    |       | 196 |   |
| General and administrative          |       | 77,161                           |       | 47,527       |       | 29,634     |       | 62 |   |
| Total expenses                      |       | 1,620,321                        |       | 1,026,640    |       | 593,681    |       | 58 |   |
|                                |       |                             |       |         |       |       |       |   |   |
| Segment  operating income           |       | $                                | 2,259,701  |         | $          | 2,130,144  |       | 129,557 |   | 6 |   |

*Revenues –EC Solutions –* Revenue from EC Solutions segment was 73% ofconsolidated revenues for the quarter ended January 31, 2007 (“2007 Quarter”)compared to 63% for the quarter ended January 31, 2006 (“2006 Quarter”). ECSolutions revenues increased $723,000 for the 2007 Quarter compared to the 2006Quarter, principally from the browser-based and hosted services revenueacquired from Enable and an increase in VAN related transaction volume andmailbox fees.

*Cost ofservices* – *EC Solutions* –Cost of services relating to our EC Solutions segment was 28% of revenue fromthe EC Solution*s* services for the 2007 Quarter,compared to 26% for the 2006 Quarter. Total cost of services increased $274,000 for the 2007 Quarter comparedto the 2006 Quarter.  Cost of servicesconsists primarily of salaries and employee benefits, connectivity fees,amortization, allocation of product and development expenses and rent.  The increase was primarily related to theincreased allocation of product development of $145,000 and an increase inacquired technology and customer list amortization expense of $247,000, offsetby a reduction in the cost of our telephone and connectivity fees of $75,000.

*Productdevelopment and enhancement -**EC Solutions* - Productdevelopment and enhancement costs relating to our EC Solutions segment consistprimarily of salaries and employee benefits. Product development and enhancement costs increased $290,000 in the 2007Quarter compared with the 2006 Quarter. This increase is related to the additional staff, consulting and rentexpenses from the Enable operations.

*Generaland administrative* - *EC Solutions* - General andadministrative expenses supporting our EC Solutions segment consist primarilyof depreciation, telephone, and computer maintenance expenses.  General and administrative costs increased$30,000 in the 2007 Quarter compared to the 2006 Quarter.  The increase wasmainly due to computer maintenance expenses.

*OperatingIncome - EC Solutions* - Operating income from EC Solutionsincreased $129,557, or 6%, for the 2007 Quarter compared with the 2006 Quarter,due to the increased revenue from the Enable acquisition and VAN relatedtransaction volume and mailbox fees, offset principally by the additionalstaff, consulting and rent expenses from the Enable operations.   We expect our EC Solutions segment to remainprofitable as we continue to build our browser-based and hosted servicescustomer portfolio.

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**Resultsof Operations**–**EC Services**

Our EC Servicesoperations primarily focus on facilitating the EDI communications of small andmid-sized businesses with their trading partners through our EC Service center,E-Commerce outsourcing and professional services.   The following table summarizes operatingresults for our EC Services segment for the three months ended January 31, 2007and 2006:
|                                     | ** ** | **Three Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **January 31,**             | ** ** | **Variance** | ** ** |
| ** **                          | ** ** | **2007**                         | ** ** | **2006**     | ** ** | **$**      | ** ** | **%** | ** ** |
| Revenues:                           |       |                             |       |         |       |       |       |   |   |
| Services                            |       | $                                | 1,422,446  |         | $          | 1,855,456  |       | (433,010 | ) | (23 | ) |
|                                |       |                             |       |         |       |       |       |   |   |
| Expenses:                           |       |                             |       |         |       |       |       |   |   |
| Cost of services                    |       | 865,364                          |       | 919,527      |       | (54,163    | )          | (6 | ) |
| Product development and enhancement |       | 112,402                          |       | 58,470       |       | 53,932     |       | 92 |   |
| General and administrative          |       | 59,461                           |       | 3,421        |       | 56,040     |       | 1,638 |   |
| Total expenses                      |       | 1,037,227                        |       | 981,418      |       | 55,809     |       | 6 |   |
|                                |       |                             |       |         |       |       |       |   |   |
| Segment  operating income           |       | $                                | 385,219    |         | $          | 874,038    |       | (488,819 | ) | (56 | ) |

*Revenue*–*EC Services* – Revenue from our EC Services was 27% ofconsolidated revenues for the 2007 Quarter compared to 37% for the 2006Quarter.  Revenue decreased $433,000 forthe 2007 Quarter compared to the 2006 Quarter. Mainly due to customerattrition, revenues decreased at our EC service center approximately $256,000and our EC outsourcing services approximately $156,000.  We believe the attrition from the MEC andKodiak acquisitions has stabilized and we anticipate that our third and fourthquarter will depict more comparative quarter to quarter results.

*Costof services*–*EC Service**s* - Cost of services relating to our EC Services segment was61% of revenue in the 2007 Quarter, compared to 50% in the 2006 Quarter.  Cost of services decreased $54,000 for the2007 Quarter compared to the 2006 Quarter. Cost of services consists primarily of salaries and employee benefits,amortization, connectivity fees and rent. The decrease was mainly a result of lower salary and benefit expense atour EC service center offset by increased amortization expense. We do notanticipate any further significant reductions in salaries and benefits relatedto our EC Services segment as the increase in the 2006 Quarter was primarilyrelated to the higher levels of staff required to transition  the backlog of work from to the MEC acquisition.

*Productdevelopment and enhancement*–*EC Services* - Product development and enhancement costs consistprimarily of salaries and employee benefits. Product development and enhancement costs incurred by our EC Servicessegment increased $54,000 in the 2007 Quarter compared to the 2006Quarter.  The increase was primarily theresult of increased salary and benefits expense of approximately $100,000,offset by a higher allocation of product development to other departments of$47,000.

*Generaland administrative* –*EC Services* -General and administrative expenses relating to our EC Services segment consistprimarily of office expenses, depreciation, computer maintenance expense,telephone and rent.  General andadministrative expenses incurred by our EC Services segment increased $56,000in the 2007 Quarter compared to the 2006 Quarter.  The increase was mainly related to higherdepreciation and computer maintenance expenses related to recentinvestments in capital expenditures.

*OperatingIncome - EC Services* - Operating income from EC Servicesdecreased $488,819, or 56%, for the 2007 Quarter compared with the 2006Quarter, due primarily to the decreased revenue in the segment.  We anticipate that future periods will be morecomparable due to the stabilization of the customer attrition from the MEC andKodiak acquisitions.

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**CorporateExpenses**

Our Corporateexpenses represent the general, administrative, corporate and executiveexpenses not directly related to our EC Solutions or EC Services segments.  The following table summarizes operatingexpenses for our corporate expenses for the three months ended January 31, 2007and 2006:
|                                     | ** ** | **Three Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **January 31,**             | ** ** | **Variance** | ** ** |
| ** **                          | ** ** | **2007**                         | ** ** | **2006**     | ** ** | **$**      | ** ** | **%** | ** ** |
| Expenses:                           |       |                             |       |         |       |       |       |   |   |
| Product development and enhancement |       | $                                | 34,454     |         | $          | —     |       | 34,454 |   | — |   |
| Selling and marketing               |       | 369,359                          |       | 577,301      |       | (207,942   | )          | (36 | ) |
| General and administrative          |       | 1,583,688                        |       | 2,029,592    |       | (445,904   | )          | (22 | ) |
| Total expenses                      |       | $                                | 1,987,501  |         | $          | 2,606,893  |       | (619,392 | ) | 24 |   |

 

*Productdevelopment and enhancement*–*Corporate* – Product development and enhancement costs included inour Corporate expenses consist primarily of salaries and employeebenefits.  Product development andenhancement costs increased $34,000 in the 2007 Quarter compared to the 2006Quarter. The increase is primarily a result of unallocable salary and benefitcosts not directly related to the EC Solutions or EC Services segments.

*Sellingand marketing* –*Corporate* -Selling and marketing costs included in our Corporate expenses consistprimarily of salaries and employee benefits and amortization.  Selling and marketing expenses decreased$208,000 in the 2007 Quarter compared to the 2006 Quarter primarily due to thelower salary, benefits and commission expense of approximately $110,000 and thereclassification of ECS, MEC and Kodiak customer list amortization of $68,000to cost of sales in the EC Services segment.

*Generaland administrative* –*Corporate* –General and administrative costs included in our Corporate expenses consist primarilyof salaries and employee benefits, office expenses, legal and accountingexpenses, depreciation, computer maintenance expenses, telephone and rent.  General and administrative expenses decreased$446,000 in the 2007 Quarter compared to the 2006 Quarter.  The decrease is primarily related to thereduction of office rent of $163,000 due to the closing of our Cary, NorthCarolina and Charlottesville, Virginia offices, a reduction of bad debt expenseof $131,000 due to stronger collection activity and a reduction of $113,000 inoption related non-cash compensation.

***Six Months Ended January 31, 2007 Compared with Six Months EndedJanuary 31, 2006.***

**Resultsof Operations**–**EC Solutions**

Our EC Solutionssegment uses the Internet and our proprietary technology to deliver ourcustomers’ documents and data files to members of their tradingcommunities.  The following tablesummarizes operating results for our EC Solutions services for the six monthsended January 31, 2007 and 2006:
|                                     | ** ** | **Six Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **January 31,**           | ** ** | **Variance** | ** ** |
| ** **                          | ** ** | **2007**                       | ** ** | **2006**     | ** ** | **$**      | ** ** | **%** | ** ** |
| Revenues:                           |       |                           |       |         |       |       |       |   |   |
| Services                            |       | $                              | 7,816,663  |         | $          | 6,370,747  |       | 1,445,916 |   | 23 |   |
|                                |       |                           |       |         |       |       |       |   |   |
| Expenses:                           |       |                           |       |         |       |       |       |   |   |
| Cost of services                    |       | 2,055,951                      |       | 1,838,214    |       | 217,737    |       | 12 |   |
| Product development and enhancement |       | 990,738                        |       | 179,288      |       | 811,450    |       | 453 |   |
| General and administrative          |       | 138,671                        |       | 91,468       |       | 47,203     |       | 52 |   |
| Total expenses                      |       | 3,185,360                      |       | 2,108,970    |       | 1,076,390  |       | 51 |   |
|                                |       |                           |       |         |       |       |       |   |   |
| Segment  operating income           |       | $                              | 4,631,303  |         | $          | 4,261,777  |       | 369,526 |   | 9 |   |

*Revenues*–*EC Solutions*– Revenue from EC Solutions segment was 70% ofconsolidated revenues for the six months ended January 31, 2007 (“2007 SixMonths”) compared to 64% for the six months ended January 31, 2006 (“2006 SixMonths”). EC Solutions revenues increased $1,446,000 for the 2007 Six Monthscompared to the

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2006 Six Months,principally from the browser-based and hosted services revenue acquired fromEnable and an increase in VAN transaction volume.

Cost of services –*EC Solutions* – Cost of services relatingto our EC Solutions segment was 26% of revenue from the EC Solutions servicesfor the 2007 Six Months, compared to 29% for the 2006 Six Months.  Total cost of services increased $218,000 forthe 2007 Six Months compared to the 2006 Six Months.  Cost of services consists primarily ofsalaries and employee benefits, connectivity fees, amortization, allocation ofproduct and development expenses and rent. The increase was primarily the result of approximately a $250,000 netincrease in acquired technology and customer list amortization expense relatedto the Enable acquisition and a $121,000 increase in product developmentexpense allocation offset by a $154,000 reduction in telephone and connectivityfees.

*Productdevelopment and enhancement -**EC Solutions* - Productdevelopment and enhancement costs relating to our EC Solutions segment consistprimarily of salaries and employee benefits. Product development and enhancement costs increased $811,000 in the 2007Six Months compared with the 2006 Six Months. This increase is related to the additional staff, consulting and rentexpenses from the Enable operations.

*Generaland administrative* - *EC Solutions* - General andadministrative expenses supporting our *EC Solutions*segment consist primarily of depreciation, telephone, and computer maintenanceexpenses.  General and administrativecosts increased $47,000 in the 2007 Six Months compared to the 2006 SixMonths.  The increase was mainly due to higher computer maintenanceexpenses.

*OperatingIncome - EC Solutions* - Operating income from EC Solutionsincreased $369,526, or 9%, for the 2007 Six Months compared with the 2006 SixMonths, due to the increased revenue from the Enable acquisition and VANrelated transaction volume, offset principally by the additional staff,consulting and rent expenses from the Enable operations.  We expect our EC Solutions segment to remainprofitable as we continue to build our browser-based and hosted servicescustomer portfolio.

**Resultsof Operations**–**EC Services**

Our EC Servicesoperations primarily focus on facilitating the EDI communications of small andmid-sized businesses with their trading partners through our EC service center,E-Commerce outsourcing and professional services.   The following table summarizes operatingresults for our EC Services segment for the six months ended January 31, 2007and 2006:
|                                     | ** ** | **Six Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **January 31,**           | ** ** | **Variance** | ** ** |
| ** **                          | ** ** | **2007**                       | ** ** | **2006**     | ** ** | **$**      | ** ** | **%** | ** ** |
| Revenues:                           |       |                           |       |         |       |       |       |   |   |
| Services                            |       | $                              | 3,293,533  |         | $          | 3,659,326  |       | (365,793 | ) | (10 | ) |
|                                |       |                           |       |         |       |       |       |   |   |
| Expenses:                           |       |                           |       |         |       |       |       |   |   |
| Cost of services                    |       | 1,773,024                      |       | 1,817,365    |       | (44,341    | )          | 2 |   |
| Product development and enhancement |       | 231,672                        |       | 130,623      |       | 101,049    |       | 77 |   |
| General and administrative          |       | 114,307                        |       | 8,010        |       | 106,297    |       | 1,327 |   |
| Total expenses                      |       | 2,119,003                      |       | 1,955,998    |       | 163,005    |       | 8 |   |
|                                |       |                           |       |         |       |       |       |   |   |
| Segment operating  income           |       | $                              | 1,174,530  |         | $          | 1,703,328  |       | (528,798 | ) | (31 | ) |

*Revenue*–*EC Services* – Revenue from our EC Services was 30% ofconsolidated revenues for the 2007 Six Months compared to 36% for the 2006 SixMonths.  The revenue decreased $366,000for the 2007 Six Months compared to the 2006 Six Months. The decrease was aprimarily a result of reduced revenue from our EC service center ofapproximately $756,000 due to year over year customer attrition, offset byincreased revenue of $202,000 from our EC outsourcing and $191,000 fromprofessional services. We believe the customer attrition from the MEC andKodiak acquisitions has stabilized and we anticipate that our third and fourthquarter will depict more comparative quarter to quarter results.

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*Costof services*–*EC Service**s* - Cost of services relating to our EC Services segment was54% of revenue in the 2007 Six Months, compared to 50% in the 2006 SixMonths.  Cost of services decreased$44,000 for the 2007 Quarter compared to the 2006 Quarter.  Cost of services consists primarily ofsalaries and employee benefits, amortization, connectivity fees and rent. Thedecrease was mainly a result of lower salary and benefit expense at our ECservice center offset by increased amortization expense.

*Productdevelopment and enhancement*–*EC Services* - Product development and enhancement costs consistprimarily of salaries and employee benefits. Product development and enhancement costs incurred by our EC Servicessegment increased $101,000 in the 2007 Six Months compared to the 2006 SixMonths. The increase was primarily the result of increased salary and benefitsexpense of approximately $189,000, offset by a higher allocation of productdevelopment to other departments of $88,000.

*Generaland administrative* –*EC Services* -General and administrative expenses relating to our EC Services segment consistprimarily of office expenses, depreciation, computer maintenance expense,telephone and rent.  General andadministrative expenses incurred by our EC Services segment increased $106,000in the 2007 Six Months compared to the 2006 Six Months.  The increase was mainly relatedto higher depreciation and computer maintenance expenses related torecent investments in capital expenditures.

*OperatingIncome - EC Services* - Operating income from EC Servicesdecreased $528,798, or 31%, for the 2007 Six Months compared with the 2006 SixMonths, due primarily to the decreased revenue in the segment.  We anticipate that future periods will bemore comparable due to the stabilization of the customer attrition from our MECand Kodiak acquisitions.

**CorporateExpenses**

Our Corporateexpenses represent the general, administrative, corporate and executiveexpenses not directly related to our EC Solutions or EC Services segments.  The following table summarizes operatingexpenses for our corporate expenses for the six months ended January 31, 2007and 2006:
|                                     | ** ** | **Six Months Ended** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-------------------------------------|------------|--------------------------------|------------|--------------|------------|------------|------------|
| ** **                          | ** ** | **January 31,**           | ** ** | **Variance** | ** ** |
| ** **                          | ** ** | **2007**                       | ** ** | **2006**     | ** ** | **$**      | ** ** | **%** | ** ** |
| Expenses:                           |       |                           |       |         |       |       |       |   |   |
| Product development and enhancement |       | $                              | 79,931     |         | $          | —     |       | 79,931 |   | — |   |
| Selling and marketing               |       | 889,316                        |       | 992,658      |       | (103,342   | )          | 10 |   |
| General and administrative          |       | 3,576,148                      |       | 3,835,317    |       | (259,169   | )          | (7 | ) |
| Total expenses                      |       | $                              | 4,545,395  |         | $          | 4,827,975  |       | (282,580 | ) | (7 | ) |

 

*Productdevelopment and enhancement*–*Corporate* – Product development and enhancement costs included inour Corporate expenses consist primarily of salaries and employeebenefits.  Product development andenhancement costs increased $80,000 in the 2007 Six Months compared to the 2006Six Months. The increase is primarily a result of unallocable salary andbenefit costs not directly related to the EC Solutions or EC Services segments.

*Sellingand marketing* –*Corporate* -Selling and marketing costs included in our Corporate expenses consistprimarily of salaries and employee benefits and amortization.  Selling and marketing expenses decreased$103,000 in the 2007 Six Months compared to the 2006 Six Months primarilyrelated to the reclassification of amortization expenses related to the Kodiakand MEC customer lists to the EC Services segment cost of sales.

*Generaland administrative* –*Corporate* –General and administrative costs included in our Corporate expenses consistprimarily of salaries and employee benefits, office expenses, legal andaccounting expenses, depreciation, computer maintenance expenses, telephone andrent.  General and administrativeexpenses decreased $259,000 in the 2007 Six Months compared to the 2006 SixMonths.  The decrease is primarily aresult of a reduction in bad debt expense of $177,000 due to strongercollection activity, a reduction of $73,000 in general office expenses and a$50,000 reduction in repairs and maintenance costs, offset by an increase of$52,000 in salary and benefit expenses.

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**Liquidityand Capital Resources**

Our principalsources of liquidity, which consist of unrestricted cash and cash equivalents,decreased to $6,095,000 as of January 31, 2007 from $6,989,000 as of July 31,2006.  We believe these resources willprovide us with sufficient liquidity for the short term and long termrequirements of the company.

The principal usesof cash for the six month period ended January 31, 2007 were for the repurchaseof our series C preferred stock of $2,261,000 and our class A common stock of $614,000.  On December 14, 2006, two subsidiariesof 3V Capital LLC (3V Capital Fund Ltd. and Distressed/High Yield TradingOpportunities, Ltd. (collectively, the “3V Entities”)) acquired from OmegaLiquidating Trust, the liquidating trust for the bankrupt Cable & WirelessUSA, 10,000 shares of the series C preferred stock and 381,111 shares of theclass A common stock of Internet Commerce Corporation (“ICC” or the “Company”). Thereafter, on December 20, 2006, ICC entered into a Stock Purchase Agreementwith each of the 3V Entities, pursuant to which ICC reacquired a total of 5,000shares of its series C preferred stock and 190,555 shares of its class A commonstock for an aggregate purchase price of $2,875,000.  Following thisreacquisition of shares by ICC, the 3V Entities together continue to own theremaining 5,000 shares of ICC’s series C preferred stock and 190,556 shares ofICC’s class A common stock.  The repurchased shares were subsequentlyretired during the quarter.

Additionally during the period,we used $300,000 for the acquisition of certain assets of Stewart TechnicalServices, Inc. and $208,000 in capital expenditures to upgrade and relocate theequipment from our Enable data center.

The principal sources of cashduring the period were cash generated from continued operations of $2,328,000and proceeds from the exercise of 71,200 warrants that were originally issuedin a private placement that closed in October 2004 of $248,000.

The Company hasnet operating loss carryforwards for tax purposes of approximately $71.0million as of January 31, 2007. These carryforwards expire from 2011 to2024.

The InternalRevenue Code and Income Tax Regulations contain provisions which limit the useof available net operating loss carryforwards in any given year shouldsignificant changes (greater than 50%) in ownership interests occur. Due to theprivate placement of series A preferred stock in April 1999, the netoperating loss carryover of approximately $19.6 million incurred prior to theprivate placement is subject to an annual limitation of approximately $1.4million until that portion of the net operating loss is utilized or expires.Due to a 100% ownership change of an acquired company in November 2000,the purchased net operating loss of approximately $6.5 million incurred priorto the ownership change is subject to an annual limitation of approximately$1.1 million until that portion of the net operating loss is utilized orexpires. Additionally, this transaction created an ownership change for theCompany as defined by IRC Section 382. As such, its net operating loss ofapproximately $49.4 million incurred prior to the ownership change is subjectto an annual limitation of approximately $2.8 million until that portion of thenet operating loss is utilized or expires. Finally, due to a 100% ownershipchange of an acquired company in June 2004, the purchased net operatingloss of approximately $1.2 million incurred prior to the ownership change issubject to an annual limitation of approximately $128,000 until that portion ofthe net operating loss is utilized or expires.

**OffBalance Sheet Arrangements**

We provideindemnifications of varying scope and amount to certain customers againstclaims of intellectual property infringement made by third parties arising fromthe use of our products and services.  Weevaluate estimated losses for such indemnification under Statement of FinancialAccounting Standards No. 5, *Accounting forContingencies*, as interpreted by Financial Accounting StandardsBoard Interpretation No. 45, *Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others*.  Weconsider factors such as the degree of probability of an unfavorable outcomeand the ability to make a reasonable estimate of the amount of loss.  To date, we have not encountered materialcosts as a result of such obligations and have not accrued any materialliabilities related to such indemnifications in our financial statements.

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**ContractualObligations**

Our contractual obligationsare comprised of future minimum rental payments due under non-cancelableoperating leases.  The following table isa summary of our contractual obligations as of January 31, 2007:
| Fiscal  Year | ** ** | **Amount** | ** ** |
|--------------|------------|------------|------------|
| 2007         |       | $          | 794,797    |   |
| 2008         |       | $          | 1,524,649  |   |
| 2009         |       | $          | 1,429,073  |   |
| 2010         |       | $          | 1,188,485  |   |
| 2011         |       | $          | 335,924    |   |

 

The minimum futurerental payments have not been reduced by $2,718,336 of sublease rentals to bereceived in the future under non-cancelable subleases.

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**Item3.  Quantitative and QualitativeDisclosures About Market Risk**

**Interest Rate Risk**

We may invest our cash in a variety of financialinstruments.  If invested, we account forour investment instruments in accordance with Statement of Financial AccountingStandards No. 115, “Accounting for Certain Investments in Debt and EquitySecurities” (“SFAS No. 115”).  All of thecash equivalents and investments are treated as available-for-sale under SFASNo. 115.  Investments that are classifiedas cash and cash equivalents have original maturities of three months orless.  Investments in both fixed rate andfloating rate interest earning instruments carry a degree of interest raterisk.  Fixed rate securities may havetheir fair market value adversely impacted due to a rise in interest rates,while floating rate securities may produce less income than expected ifinterest rates fall.  Due in part tothese factors, our future investment income may vary widely due to changes ininterest rates, or we may suffer losses in principal if forced to sellsecurities that have seen a decline in market value due to changes in interestrates.  For the quarter ended January 31,2007, our cash investments consisted entirely of overnight cash sweep accountsinvested in a fund composed primarily of triple A rated commercial paper andgovernment agency bonds.  As of January31, 2007, the interest rate for this investment was 4.62%.

**Item 4.  Controls and Procedures**

Our management, including our chief executive officerand chief financial officer, has carried out an evaluation of the effectivenessof our disclosure controls and procedures as of January 31, 2007, as requiredby paragraph (b) of Exchange Act Rules 13(a)-15 and 15(d)-15.  Based upon that evaluation, our chiefexecutive officer and chief financial officer have concluded that as of suchdate, our disclosure controls and procedures are effective.  There was no change in our internal controlover financial reporting during the quarter ended January 31, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

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**PART II. OTHER INFORMATION**

**Item 1.    Legal Proceedings**

On January 6, 2006we filed a complaint for declaratory judgment in the United States BankruptcyCourt (the “Court”) naming Omega Liquidating Trust (“Omega”), the liquidatingtrust for the bankrupt Cable & Wireless USA (C&W USA), andCable & Wireless PLC (C&W) as defendants (together the“Defendants”). We sought to have Omega declared the rightful owner of ourseries C preferred stock and of any of our shares of class A common stock thathave been issued but not distributed as dividends of the series C preferredstock. On October 19, 2006, the Defendants filed a motion to have the suitdismissed as the result of a compromise settlement having been reached betweenthe Defendants.  The compromise namesdefendant Omega as owner of the disputed shares, but splits the proceeds fromany sale of our stock fifty-fifty between the Defendants. An order approvingthe settlement was signed by the Court on November 7, 2006.

We are party to variouslegal proceedings and claims, either asserted or unasserted, which arise in theordinary course of business.  While theoutcome of these matters cannot be predicted with certainty, we do not believethat the outcome of any of these claims or any of the above mentioned legalmatters will have a material adverse effect on our consolidated financialposition, results of operations or cash flow.

**Item 1A.     RiskFactors**

The following Risk Factor disclosure updates the risk factors asdisclosed in our 2006 Annual Report on Form 10-K previously filed with theSecurities and Exchange Commission.

**Risks Relating to Our Company**

***We may not remain profitable in the future.  ***Wehave incurred significant losses since the Company was founded in 1991, and, asof January 31, 2007, we had an accumulated deficit of approximately $81.4million. We realized profitability and have done so for the past 8 consecutivequarters.  However, there can be noassurances that we may not incur losses again in the future.

***We must continue to grow our business in order to remaincompetitive.  ***Over the past year, the VANbusiness has remained significantly price competitive. Our major competitorsappear to be restructuring their VAN operations to reduce their overhead andother costs to better compete against Internet-based networks such as ourICC.NET service. While we have been successful in maintaining our margins andwe have increased the volume of data transmitted through our VAN, we haveexperienced price erosion in competing for larger customers. Although we expectto continue to add new customers and increase the volume of data transmittedthrough our service, we do not expect our revenue from VAN services to continueto grow rapidly as in the past. If our revenues grow at a slower rate than weanticipate, or decrease and we are unable to adjust spending in a timely manneror if our expenses increase without commensurate increases in revenues, ouroperating results will suffer and we may again report losses.

***If we are not successful in selling our products andservices, our results of operations will suffer.***  While our primary focus in the past has been on growing our ICC.NET VANservice, we have attempted to diversify by acquiring Electronic CommerceSystems in June 2004, the MEC operations of InovisInternational, Inc. in March 2005 and Enable Corp. in May 2006.However, the success of our services depends to a large extent on the future ofbusiness-to-business electronic commerce and our ability to effectively competein the marketplace. In particular, our success depends on the number ofcustomers that subscribe to our services, the volume of the data, documents orother information they send or retrieve and the price we are able to charge forthese services in light of competitive pressures. In connection with theassimilation of our new customers acquired from the MEC operation and theEnable acquisition, we expect to see attrition to these newly acquired customerbases due to the seasonal trends, integration difficulties, and customerdefections to alternative EDI solutions. As a result, a portion of our revenuesmay be adversely affected. While we are learning to manage these new customers,there is no assurance that we will accurately assess the trends of these new customers.Accordingly, the value of these new customers, the volume of our servicessubscribed by them and the possibility of payment collection may differmaterially from our

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current expectation. Further, since our operatingexpense levels are based significantly on our expectations of future revenue,our inability to assess the trends may render us vulnerable in the case of asignificant shortfall in revenues or orders from these new customers, in whichcase we may not be able to reduce our operating expenses quickly in response.Therefore, any significant shortfall in revenue or orders could have animmediate adverse effect on our operating results.

***We may not be successful in competing against ourcompetitors.  ***We face a significant number ofcompetitors, ranging from very large enterprises or divisions of very largecompanies to a number of relatively small organizations. These competitors arediverse in terms of their histories, business models, corporate strategies,financial strength, name recognition, company reputation, customer base andbreadth of offerings. Many of our large competitors have more history,significantly greater financial resources, larger customer bases and moreeasily recognized names than we do. As a result, our competitors may be able torespond more quickly to changing technology and changes in customerrequirements or be able to undertake more extensive marketing campaigns, adoptmore aggressive pricing policies and make more attractive offers to potentialcustomers and employees, or be able to devote greater resources to thedevelopment, promotion and sale of their services than we can. New competitionis emerging in the form of web services networks, collaborative applications,application service providers, e-marketplaces and integration broker suites. Wehave enhanced our technologies to communicate with these web-basedtechnologies. However, there can be no assurance that our product and serviceofferings will compete effectively and generate any significant revenues. We believethat the high cost of implementation and the ongoing costs of supporting acompany’s trading partners may be a barrier to the wider acceptance of our newproduct offerings in the marketplace. As a result, we may not be successful incompeting against our competitors.

***If we are unable to maintain or replace our existinginterconnect arrangements, our results of operations would suffer.  ***Werely on many of our competitors to interconnect with our service to promote an“open community” so all businesses can take advantage of the efficiencies ofEDI, no matter what network they choose as their provider. Although we haveinterconnect agreements with the major VAN providers, there can be noassurances that these agreements will not be terminated or will continue withacceptable terms. If terminated, we would have to find an acceptablealternative. If available, such an alternative could add significant operatingcosts to our business.

***We must continue to develop new products andservices.  ***If we do not keep pace with rapidtechnological changes, customer demands and intense competition, we will not besuccessful. Our market is characterized by rapidly changing technology,customer demands and intense competition. The satisfactory performance,reliability and availability of our network infrastructure, customer supportand document delivery systems and our web site are critical to our reputationand our ability to attract customers and maintain adequate customer servicelevels. If we cannot keep pace with these changes and maintain the performanceand reliability of our network and customer service levels, our business willsuffer. The intense competition in our industry requires us to continue todevelop strategic business and Internet solutions that enhance and improve thecustomer service features, functions and responsiveness of our products andservices and we must constantly keep pace with continuing changes ininformation technology and customer requirements. While we actively search forways to expand our business and our products and services to keep pace with therapidly changing technology, customer demands and intense competition, therecan be no assurance that we will be able to keep pace with these changes. If weare not successful in developing and marketing enhancements to our products andservices that respond to technological change or customer demands, our businesswill suffer.

***We may need to obtain additional financing on satisfactoryterms to continue to compete successfully. If we are unable to obtain necessaryfuture capital, our business will suffer.***   Wemay need to raise additional funds if competitive pressures or technologicalchanges are greater than anticipated, if we are unable to increase revenue atanticipated rates, if our expenses increase significantly or if our customersdelay payment of our receivables or if we identify a suitable acquisitioncandidate that requires a cash outlay in order to complete the transaction. Wecannot assure you that any additional financing will be available on reasonableterms or at all. Raising additional funds in the future by issuing securitiescould adversely affect our stockholders and negatively impact our publiclytraded share price. If we raise additional funds through the issuance of debtsecurities, the holders of the debt securities will have a claim to our assetsthat will have priority over any claim of our stockholders. The interest onthese debt securities would increase our costs and negatively impact ouroperating results. If we raise additional funds through the issuance of commonstock or securities convertible into or exchangeable for common stock, thepercentage ownership of our then-existing stockholders will decrease and theymay experience additional and substantial dilution. In addition, anyconvertible or exchangeable securities may have rights, preferences andprivileges more favorable to the holders than those of the common stock.

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***Failure of our third-party providers to provide adequateInternet and telecommunications service could result in significant losses ofrevenue.***   Our operations depend upon thirdparties for Internet access and telecommunications service. Frequent orprolonged interruptions of these services could result in significant losses ofrevenues. We have experienced outages in the past and could experience outages,delays and other difficulties due to system failures unrelated to our internalactivities in the future. These types of occurrences could also cause users toperceive our services as not functioning properly and therefore cause them touse other methods to deliver and receive information. We have limited controlover these third parties and cannot assure you that we will be able to maintainsatisfactory relationships with any of them on acceptable commercial terms orthat the quality of services that they provide will remain at the levels neededto enable us to conduct our business effectively.

***We may suffer systems failures and business interruptionsthat would harm our business.***   Our successdepends in part on the efficient and uninterrupted operation of our VAN serviceand Enable’s web hosting sites. Almost all of our network operating systems arelocated in third party co-location facilities. Although these facilities aredesigned to prevent operational interrupts, our systems are vulnerable toevents such as damage from fire, power loss, telecommunications failures,break-ins and earthquakes. This could lead to interruptions or delays in ourservice, loss of data or the inability to accept, transmit and confirm customerdocuments and data. Although we have implemented network security measures, ourservers may be vulnerable to computer viruses, electronic break-ins, attemptsby third parties deliberately to exceed the capacity of our systems and similardisruptions.

***If we are unable to successfully integrate acquisitions, ourfinancial results will suffer.***   Our ability toimplement our business plan successfully requires effective planning and strongexecution skills. If we cannot manage the integration of anticipatedacquisitions, our business and financial results will suffer. We expect that wewill need to continue to manage and to expand multiple relationships withcustomers, Internet service providers and other third parties. We also expectthat we will need to continually improve our financial systems, procedures andcontrols and will need to expand, train and manage our workforce, particularlyour information technology and sales and marketing staffs.

***If we lose our net operating loss carryforward ofapproximately $71.0 million, our financial results will suffer.***  Section 382 of the Internal Revenue Code contains rules designed todiscourage persons from buying and selling the net operating losses ofcompanies. These rules generally operate by focusing on ownership changesamong stockholders owning directly or indirectly 5% or more of the common stockof a company or any change in ownership arising from a new issuance of stock bya company. In general, the rules limit the ability of a company to utilizenet operating losses after a change of ownership of more than 50% of its commonstock over a three-year period. Purchases of our class A common stock inamounts greater than specified levels could create a limitation on our abilityto utilize our net operating losses for tax purposes in the future. We arecurrently subject to certain limitations on the utilization of portions of ournet operating loss carryforward.

***If we cannot hire and retain highly qualified employees, ourbusiness and financial results will suffer.***  We are substantially dependent on the continued services and performance of ourexecutive officers and other key employees. If we are unable to attract,assimilate and retain highly qualified employees, our management may not beable to effectively manage our business, exploit opportunities and respond tocompetitive challenges and our business and financial results will suffer. Manyof our competitors may be able to offer more lucrative compensation packagesand higher-profile employment opportunities than we can.

***We depend on our intellectual property, which may bedifficult and costly to protect.***   If we failto adequately protect our proprietary rights, competitors could offer similarproducts relying on technologies we developed, potentially harming ourcompetitive position and decreasing our revenues. We attempt to protect ourintellectual property rights by limiting access to the distribution of oursoftware, documentation and other proprietary information and by relying on a combinationof copyright, trademark and trade secret laws. In addition, we enter intoconfidentiality agreements with our employees and certain customers, vendorsand strategic partners. In some circumstances, however, we may, if required bya business relationship, provide our licensees with access to our data modeland other proprietary information underlying our licensed applications. Despitethe precautions we take, it may be possible for unauthorized third parties tocopy aspects of our current or future products or to obtain and use informationthat we regard as proprietary. Policing unauthorized use of software isdifficult, and some foreign laws do not protect proprietary rights to the sameextent as United States laws. Litigation may be necessary in the future toenforce our intellectual property rights, to protect our trade secrets or todetermine the validity and scope of the proprietary rights of others, any ofwhich could be costly and adversely affect our operating results.

***Intellectual property infringement claims against us couldharm our business.  ***It is possible ourproducts and service may infringe upon the proprietary rights of others andother parties may assert infringement claims

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against us. Any such claims and any resultinglitigation could subject us to significant liability for damages and couldinvalidate our proprietary rights. We could be required to enter into royaltyand licensing agreements, which may be costly or otherwise burdensome or whichmay not be available on terms acceptable to us.

***We must comply in the future with new and costly reportingrequirements.  ***Under current Securities andExchange Commission (“SEC”) regulations, we are considered a non-acceleratedfiler as our market capitalization as of January 31, 2007 was under $75million. We will have to be compliant with Section 404(a), management’sassertion portion of the Sarbanes-Oxley Act of 2002 (“SOX”) by July 31,2008 and compliant with Section 404(b), the independent audit requirement ofSOX by July 31, 2009. The costs of implementing the requirements of the SOXhave ranged from approximately $500,000 to over $1 million for smallercompanies. Although we began our SOX compliance efforts, there can be noassurance that we can be in full compliance when required for reasonable costs.

**RisksRelating to the Internet and Online Commerce Aspects of Our Business**

***If Internet usage does not continue to grow or if itsinfrastructure fails, our business will suffer.***  We cannot be certain that the infrastructure or complementary servicesnecessary to maintain the Internet as a useful and easy means of transferringdocuments and data will continue to develop. The Internet infrastructure maynot support the demands that growth may place on it and the performance andreliability of the Internet may decline.

***Privacy concerns may prevent customers from using ourservices.***   Concerns about the security ofonline transactions and the privacy of users may inhibit the growth of theInternet as a means of delivering business documents and data. We may need toincur significant expenses to protect against the threat of security breachesor to alleviate problems caused by security breaches. We rely upon encryptionand authentication technology to provide secure transmission of confidential information.If our security measures do not prevent security breaches, we could sufferoperating losses, damage to our reputation, litigation and possible liability.Advances in computer capabilities, new discoveries in the field of cryptographyor other developments that render current encryption technology outdated mayresult in a breach of our encryption and authentication technology and couldenable an outside party to steal proprietary information or interrupt ouroperations.

***Government regulation and legal uncertainties relating tothe Internet could harm our business.***   Changesin the regulatory environment in the United States and other countries coulddecrease our revenues and increase our costs. The Internet is largelyunregulated and the laws governing the Internet remain unsettled. It may takeyears to determine whether and how existing laws such as those governingintellectual property, privacy and taxation apply to the Internet. In addition,because of increasing popularity and use of the Internet, any number of lawsand regulations may be adopted in the United States and other countriesrelating to the Internet or other online services covering issues such as userprivacy, security, pricing and taxation, contents and distribution.

***The cost of transmitting documents and data over theInternet could increase.***   We may not be ableto increase our prices to cover these rising costs. Also, foreign and statelaws and regulations relating to the provision of services over the Internetare still developing. If individual states or foreign countries impose taxes orlaws that negatively impact services provided over the Internet, our cost ofproviding our ICC.NET and other services may increase.

**RisksRelating to Our Class A Common Stock**

***The market price of our class A common stock is likely to behighly volatile.  ***The market price of ourclass A common stock has been very volatile in the past, ranging from a low of$2.30 to a high of $3.98 during fiscal 2007 and is likely to fluctuatesubstantially in the future. If our class A common stock falls under $1.00 pershare and fails to maintain a minimum bid price of $1.00 for 30 consecutivetrading days, it may no longer be eligible for trading in the Nasdaq CapitalMarket, which would adversely affect the ability of investors to sell theirshares of our class A common stock.

***Shares eligible for future sale by our existing stockholdersmay adversely affect our stock price making it difficult to sell class A commonstock.***   Between January 1, 2003 andMay 2006, we registered the resale under the Securities Act of 1933 of anaggregate of 10,676,141 shares of our class A common stock, which includes3,016,917 shares of class A common stock issuable upon the exercise of warrantsto purchase shares of class A common stock and 192,307 shares of class A commonstock issuable upon conversion of our series D preferred. The market price ofour class A common stock could be materially and adversely affected by sales ofeven a small percentage of these shares or the perception that these salescould occur.

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***The market for our class A common stock on the NasdaqCapital Market may be illiquid, which would restrict the ability to sell sharesof class A common stock and could result in increased volatility in the tradingprices for our class A common stock.***   Theprice at which our class A common stock will trade in the future cannot bepredicted and will be determined by the market. The price may be influenced bymany factors, including investors’ perceptions of our business, our financialcondition, operating results and prospects, the use of the Internet forbusiness purposes and general economic and market conditions.

***Our Board of Directors can issue preferred stock with rightsadverse to the holders of class A common stock.  ***OurBoard of Directors is authorized, without further stockholder approval, todetermine the provisions of and to issue up to 4,994,750 shares of preferredstock. Issuance of preferred shares with rights to dividends and otherdistributions, voting rights or other rights superior to the class A commonstock could be adverse to the holders of class A common stock. In addition,issuance of preferred shares could have the effect of delaying, deterring orpreventing an unsolicited change in control of our company, or could imposevarious procedural and other requirements that could make it more difficult forholders of our class A common stock to effect certain corporate actions,including the replacement of incumbent directors and the completion oftransactions opposed by the incumbent Board of Directors. The rights of theholders of our class A common stock would be subject to, and may be adverselyaffected by, the rights of the holders of any preferred stock that may beissued in the future.

***We may have to use significant resources indemnifying ourofficers and directors or paying for damages caused by their conduct.***  The Delaware General Corporation Law provides for broad indemnification bycorporations of their officers and directors and permits a corporation toexculpate its directors from liability for their actions. Our bylaws andcertificate of incorporation implement this indemnification and exculpation tothe fullest extent permitted under this law as it currently exists or as it maybe amended in the future. Consequently, subject to this law and to some limitedexceptions in our certificate of incorporation, none of our directors will beliable to us or to our stockholders for monetary damages resulting from conductas a director.

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**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

During the quarter ending January 31, 2007, 71,200warrants that were originally issued in a private placement that closed inOctober 2004, were exercised at $2.22 resulting in the issuance of the samenumber of shares of our class A common stock for which we received $158,064.

The Company intends to use the proceeds for generalcorporate purposes.  The Company reliedon the exemptions from registration requirements provided by Section 4(2)and Rule 506 of Regulation D promulgated under the Securities Act of1933, as amended, for the issuance and sale of the shares of class A commonstock upon the exercise of the warrants.

**Item3.  Defaults Upon Senior Securities**

None.

**Item 4. Submission of Matters to a Vote of Security Holders**

(a)           Our 2006 Annual Meeting ofStockholders (the “Annual Meeting”) was held on January 4, 2007.  There were present at the Annual Meeting, inperson or by proxy, holders of 18,597,603 shares (or 83.15%) of the common stockentitled to vote.

(b)           The following directors were electedto hold office until the next annual meeting of stockholders or until theirsuccessors are elected and qualified, with the vote for each director beingreflected below:
| Name                  | ** ** | **Votes For** | ** ** | **Votes Withheld** |
|-----------------------|------------|---------------|------------|--------------------|
| Richard J.  Berman    |       | 17,631,882    |       | 965,721            |
| Kim D. Cooke          |       | 18,108,888    |       | 488,715            |
| Donald R.  Harkleroad |       | 18,389,606    |       | 207,997            |
| Paul D. Lapides       |       | 18,485,346    |       | 112,257            |
| Arthur R. Medici      |       | 18,146,518    |       | 451,085            |
| Matthew W. Shaw       |       | 18,390,606    |       | 206,997            |
| John S. Simon         |       | 18,390,606    |       | 206,997            |
| Thomas J.  Stallings  |       | 18,388,606    |       | 208,997            |

 

Theaffirmative vote of the holders of a plurality of the outstanding shares ofcommon stock represented at the Annual Meeting was required to elect eachdirector.

(c)           The appointment of Tauber &Balser, P.C. as independent public auditors to audit the consolidated financialstatements of the Company and its subsidiaries for the year ending July 31,2007, was ratified with 18,425,016 affirmative votes cast, 148,593 negativevotes cast and 23,994 abstentions.  Theaffirmative vote of the holders of a majority of the outstanding shares ofcommon stock voting on the proposal at the Annual Meeting was required toratify the appointment of Tauber & Balser, P.C.

**Item 5. Other Information**

**None.**

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**Item 6. Exhibits**
| 31.1   |   | Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                   |
| 31.2   |   | Certification 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.* |

 

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### *In accordance with Release No. 34-47986,this Exhibit is hereby furnished to the SEC as an accompanying document and isnot deemed “filed” for purposes of Section 18 of the Securities Exchange Act of1934 or otherwise subject to the liabilities of that Section, nor shall it bedeemed incorporated by reference into any filing under the Securities Act of1933.

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### **SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

Date:  March15, 2007
| ** ** | **INTERNET COMMERCE CORPORATION** |
|------------|-----------------------------------|
| ** ** |                              | ** ** |
| ** ** |                              | ** ** |
|       | By:                               | /s/ Thomas J. Stallings |
|       |                              | Thomas J.  Stallings |
|       |                              | Chief Executive  Officer |
|       |                              |   |
|       |                              |   |
|       | By:                               | /s/ Glen E. Shipley |
|       |                              | Glen E. Shipley |
|       |                              | Chief Financial  Officer |

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**EXHIBIT INDEX**
| **Exhibit No.** | ** ** | **Document**                                                                                                                          |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------|
| ** **      | ** ** | ** **                                                                                                                            |
| Exhibit 31.1    |       | Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                               |
|            |       |                                                                                                                                  |
| Exhibit 31.2    |       | Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                               |
|            |       |                                                                                                                                  |
| Exhibit 32.1    |       | Certification of the Chief Executive Officer and  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002* |

 

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*In accordance with Release No. 34-47986, this Exhibit is herebyfurnished to the SEC as an accompanying document and is not deemed “filed” forpurposes of Section 18 of the Securities Exchange Act of 1934 or otherwisesubject to the liabilities of that Section, nor shall it be deemed incorporatedby reference into any filing under the Securities Act of 1933.

29

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