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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q   þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended January 31,
2005
 o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from  to
 Commission File No. 000-24996 INTERNET COMMERCE CORPORATION (Exact name of registrant as specified in its charter)
 Delaware
(State of incorporation)
    
    13-3645702
(I.R.S. Employer Identification Number)
 6801 Governors Lake Parkway, Suite 110
Norcross, Georgia 30071
(Address of principal executive offices, including zip code) (678) 533-8000 (Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule
12b-2 of the Exchange Act). Yes o No þ As of March 10, 2005 the registrant had outstanding 19,294,454 shares of Class A Common Stock.




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INDEX TO FORM 10-Q PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated balance sheets as of January 31, 2005 (unaudited) and July 31, 2004
    
    
    3Consolidated statements of operations and comprehensive loss for the three and six months ended
January 31, 2005 (unaudited) and January 31, 2004 (unaudited)
    
    
    4Consolidated statements of cash flows for the six months ended January 31, 2005 (unaudited) and
January 31, 2004 (unaudited)
    
    
    5Notes to consolidated financial statements (unaudited)
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 2. Changes in Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    23Item 6. Exhibits and Reports on Form 8-K
    
    
    23SIGNATURESCERTIFICATIONSEX-31.1 CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302EX-31.2 CERTIFICATE OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302EX-32.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906EX-32.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 Consolidated Balance Sheets January 31,
    
    
    July 31,2005
    
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,150,656
    
    
    $
    3,789,643Accounts receivable, net of allowance for doubtful accounts of
$302,823 and $308,867, respectively
    
    
    2,319,733
    
    
    
    2,154,463Prepaid expenses and other current assets
    
    
    418,306
    
    
    
    244,900Total current assets
    
    
    5,888,695
    
    
    
    6,189,006Restricted cash
    
    
    108,574
    
    
    
    107,658Property and equipment, net
    
    
    318,331
    
    
    
    295,556Software development costs, net
    
    
    
    
    
    
    17,860Goodwill
    
    
    2,660,534
    
    
    
    2,539,238Other intangible assets, net
    
    
    1,677,732
    
    
    
    2,265,010Other assets
    
    
    14,237
    
    
    
    14,237Total assets
    
    $
    10,668,103
    
    
    $
    11,428,565LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    251,931
    
    
    $
    523,703Accrued expenses
    
    
    905,929
    
    
    
    1,004,461Accrued dividends  preferred stock
    
    
    33,880
    
    
    
    232,787Deferred revenue
    
    
    168,500
    
    
    
    133,063Capital lease obligation
    
    
    18,923
    
    
    
    52,291Other current liabilities
    
    
    40,491
    
    
    
    45,111Total current liabilities
    
    
    1,419,654
    
    
    
    1,991,416Capital lease obligation  less current portion
    
    
    
    
    
    
    2,908Total liabilities
    
    
    1,419,654
    
    
    
    1,994,324Commitments and contingenciesStockholders Equity:Preferred stock  5,000,000 shares authorized, including 10,000 shares of series A,
10,000 shares of series C, 250 shares of series D and 175 shares of series S:Series A preferred stock  par value $.01 per share, none issued and outstanding
    
    
    
    
    
    
    Series C preferred stock  par value $.01 per share, 44.76 votes per share; 10,000
shares
issued and outstanding (liquidation value of $10,433,880)
    
    
    100
    
    
    
    100Series D preferred stock  par value $.01 per share, 769 votes per share; 250 shares
issued and outstanding (liquidation value of $250,000)
    
    
    3
    
    
    
    3Common stock:Class A  par value $.01 per share, 40,000,000 shares authorized, one vote per share;
and 19,294,454 shares issued and outstanding, respectively
    
    
    192,945
    
    
    
    190,582Additional paid-in capital
    
    
    95,645,236
    
    
    
    95,143,356Accumulated deficit
    
    
    (86,589,835
    )
    
    
    (85,899,800
    )Total stockholders equity
    
    
    9,248,449
    
    
    
    9,434,241Total liabilities and stockholders equity
    
    $
    10,668,103
    
    
    $
    11,428,565
 See notes to consolidated financial statements.




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Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Services
    
    $
    3,493,144
    
    
    $
    2,755,732
    
    
    $
    7,239,684
    
    
    $
    5,859,084Expenses:Cost of services administrative (excluding non-cash
compensation of $855 and $2,998 for the three and six
months ended
January 31, 2005 respectively, and of $19,070 for the
three and six months ended January 31, 2004)
    
    
    1,340,346
    
    
    
    1,750,986
    
    
    
    2,757,773
    
    
    
    3,611,295Impairment of capitalized software
    
    
    
    
    
    
    44,983
    
    
    
    
    
    
    
    44,983Product development and enhancement (excluding non-cash
compensation of $7,551 and $15,103 for the three and six
months ended January 31, 2005 respectively, and of $111,640
for the three and six months ended January 31, 2004)
    
    
    241,296
    
    
    
    226,790
    
    
    
    464,007
    
    
    
    452,004Selling and marketing (excluding non-cash compensation of
$8,030 and $10,673 for the three and six months ended
January 31, 2005 respectively, and of $75,415 for the three
and six months ended January 31, 2004)
    
    
    702,610
    
    
    
    811,896
    
    
    
    1,540,728
    
    
    
    1,637,577General and administrative (excluding non-cash compensation
of $177,039 and $375,534 for the three and six months
ended January 31, 2005 respectively, and of $267,019 and
$319,961 for the three and six months ended January 31,
2004)
    
    
    1,311,156
    
    
    
    1,004,628
    
    
    
    2,773,320
    
    
    
    1,950,013Non-cash charges for stock-based compensation and services
    
    
    193,475
    
    
    
    473,144
    
    
    
    404,308
    
    
    
    526,0873,788,883
    
    
    
    4,312,427
    
    
    
    7,940,136
    
    
    
    8,221,959Operating loss
    
    
    (295,739
    )
    
    
    (1,556,695
    )
    
    
    (700,452
    )
    
    
    (2,362,875
    )Other income and (expense):Interest and investment income
    
    
    8,101
    
    
    
    68,381
    
    
    
    14,199
    
    
    
    69,239Interest expense
    
    
    (786
    )
    
    
    (14,613
    )
    
    
    (3,782
    )
    
    
    (27,038
    )7,315
    
    
    
    53,768
    
    
    
    10,417
    
    
    
    42,201Net loss
    
    $
    (288,424
    )
    
    $
    (1,502,927
    )
    
    $
    (690,035
    )
    
    $
    (2,320,674
    )Dividends on preferred stock
    
    
    (100,547
    )
    
    
    (101,593
    )
    
    
    (201,093
    )
    
    
    (202,154
    )Loss attributable to common stockholders
    
    $
    (388,971
    )
    
    $
    (1,604,520
    )
    
    $
    (891,128
    )
    
    $
    (2,522,828
    )Basic and diluted loss per common share
    
    $
    (0.02
    )
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.18
    )Weighted average number of common shares outstanding -
basic and diluted
    
    
    19,130,186
    
    
    
    13,816,359
    
    
    
    19,094,325
    
    
    
    13,807,015COMPREHENSIVE LOSS:Net loss
    
    $
    (288,424
    )
    
    $
    (1,502,927
    )
    
    $
    (690,035
    )
    
    $
    (2,320,674
    )Other comprehensive income:Unrealized gain  marketable securities
    
    
    
    
    
    
    33,146
    
    
    
    
    
    
    
    42,169Reclassification of unrealized gain on marketable securities
    
    
    
    
    
    
    (67,834
    )
    
    
    
    
    
    
    (67,834
    )Comprehensive loss
    
    $
    (288,424
    )
    
    $
    (1,537,615
    )
    
    $
    (690,035
    )
    
    $
    (2,346,339
    )
 See notes to consolidated financial statements.




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Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended January 31,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (690,035
    )
    
    $
    (2,320,674
    )Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:Depreciation and amortization
    
    
    740,568
    
    
    
    766,589Bad debt expense
    
    
    115,525
    
    
    
    29,369Non-cash interest expense
    
    
    
    
    
    
    17,210Realized (gain) loss on sale of marketable securities
    
    
    
    
    
    
    (67,834
    )Impairment of capitalized software
    
    
    
    
    
    
    44,983Non-cash charges for equity instruments issued for compensation
and services
    
    
    404,308
    
    
    
    526,086Changes in:Accounts receivable
    
    
    (280,795
    )
    
    
    (74,044
    )Prepaid expenses and other assets
    
    
    (28,405
    )
    
    
    3,389Accounts payable
    
    
    (271,771
    )
    
    
    (387,347
    )Accrued expenses
    
    
    (319,908
    )
    
    
    (341,812
    )Deferred revenue
    
    
    35,436
    
    
    
    (43,771
    )Other liabilities
    
    
    (4,620
    )
    
    
    (74,422
    )Net cash used in operating activities
    
    
    (299,697
    )
    
    
    (1,922,278
    )Cash flows from investing activities:Additional costs of previous acquisition
    
    
    (121,296
    )
    
    
    Purchases of property and equipment
    
    
    (158,205
    )
    
    
    (75,068
    )Proceeds from sales of marketable securities
    
    
    
    
    
    
    134,110Net cash (used in) provided by investing activities
    
    
    (279,501
    )
    
    
    59,042Cash flows from financing activities:Borrowings under accounts receivable financing agreement
    
    
    
    
    
    
    864,156Repayment of borrowings under accounts receivable financing agreement
    
    
    
    
    
    
    (330,541
    )Net payments for the issuance of common stock and warrants
    
    
    (23,512
    )
    
    
    Payments of capital lease obligations
    
    
    (36,277
    )
    
    
    (63,943
    )Net cash (used in) provided by financing activities
    
    
    (59,789
    )
    
    
    469,672Net decrease in cash and cash equivalents
    
    
    (638,987
    )
    
    
    (1,393,564
    )Cash and cash equivalents, beginning of period
    
    
    3,789,643
    
    
    
    2,283,339Cash and cash equivalents, end of period
    
    $
    3,150,656
    
    
    $
    889,775Supplemental disclosure of cash flow information:Cash paid for interest during the period
    
    $
    3,735
    
    
    $
    7,830Noncash investing and financing activities:Issuance of common stock for dividends on preferred stock
    
    
    400,000
    
    
    
    340,000
 See notes to consolidated financial statements.




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Notes to consolidated financial statements (unaudited) The accompanying unaudited consolidated financial statements of Internet Commerce
Corporation (the Company or ICC) have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim financial
information. In the opinion of management, such statements include all adjustments
(consisting only of normal recurring adjustments) necessary for the fair presentation of the
Companys financial position, results of operations and cash flows at the dates and for the
periods indicated. Pursuant to the requirements of the Securities and Exchange Commission
(the SEC) applicable to Quarterly Reports on Form 10-Q, the accompanying financial
statements do not include all the disclosures required by GAAP for annual financial
statements. While the Company believes that the disclosures presented are adequate to make
the information not misleading, these unaudited interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and related notes
included in the Companys Annual Report on Form 10-K for the year ended July 31, 2004.
Operating results for the three and six-month periods ended January 31, 2005 are not
necessarily indicative of the results that may be expected for the fiscal year ending July
31, 2005.  1.
    ORGANIZATION AND NATURE OF BUSINESS The Companys main source of revenue is derived from subscriptions to its value added
network (VAN) sold under the brand name ICC.NET. These services include transaction,
mailbox and fax transmission activities for which fees are charged. Revenue is also derived
from fixed fee data mapping and professional internet services. In addition, the Company
operates a Service Bureau with revenue derived from electronic data interchange (EDI)
services including data translation services, purchase order and invoice processing from
EDI-to-print and print-to-EDI, Universal Product Code (UPC) number generation, UPC catalog
maintenance and UPC label printing. The Company also sells EDI software and software
maintenance, the revenue of which is immaterial in the periods presented.  2.
    RECENT EVENTS In the second quarter of fiscal 2005, the Company commenced the relocation of its corporate
headquarters from New York, New York to Norcross, Georgia. The Company incurred one time
moving expenses of approximately $60,000, which were recognized as incurred. The Company
continues to operate facilities and offices located in East Setauket, NY; Cary, NC and
Carrollton, GA. On June 22, 2004, the Company acquired Electronic Commerce Systems, Inc. (ECS). ECS
offers ongoing EDI compliance solutions to small and midsized suppliers including
Internet-based services, software, and service bureau services. The operating results of
ECS are included in the Service Bureau segment. Until January 2004, the Company provided a range of EDI and electronic commerce consulting
services and EDI education and training seminars throughout the United States. The Company
discontinued its EDI education and training seminars in February 2004. Revenues from our
EDI education and training seminars were immaterial in the period presented.




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3.
    Significant Accounting Policies and Procedures Deferred revenue: Deferred revenue is comprised of deferrals for subscription fees, professional services,
license fees, and maintenance associated with contracts for which amounts have been received
in advance of services to be performed. Stock-based Compensation: In January 2004, the Company adopted the fair value provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS
123 established a fair-value-based method of accounting for stock-based compensation plans.
The fair value of stock options and stock-based compensation plans is determined on the date
of grant using the Black-Scholes option-pricing model and is being expensed over the vesting
period of the related stock options and stock-based compensation plans. Pursuant to the
transition provisions of SFAS 148, Accounting for Stock-Based Compensation  Transition and
Disclosure (SFAS 148), the Company has elected the prospective method and will apply the
fair value method of accounting to all equity instruments issued to employees on or after
August 1, 2003. The fair value method is not applied to stock option awards granted in
fiscal years prior to 2004. Such awards will continue to be accounted for under the
intrinsic value method pursuant to Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB25), except to the extent that prior years awards are
modified subsequent to August 1, 2003. Therefore, the cost related to stock-based employee
compensation included in the determination of the net loss for 2004 is less than that which
would have been recognized if the fair value based method had been applied to all awards
since their date of grant. The following table illustrates the effect on net loss and net
loss per common share if the fair value based method had been applied to all outstanding and
unvested awards in each period. The following table illustrates the effect on net earnings and earnings per share as if the
Company had applied the fair value recognition provisions of SFAS 123 to all stock-based
compensation in each period: Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2005
    
    
    2004
    
    
    
    
    
    
    2004Net loss, as reported
    
    $
    (388,971
    )
    
    $
    (1,604,520
    )
    
    $
    (891,128
    )
    
    $
    (2,522,828
    )Add: Stock-based employee
compensation expense included
in reported net loss, net of related
tax effects
    
    
    150,476
    
    
    
    437,640
    
    
    
    325,283
    
    
    
    437,640Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects
    
    
    (150,476
    )
    
    
    (530,045
    )
    
    
    (328,849
    )
    
    
    (719,866
    )Pro forma net loss
    
    $
    (388,971
    )
    
    $
    (1,696,925
    )
    
    $
    (894,693
    )
    
    $
    (2,805,054
    )Basic and diluted loss per common share:As reported
    
    $
    (0.02
    )
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.18
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.12
    )
    
    $
    (0.05
    )
    
    $
    (0.20
    )
 Recent Accounting Pronouncements: On December 6, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement
No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS 123. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends
FASB Statement No. 95, Statement of Cash Flows. The approach to accounting for share-based
payments in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires that all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on their fair
values and no longer allows pro forma disclosure as an alternative to financial




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Significant Accounting Policies and Procedures (continued) statement recognition. The Company has used financial statement recognition since its
adaptation of Statement 123. In November 2002, the Emerging Issues Task Force of the FASB (EITF) reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses
certain aspects of the accounting by a vendor for arrangements under which the vendor will
perform multiple revenue generating activities. The EITF was effective for revenue
arrangements entered into in fiscal years and interim periods beginning after June 15, 2003.
The adoption of this consensus, effective August 1, 2003, did not have a significant impact
on the Companys consolidated financial position or results of operations. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes
standards for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity. This
Statement is effective for financial instruments entered into or modified after May 31,
2003, and otherwise shall be effective at the beginning of the first interim period
beginning after June 15, 2003. For financial instruments created before the issuance date
of this Statement and still existing at the beginning of the interim period of adoption,
transition shall be achieved by reporting the cumulative effect of a change in an
accounting principle by initially measuring the financial instruments at fair value or
other measurement attribute required by this Statement. The adoption of this Statement,
effective August 1, 2003, did not have a material impact on the Companys consolidated
financial position or results of operations.  4.
    Pro Forma Disclosures Related To Recent Acquisitions In June 2004, the Company completed the acquisition of Electronic Commerce Systems, Inc.
(ECS). In accordance with the terms of the Agreement and Plan of Merger, dated May 25,
2004 (the Merger Agreement), ICC Acquisition Corporation, Inc., a wholly-owned subsidiary
of ICC, merged with and into ECS and ECS became a wholly-owned subsidiary of ICC. ICC
issued a total of 1,941,409 shares of its class A common stock, valued at $2,465,589, in
connection with the acquisition, of which 345,183 shares were issued in exchange for
approximately $471,000 of outstanding debt ECS owed to certain of its shareholders and in
payment of ECSs legal fees. In determining the purchase price of the acquisition, the
shares of ICC class A common stock issued were valued at $1.28 per share, the average
market price of ICCs class A common stock over the 2-day period before and after the terms
of the acquisition were agreed to and announced. The following unaudited pro forma summary financial information presents the consolidated
results of operations of the Company as if the acquisition of ECS had occurred on August 1,
2003. The pro forma results are shown for illustrative purposes only and do not purport to
be indicative of the results of the Company that would have been reported had the
acquisition of ECS occurred on August 1 or indicative of results that may occur in the
future. Three months ended
    
    
    Six months endedJanuary 31,
    
    
    January 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    3,493,144
    
    
    $
    3,254,650
    
    
    $
    7,239,684
    
    
    $
    6,870,976Net loss
    
    $
    (388,971
    )
    
    $
    (1,536,644
    )
    
    $
    (891,128
    )
    
    $
    (2,396,998
    )Basic and diluted
loss per common
share
    
    $
    (0.02
    )
    
    $
    (0.11
    )
    
    $
    (0.05
    )
    
    $
    (0.17
    )




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5.
    Business Segment Information The Companys two operating segments are:  
    ICC.NET  The Companys global Internet-based value added network, or
VAN, uses the Internet and proprietary technology to deliver customers supply chain
documents and data files to members of their trading communities, many of which may
have incompatible systems, by translating the documents and data files into any format
required by the receiver, and the development and operation of comprehensive
business-to-business e-commerce solutions
    Service Bureau  The Service Bureau manages and translates the data of
small and mid-sized companies that exchange EDI data with large companies and provides
various EDI and UPC services. The Service Bureau also licenses EDI software. Effective
in June 2004, the Company combined the activities of ECS in the Service Bureau segment. The tables below summarizes information about operations and long-lived assets as of and for
the three and six -month periods ended January 31, 2005 and 2004. ServiceICC.NET
    
    
    Bureau
    
    
    TotalThree Months   January 31, 2005Revenues from external customers
    
    $
    2,741,415
    
    
    $
    751,729
    
    
    $
    3,493,144Operating loss
    
    $
    (164,193
    )
    
    $
    (131,546
    )
    
    $
    (295,739
    )Other income (expense), net
    
    
    7,315
    
    
    
    
    
    
    
    7,315Net income (loss) (1)
    
    $
    (156,878
    )
    
    $
    (131,546
    )
    
    $
    (288,424
    )Supplemental segment information:Amortization and depreciation
    
    $
    286,453
    
    
    $
    72,855
    
    
    $
    359,307Non-cash charges for stock-based
compensation and services
    
    $
    193,475
    
    
    $
    
    
    
    $
    193,475Six Months  January 31, 2005Revenues from external customers
    
    $
    5,566,657
    
    
    $
    1,673,027
    
    
    $
    7,239,684Operating loss
    
    $
    (641,906
    )
    
    $
    (58,546
    )
    
    $
    (700,452
    )Other income (expense), net
    
    
    10,417
    
    
    
    
    
    
    
    10,417Net loss (1)
    
    $
    (631,489
    )
    
    $
    (58,546
    )
    
    $
    (690,035
    )Supplemental segment information:Amortization and depreciation
    
    $
    595,164
    
    
    $
    145,403
    
    
    $
    740,567Non-cash charges for stock-based
compensation and services
    
    $
    404,308
    
    
    $
    
    
    
    $
    404,308As of January 31, 2005Property and Equipment, net
    
    $
    272,277
    
    
    $
    46,054
    
    
    $
    318,331Goodwill
    
    
    1,211,925
    
    
    
    1,448,609
    
    
    
    2,660,534Other intangibles assets, net
    
    
    717,000
    
    
    
    960,732
    
    
    
    1,677,732Long lived assets, net
    
    $
    2,201,202
    
    
    $
    2,455,395
    
    
    $
    4,656,597
   1)
    
    Commencing in the first quarter of fiscal 2005, certain costs for
selling and marketing functions were allocated to the Service Bureau
from ICC.NET based on the level of service performed. ICC.NET
allocated $24,000 and $48,000 of selling and marketing costs to the
Service Bureau during the three and six-month ended January 31, 2005,
respectively. Also commencing in the first quarter of fiscal 2005,
certain costs for executive management, MIS, human resources and
accounting and finance functions were allocated to the Service Bureau
from ICC.NET based on the level of service performed. ICC.NET
allocated $135,000 and $270,000 of general and administrative costs
for these services to the Service Bureau for the three and six-month
ended January 31, 2005, respectively.




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##### Table of Contents



5.
    Business Segment Information (continued) ServiceICC.NET
    
    
    Bureau
    
    
    TotalThree Months   January 31, 2004Revenues from external customers
    
    $
    2,484,189
    
    
    $
    271,543
    
    
    $
    2,755,732Operating loss
    
    $
    (1,458,928
    )
    
    $
    (97,767
    )
    
    $
    (1,556,695
    )Other income (expense), net
    
    
    53,768
    
    
    
    
    
    
    
    53,768Net loss
    
    $
    (1,405,160
    )
    
    $
    (97,767
    )
    
    $
    (1,502,927
    )Supplemental segment information:Amortization and depreciation
    
    $
    367,496
    
    
    $
    13,289
    
    
    $
    380,785Impairment of capitalized software
    
    $
    
    
    
    $
    44,983
    
    
    $
    44,983Non-cash charges for stock-based
compensation and services
    
    $
    473,144
    
    
    $
    
    
    
    $
    473,144Six Months  January 31, 2004Revenues from external customers
    
    $
    5,279,890
    
    
    $
    579,194
    
    
    $
    5,859,084Operating loss
    
    $
    (2,234,173
    )
    
    $
    (128,702
    )
    
    $
    (2,362,875
    )Other income (expense), net
    
    
    42,201
    
    
    
    
    
    
    
    42,201Net loss
    
    $
    (2,191,972
    )
    
    $
    (128,702
    )
    
    $
    (2,320,674
    )Supplemental segment information:Amortization and depreciation
    
    $
    740,012
    
    
    $
    26,577
    
    
    $
    766,589Impairment of capitalized software
    
    $
    
    
    
    $
    44,983
    
    
    $
    44,983Non-cash charges for stock-based
compensation and services
    
    $
    526,087
    
    
    $
    
    
    
    $
    526,087As of January 31, 2004Property and Equipment, net
    
    $
    353,859
    
    
    $
    27,641
    
    
    $
    381,500Capitalized software, net
    
    
    
    
    
    
    44,651
    
    
    
    44,651Acquired identified intangibles, net
    
    
    1,673,000
    
    
    
    
    
    
    
    1,673,000Goodwill
    
    
    26,132
    
    
    
    1,185,793
    
    
    
    1,211,925Long lived assets, net
    
    $
    2,052,991
    
    
    $
    1,258,085
    
    
    $
    3,311,076
  6.
    Stock Options Cancellation and Exchange: In January 2004, the Company implemented a voluntary stock option exchange program whereby
the Company offered to exchange certain outstanding options to purchase shares of the
Companys class A common stock held by eligible employees of the Company, with exercise
prices per share greater than or equal to $11.50, for new options to purchase shares of the
Companys class A common stock (the Offer to Exchange). Under the terms of the Offer to
Exchange, the 26 participating employees agreed to cancel, as of January 30, 2004, their
existing options to purchase a total of 823,500 shares of the Companys common stock and
were granted options to purchase 494,100 shares of the Companys class A common stock with
an exercise price of $1.25 per share, the closing market price per share on January 20,
2004. Each new employee option was fully vested at the date of grant. Additionally, under
the terms of the Offer to Exchange, two directors cancelled as of January 30, 2004 existing
options to purchase 250,000 shares of the Companys class A common stock and were granted
options to purchase 150,000 shares of the Companys common stock with an exercise price of
$2.00 per share. The options granted to directors vest in two equal annual installments
commencing one year after the date of grant. One director was eligible but declined to
participate in the exchange and surrendered to the Company options to purchase 50,000 shares
of the Companys class A common stock at an exercise price of $19.00 per share.




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##### Table of Contents



7.
    Goodwill and Other Intangible Assets During the fourth quarter of fiscal 2003, the goodwill of the Service Bureau was tested for
impairment due to a significant decline in revenue and operating income resulting primarily
from the bankruptcy of its largest customer. An impairment loss of $982,142 was recognized
as a result of this evaluation. The fair value of the Service Bureau was estimated using
the net present value of expected future cash flows. As of August 1, 2004, the Company performed its annual test for impairment on the carrying
value of goodwill of its ICC.NET  and Service Bureau reporting segments. The
Company concluded that no impairment existed at that date.  8.
    Guarantees and Indemnifications As part of its standard license agreements, the Company agrees to indemnify its customers
against liability if the Companys products infringe a third partys intellectual property
rights. Historically, the Company has not incurred any significant costs related to
performance under these indemnities. As of January 31, 2005, the Company was not subject to
any litigation alleging that the Companys products infringe the intellectual property
rights of any third parties.  9.
    Accounts Receivable Financing Agreement On May 30, 2003, the Company executed an Accounts Receivable Financing Agreement (Financing
Agreement) with Silicon Valley Bank (Bank) with a term of one year. Under the Financing
Agreement, the Company may borrow, subject to certain conditions, up to 80% of its
outstanding accounts receivable up to a maximum of $2,000,000. Interest accrues at the prime
rate plus .35% plus a collateral handling fee equal to .20% on the average daily outstanding
financed receivable balance. On October 22, 2003; August 31, 2004 and December 29, 2004,
the Company and the Bank amended the Financing Agreement to extend its term to August 31,
2004; December 29, 2004 and February 12, 2005, respectively. As of January 31, 2005 and
July 31, 2004, no amounts were outstanding under the Financing Agreement. The Bank has approved a fourth loan modification agreement that changes the interest under
the Financing Agreement to prime rate plus .25% plus a collateral handling fee equal to .15%
on the average daily outstanding financed receivable balance as long as the Company
maintains an Adjusted Quick Ratio (as defined in the Financing Agreement) of not less 1.25
to 1. Should the Company fail to maintain an Adjusted Quick Ratio of 1.25 to 1, the
interest rises to prime rate plus .75% and the collateral handling fee increases to .35% on
the average daily outstanding financed receivable balance. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations This quarterly report on Form 10-Q contains a number of forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Specifically,
all statements other than statements of historical facts included in this Quarterly Report
regarding our financial position, business strategy and plans and objectives of management for
future operations are forward-looking statements. These forward-looking statements are based on
the beliefs of management, as well as assumptions made by and information currently available to
management. When used in this Report, the words anticipate, believe, estimate, expect,
may, will, continue and intend, and words or phrases of similar import, as they relate to
our financial position, business strategy and plans, or objectives of management, are intended to
identify forward-looking statements. These statements reflect our current view with respect to
future events and are subject to risks, uncertainties and assumptions related to various factors
including, without limitation, those described below the heading Overview and in our registration
statements and periodic reports filed with the SEC under the Securities Act and the Exchange Act.




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Although we believe that our expectations are reasonable, we cannot assure you that our
expectations will prove to be correct. Should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this Quarterly Report as anticipated, believed, estimated,
expected or intended. In this Item 2, references to the Company, we, or us means Internet Commerce
Corporation. Overview We are in the e-commerce (EC) business-to-business communication services market providing
complete EC infrastructure solutions. Our business operates in two segments: namely, ICC.NET 
and Service Bureau. ICC.NET  includes the Companys global Internet-based value added network, or VAN,
which uses the Internet and our proprietary technology to deliver our customers documents and data
files to members of their trading communities, many of which may have incompatible systems, by
translating the documents and data files into any format required by the receiver. We believe that
our ICC.NET  service has certain advantages over traditional VANs as well as email-based
and other Internet-based software systems because our service is provided at a low cost, with
greater transmission speed that is nearly real-time and offers more features. In addition,
ICC.NET  facilitates the development and operation of comprehensive business-to-business
e-commerce solutions. Our Service Bureau manages and translates the data of small and mid-sized
companies that exchange EDI data with large companies that require that data be transmitted to them
electronically. The Service Bureau delivers business-to-business EDI standards-based documents for
companies that do not have EDI capabilities. The value added network business has become significantly more price competitive over the past
year, with major networks restructuring to reduce their overhead cost to be better positioned to
compete on a price point basis against Internet based networks such as ICC.NET  . We have
been successful in maintaining, our margins, but we have experienced continued price erosion in
competing for larger customers. Although we expect to continue to add new customers and increase
the volume of data transmitted through our service, we do not expect our revenue from VAN services
to continue to grow as rapidly as in the past. This trend is expected to continue in the short
term until such time as a cost-based pricing floor is reached by our larger competitors. To
counteract this negative impact on our revenue growth, management has deployed a dual pronged
strategy. We are adding revenue through the acquisition of Electronic Commerce Systems, Inc.
(ECS) and have developed new product and service offerings (AS2 and Data Synchronization) to
improve our value proposition. AS2 is a service offering on the Internet, which handles primary
XML documents that are an extension of traditional EDI. We have incorporated this communication
methodology into our standard network services and continue to attract customers network traffic
in competition to those who could otherwise purchase an AS2 software offering. During the fiscal quarter ended January 31, 2005, we further improved our operational leverage
by increasing our consolidated revenue by $737,412 and by reducing our operating loss by $1,260,956
from the fiscal quarter ended January 31, 2004. Consolidated revenue for the three months ended January 31, 2005 decreased from the three
months ended October 31, 2004 by $253,396 due to the seasonality of Christmas EDI traffic that
occurs in the Companys first fiscal quarter. We rely on many of our competitors to interconnect, at reasonable cost, with our service and
have interconnection arrangements with more than 65 business-to-business networks for the benefit
of our customers. We believe that these arrangements will satisfy the business requirements of our
existing customers, but there can be no assurance that this will continue to be the case. In the second quarter of fiscal 2005, the Company commenced the relocation of its corporate
headquarters from New York, New York to Norcross, Georgia. Over the past two quarters, the Company
has incurred one time expenses of approximately $200,000, which were recognized as occurred. These
expenses including moving costs, retention bonuses, and data/voice line termination fees.




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##### Table of Contents



Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principals accepted in the United States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues
and expenses. We consider certain accounting policies related to revenue recognition, valuation of
acquired intangibles and impairment of long-lived assets, and valuation of investments to be
critical policies due to the estimation process involved in each. Management discusses its
estimates and judgments with the companys Audit Committee of the board of directors. For a more detailed description on the application of these and other accounting policies, see
in Note 2 of the Consolidated Financial Statements included in our annual report on Form 10-K for
the fiscal year ended July 31, 2004. Reference is also made to the discussion of the application
of these critical accounting policies and estimates contained in Managements Discussion and
Analysis in our annual report on Form 10-K for 2004. During the six months ended January 31, 2005
there were no significant or material changes in the application of critical accounting policies
that would require an update to the information provided in the Form 10-K for 2004. In January 2004, the Company adopted the fair value method of recording stock-based
compensation expense in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). The fair value of stock options and
stock-based compensation plans as determined on the date of grant using the Black-Scholes
option-pricing model is being expensed over the vesting period of the related stock options and
stock-based compensation plans. The use of this model required management to make certain
estimates for values of variables used by the model. Management estimated the values for stock
price volatility, the expected life of the equity instruments and the risk free rate based on
information that was available to management at the time the Black-Scholes option-pricing
calculations were performed. During the three and six-month period ended January 31, 2005, the
Company recorded non-cash charges for stock-based compensation of $193,475 and $404,308,
respectively. The Company has entered into several transactions involving the issuance of warrants and
options to purchase shares of the Companys class A common stock to consultants, lenders, warrant
holders, placement agents and other business associates and vendors. The issuance of these
securities required management to estimate their value using the Black-Scholes option-pricing
model. In connection with the Companys April 2004 private placement, the Company incurred fees
that were paid by issuing warrants to purchase 283,170 shares of class A common stock at an
exercise price of $2.22 per share. The fair value of the warrants was determined by management to
be $225,905 by utilizing the Black-Scholes option pricing model. In January 2004, we implemented a voluntary stock option exchange program whereby we offered
to exchange certain outstanding options to purchase shares of class A common stock held by eligible
employees, with exercise prices per share greater than or equal to $11.50, for new options to
purchase shares of class A common stock. Under this exchange program, the 26 participating
employees agreed to cancel, as of January 30, 2004, their existing options to purchase a total of
823,500 shares of the class A common stock and were granted options to purchase 494,100 shares of
class A common stock with an exercise price of $1.25 per share, the closing market price per share
on January 20, 2004. In addition, under this exchange program, two directors cancelled as of
January 30, 2004 existing options to purchase 250,000 shares of class A common stock and were
granted options to purchase 150,000 shares of the class A common stock with an exercise price of
$2.00 per share. Management estimated the value of the options granted under the exchange program
using the Black Scholes option-pricing model. The allocation of the proceeds from the sale of the series D preferred stock and warrants
issued in the Companys April 30, 2003 private placement between the fair value of the series D
preferred stock and the fair value of the detachable warrants required management to estimate the
fair value of the warrants. Managements estimate resulted in a beneficial conversion feature in
the amount of $106,730. The discount was immediately accreted and treated as a deemed dividend to
the holder of the series D preferred as all of the series D preferred stock was eligible for
conversion upon issuance.




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##### Table of Contents



During the fourth quarter of fiscal 2003, the goodwill of the Service Bureau was tested for
impairment due to a significant decline in revenues and operating income resulting primarily from
the bankruptcy of its largest customer. The fair value of the Service Bureau reporting unit was
estimated using the net present value of expected future cash flows. An impairment of goodwill in
the amount of approximately $982,000 was recorded during the year ended July 31, 2003. Three Months Ended January 31, 2005 Compared with Three Months Ended January 31, 2004. Results of Operations  Consolidated The following table reflects consolidated operating data by reported segments. All
significant intersegment activity has been eliminated. Accordingly, the segment results below
exclude the effect of transactions with our subsidiary. Three Months EndedJanuary 31,2005
    
    
    2004Consolidated net profit (loss):ICC.NET
    
    $
    (156,878
    )
    
    $
    (1,405,160
    )Service Bureau
    
    
    (131,546
    )
    
    
    (97,767
    )Consolidated loss
    
    $
    (288,424
    )
    
    $
    (1,502,927
    )
 Results of Operations  ICC.NET  Our ICC.NET  service, the Companys global Internet-based value added network, or
VAN, uses the Internet and our proprietary technology to deliver our customers documents and data
files to members of their trading communities, many of which may have incompatible systems, by
translating the documents and data files into any format required by the receiver. The following
table summarizes operating results for our ICC.NET  service for the three months ended
January 31, 2005 and 2004: Three Months EndedJanuary 31,
    
    
    Variance2005
    
    
    2004
    
    
    $
    
    
    %Revenues:VAN Services
    
    $
    2,609,072
    
    
    $
    2,119,470
    
    
    
    489,602
    
    
    
    23Professional services
    
    
    81,023
    
    
    
    279,127
    
    
    
    (198,104
    )
    
    
    (71
    )Mapping Services
    
    
    51,320
    
    
    
    85,592
    
    
    
    (34,272
    )
    
    
    (40
    )2,741,415
    
    
    
    2,484,189
    
    
    
    257,226
    
    
    
    10Expenses:Cost of services
    
    
    1,055,398
    
    
    
    1,554,398
    
    
    
    (499,000
    )
    
    
    (32
    )Product development and enhancement
    
    
    159,674
    
    
    
    196,786
    
    
    
    (37,112
    )
    
    
    (19
    )Selling and marketing
    
    
    554,108
    
    
    
    792,400
    
    
    
    (238,292
    )
    
    
    (30
    )General and administrative
    
    
    942,952
    
    
    
    926,389
    
    
    
    16,563
    
    
    
    1Non-cash charges for stock-based compensation
    
    
    193,476
    
    
    
    473,144
    
    
    
    (279,668
    )
    
    
    (59
    )2,905,608
    
    
    
    3,943,117
    
    

    
    (1,037,509
    )
    
    
    (26
    )Operating loss
    
    
    (164,193
    )
    
    
    (1,458,928
    )
    
    
    1,294,735
    
    
    
    88Other income (expense), net
    
    
    7,315
    
    
    
    53,768
    
    
    
    (46,453
    )
    
    
    (86
    )Net loss
    
    $
    (156,878
    )
    
    $
    (1,405,160
    )
    
    
    1,248,282
    
    
    
    (88
    )
 Revenues  ICC.NET Revenue from ICC.NET  services was 78% of
consolidated revenues for the quarter ended January 31, 2005 (2005 Quarter) compared to 90% for
the quarter ended January 31, 2004 (2004 Quarter). ICC.NET service revenues increased
$257,000, or 10%, to $2,741,000 for the 2005 Quarter compared to $2,484,000 for the 2004 Quarter.
VAN service revenue increased $490,000, or 23%, to $2,609,000 for the 2005 Quarter compared to
$2,119,000 for the 2004 Quarter. The additional revenue was primarily due to increased volume in
VAN traffic and an increase in the monthly mailbox fee during the quarter ended October 31, 2004.
Professional services revenue decreased $198,000, or 71%, to $81,000 for the 2005 Quarter compared
to




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##### Table of Contents



$279,000 for the 2004 Quarter, partially due to a decrease of $67,000 in revenue from EDI
educational services and seminars. We discontinued our EDI educational services and seminars in
January 2004. This decrease was also due to a continued slowing demand for the other professional
services we provide. Mapping service revenue decreased $34,000, or 40%, to $51,000 for the 2005
Quarter compared to $86,000 for the 2004 Quarter. The decrease was primarily due to a decrease in
the number of customers coupled with smaller mapping projects. The decrease in customers stems
from cheaper, overseas competition for similar services and potential customers using their own
internal resources aided by improved mapping software tools. Cost of services  ICC.NET  Cost of services was 38% of revenue from the
ICC.NET  services for the 2005 Quarter, compared to 63% for the 2004 Quarter. Total cost
of services decreased $499,000, or 32%, to $1,055,000 for the 2005 Quarter compared to $1,554,000
for the 2004 Quarter. Cost of services consists primarily of salaries and employee benefits,
connectivity fees, amortization, allocation from product and development and rent. This decrease
was the result of a $253,000 decrease in salaries and benefits due to a decrease in headcount to 21
in January 2005 from 27 in January 2004 and a decrease in the use of consultants. There was also a
$35,000 decrease in rent due primarily to a decrease in office space occupied by client services
personnel. Allocation of salaries from product and development decreased $59,000 in the 2005
Quarter from the 2004 Quarter due to less developer time spent on projects directly related to
ICC.NET services and the decrease in headcount in product development as mentioned below. Product development and enhancement  ICC.NET   Product development and
enhancement costs relating to our ICC.NET service consist primarily of salaries and employee
benefits. Product development and enhancement costs decreased $37,000 in the 2005 Quarter from the
2004 Quarter. Salaries and benefits decreased $85,000 in the 2005 Quarter from the 2004 Quarter,
primarily due to a decrease in the number of employees to 8 at the end of the 2005 Quarter from 10
at the end of the 2004 Quarter. Depreciation expense decreased $11,000 in the 2005 Quarter from the
2004 Quarter due to assets reaching the end of their useful lives subsequent to the 2004 Quarter.
Offsetting these decreases, allocation of product development salaries to other departments
decreased $63,000 in the 2005 Quarter from the 2004 Quarter. Selling and marketing- ICC.NET    Selling and marketing expenses relating to our
ICC.NET service consist primarily of salaries and employee benefits, rent, travel-related costs,
advertising and trade-show costs. Selling and marketing expenses relating to our ICC.NET service
decreased $238,000 in the 2005 Quarter from the 2004 Quarter. Salaries and benefits decreased
$200,000 in the 2005 Quarter from the 2004 Quarter primarily due to a decrease in the number of
employees to 8 at the end of the 2005 Quarter from 16 at the end of the 2004 Quarter. Travel and
entertainment expenses also decreased by $40,000 in the 2005 Quarter from the 2004 Quarter due to
less employees. Commencing in the quarter ended October 31, 2004, ICC.NET began allocating a
portion of the cost of sales and marketing functions to the Service Bureau segment based on the
level of effort utilized in selling Service Bureau products. This corporate allocation to the
Service Bureau segment was $24,000 in the 2005 Quarter. General and administrative- ICC.NET   General and administrative expenses
supporting our ICC.NET service consist primarily of salaries and employee benefits, legal and
professional fees, facility costs, travel meals and entertainment and insurance. General and
administrative costs supporting our ICC.NET service increased $17,000 in the 2005 Quarter from the
2004 Quarter. Salaries and benefits increased $165,000 in the 2005 Quarter from the 2004 Quarter
due to the strengthening of executive management by the addition of a new chief executive officer
and chief operating officer subsequent to the 2004 Quarter. One-time relocation expenses for the
corporate office were approximately $50,000 in the 2005 Quarter and Bad Debt expense increased by
$74,000 in the 2005 Quarter from the 2004 Quarter due to a large write off of a customer balance
due to bankruptcy. These increases were offset by increase in the corporate allocation to the
Service Bureau. Commencing in the second fiscal quarter of 2003, ICC.NET began allocating a
portion of the cost of executive management, human resources, accounting and finance functions to
the Service Bureau segment based on the level of services provided, and in the 2005 Quarter, the
cost of the MIS function was added to those being allocated. This corporate allocation to the
Service Bureau segment increased $90,000 in the 2005 Quarter from the 2004 Quarter, to $135,000
from $45,000. Non-cash charges  ICC.NET   Non-cash charges of approximately $193,000 in the 2005
Quarter consist of $150,000 for stock options issued to employees and directors and of $43,000 for
shares of class A common stock to be issued to non-employee directors as compensation for two
months of calendar year 2004 directors fees and




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##### Table of Contents



one month of calendar year 2005 directors fees. Non-cash charges of approximately $438,000
in the 2004 Quarter relate to the adoption of FASB Statement No. 123, Accounting for Stock-Based
Compensation. In January 2004, the Company implemented a voluntary stock option exchange program
under which the Company offered to exchange certain outstanding options to purchase shares of the
Companys common stock held by eligible employees of the Company, with exercise prices per share
greater than or equal to $11.50 per share, for new options to purchase shares of the Companys
common stock. The fair value method has been applied prospectively to all employee and director
awards granted, modified, or settled after July 31, 2003. Non-cash charges of approximately
$35,000 in the 2004 Quarter consisted of shares of class A common stock issued to non-employee
directors as compensation for calendar year 2003 directors fees.




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##### Table of Contents



Results of Operations  Service Bureau Our Service Bureau manages and translates the data of small and mid-sized companies that
exchange EDI data with large companies and provides various EDI and UPC services. Our Service
Bureau also licenses EDI software. On June 22, 2004, we acquired Electronic Commerce Systems, Inc.
(ECS), the operating results of which are reported in the Service Bureau segment. The following
table summarizes operating results for our Service Bureau: Three Months EndedJanuary 31,
    
    
    Variance2005
    
    
    2004
    
    
    $
    
    
    %Revenues:Services
    
    $
    751,729
    
    
    $
    271,543
    
    
    
    480,186
    
    
    
    177Expenses:Cost of services
    
    
    284,948
    
    
    
    196,588
    
    
    
    88,360
    
    
    
    45Impairment of capitalized software
    
    
    
    
    
    
    44,983
    
    
    
    (44,983
    )
    
    
    (100
    )Product development and enhancement
    
    
    81,622
    
    
    
    30,004
    
    
    
    51,618
    
    
    
    172Selling and marketing
    
    
    148,501
    
    
    
    19,495
    
    
    
    129,006
    
    
    
    661General and administrative
    
    
    368,204
    
    
    
    78,240
    
    
    
    289,964
    
    
    
    370883,275
    
    
    
    369,310
    
    
    
    513,965
    
    
    
    139Operating loss
    
    
    (131,546
    )
    
    
    (97,767
    )
    
    
    (33,779
    )
    
    
    (34
    )Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (131,546
    )
    
    $
    (97,767
    )
    
    
    (33,779
    )
    
    
    (34
    )
 Revenue  Service Bureau Revenue from Service Bureau was 22% of consolidated revenues for
the 2005 Quarter compared to 10% for the 2004 Quarter. The revenue increased $480,000, or 177%, to
$752,000 for the 2005 Quarter compared to $272,000 for the 2004 Quarter. The revenue was primarily
generated from services performed, customer support and licensing fees. The increase was primarily
the result of the acquisition of ECS in June 2004. Cost of services  Service Bureau- Cost of services relating to our service bureau was 38% of
revenue derived from the Service Bureau in the 2005 Quarter, compared to 72% of such revenue in the
2004 Quarter. Cost of services relating to our Service Bureau consists primarily of salaries and
employee benefits, amortization, connectivity fees and rent. Cost of services relating to our
Service Bureau increased $88,000 in the 2005 Quarter from the 2004 Quarter. Amortization was
$44,000 in the 2005 Quarter with no amount in the 2004 Quarter due to the amortization of
technology obtained in the acquisition of ECS. Connectivity fees increased $64,000 in the 2005
Quarter from the 2004 Quarter due an increase in the level of business conducted. Offsetting these
increases, allocation of expense from the product development and enhancement department decreased
$28,000 in the 2005 Quarter from the 2004 Quarter. Impairment of capitalized software  Service Bureau In January 2004, the Company recorded an
impairment charge of approximately $45,000 for previously capitalized software development costs
related to a completed development project of its Service Bureau. The Company determined during the
quarter ended January 31, 2004 that projected sales of this software were not sufficient to support
its carrying value. Product development and enhancement  Service Bureau- Product development and enhancement
costs consist primarily of salaries and employee benefits. Product development and enhancement
costs incurred by our Service Bureau increased $52,000 in the 2005 Quarter from the 2004 Quarter.
Salaries and benefits increased $23,000 in the 2005 Quarter from the 2004 Quarter due primarily to
a change in the mix of employees with the ECS acquisition. In addition, allocation of product
development salaries to other departments decreased $31,000 in the 2005 Quarter from the 2004
Quarter.




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##### Table of Contents



Selling and marketing  Service Bureau- Selling and marketing expenses relating to our
Service Bureau consist primarily of salaries and employee benefits and amortization. Selling and
marketing expenses incurred by our Service Bureau increased $129,000 in the 2005 Quarter from the
2004 Quarter. Salaries and benefits increased $90,000 in the 2005 Quarter from the 2004 Quarter due
to an increase in the number of employees to five at the end of the 2005 Quarter from one at the
end of the 2004 Quarter. Amortization was $11,000 in the 2005 Quarter with no amount in the 2004
Quarter due to the amortization of customer relationships obtained in the acquisition of ECS.
Allocation of selling and marketing expenses from ICC.NET increased $24,000 in the 2005 Quarter
from the 2004 Quarter. See Selling and marketing  ICC.NET above for a discussion of the
allocation of selling and marketing expenses between segments. General and administrative  Service Bureau- General and administrative expenses relating to
our Service Bureau consist primarily of salaries and employee benefits, office expenses,
depreciation, telephone and rent. General and administrative expenses incurred by our Service
Bureau increased $290,000 in the 2005 Quarter from the 2004 Quarter. Salaries and employee
benefits increased $130,000 in the 2005 Quarter from the 2004 Quarter due primarily to an increase
in the number of employees to four at the end of the 2005 Quarter from two at the end of the 2004
Quarter. Rent, travel, depreciation and telephone costs increased $16,000, $11,000, $12,000 and
$6,000, respectively, in the 2005 Quarter from the 2004 Quarter as a result of the addition of new
facilities resulting from the acquisition of ECS. Allocation of general and administrative
expenses from ICC.NET increased $90,000 in the 2005 Quarter from the 2004 Quarter. See General
and administrative  ICC.NET  above for a discussion of the allocation of general and
administrative expenses between segments. Six Months Ended January 31, 2005 Compared with Six Months Ended January 31, 2004. Results of Operations  Consolidated The following table reflects consolidated operating data by reported segments. All
significant intersegment activity has been eliminated. Accordingly, the segment results below
exclude the effect of transactions with our subsidiary. Six Months EndedJanuary 31,2005
    
    
    2004Consolidated net loss:ICC.NET
    
    $
    (631,489
    )
    
    $
    (2,191,972
    )Service Bureau
    
    
    (58,546
    )
    
    
    (128,702
    )Consolidated loss
    
    $
    (690,035
    )
    
    $
    (2,320,674
    )
 Results of Operations  ICC.NET  The following table summarizes operating results for our ICC.NET  service for the
six months ended January 31, 2005 and 2004: Six Months EndedJanuary 31,
    
    
    Variance2005
    
    
    2004
    
    
    $
    
    
    %Revenues:VAN Services
    
    $
    5,230,910
    
    
    $
    4,475,200
    
    
    
    755,710
    
    
    
    17Professional services
    
    
    219,798
    
    
    
    634,289
    
    
    
    (414,491
    )
    
    
    (65
    )Mapping Services
    
    
    115,949
    
    
    
    170,401
    
    
    
    (54,452
    )
    
    
    (32
    )5,566,657
    
    
    
    5,279,890
    
    
    
    286,767
    
    
    
    5Expenses:Cost of services
    
    
    2,255,555
    
    
    
    3,210,805
    
    
    
    (955,250
    )
    
    
    (30
    )Product development and enhancement
    
    
    293,751
    
    
    
    387,751
    
    
    
    (94,000
    )
    
    
    (24
    )Selling and marketing
    
    
    1,242,421
    
    
    
    1,599,632
    
    
    
    (357,211
    )
    
    
    (22
    )General and administrative
    
    
    2,012,527
    
    
    
    1,789,789
    
    
    
    222,738
    
    
    
    12Non-cash charges for stock-based compensation
    
    
    404,308
    
    
    
    526,086
    
    
    
    (121,778
    )
    
    
    (23
    )6,208,562
    
    
    
    7,514,063
    
    
    
    (1,305,501
    )
    
    
    (17
    )




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##### Table of Contents



Six Months EndedJanuary 31,
    
    
    Variance2005
    
    
    2004
    
    
    $
    
    
    %Operating loss
    
    
    (641,905
    )
    
    
    (2,234,173
    )
    
    
    1,592,268
    
    
    
    (71
    )Other income (expense), net
    
    
    10,417
    
    
    
    42,201
    
    
    
    (31,784
    )
    
    
    (75
    )Net loss
    
    $
    (631,488
    )
    
    $
    (2,191,972
    )
    
    
    1,560,484
    
    
    
    (71
    )
 Revenues  ICC.NET Revenue from ICC.NET  services was 77% of
consolidated revenues for the six months ended January 31, 2005 (2005 Six Months) compared to 90%
for the six months ended January 31, 2004 (2004 Six
Months). ICC.NET  service revenues
increased $287,000, or 5%, to $5,567,000 for the 2005 Six Months compared to $5,280,000 for the
2004 Six Months. VAN service revenue increased $756,000, or 17%, to $5,231,000 for the 2005 Six
Months compared to $4,475,000 for the 2004 Six Months. The increase was primarily due to an
increase in the monthly mailbox fee during the 2005 Six Months. Professional service revenue
decreased $414,000, or 65%, to $220,000 for the 2005 Six Months compared to $634,000 for the 2004
Six Months, partially due to a decrease of $149,000 in revenue from EDI educational services and
seminars. We discontinued our EDI educational services and seminars in January 2004. This
decrease was also due to a continued slowing demand for the other professional services we provide.
Mapping service revenue decreased $54,000, or 32%, to $116,000 for the 2005 Six Months compared to
$170,000 for the 2004 Six Months. The decrease was primarily due to a decrease in the number of
customers coupled with smaller mapping projects. The decrease in customers stems from cheaper,
overseas competition for similar services and potential customers using their own internal
resources aided by improved mapping software tools. Cost of services  ICC.NET Cost of services was 41% of revenue from the ICC.NET services
for the 2005 Six Months, compared to 61% for the 2004 Months. Total cost of services decreased
$955,000, or 30%, to $2,256,000 for the 2005 Six Months compared to $3,211,000 for the 2004 Six
Months. Cost of services consists primarily of salaries and employee benefits, connectivity fees,
amortization, allocation from product and development and rent. This decrease was the result of a
$550,000 decrease in salaries and benefits due to a decrease in headcount, an $88,000 decrease in
connectivity fees due to a switch in our primary connectivity vendor, and a $50,000 decrease in
rent due primarily to a decrease in office space occupied by client services personnel. The
decrease was also as a result of a $105,000 decrease in allocation of product and development costs
due to a decrease in headcount in product development as well as a decrease in depreciation of
$52,000 for the 2005 Six Months from the 2004 Six Months. Product development and enhancement ICC.NET  Product development and
enhancement costs decreased $94,000, or 24%, to $294,000 for the 2005 Six Months compared to
$388,000 for the 2004 Six Months. Salaries and benefits decreased $167,000 in the 2005 Six Months
from the 2004 Six Months. Depreciation expense decreased $23,000 in the 2005 Six Months from the
2004 Six Months due to assets reaching the end of their useful lives subsequent to the 2004 Six
Months. Offsetting these decreases, allocation of product development salaries to other
departments decreased $101,000 in the 2005 Six Months from the 2004 Six Months. Selling and marketing  ICC.NET  Selling and marketing expenses decreased $357,000,
or 22%, to $1,242,000 for 2005 Six Months compared to $1,600,000 for 2004 Six Months. Selling and
marketing expenses consist primarily of salaries and employee benefits, travel-related costs, rent,
depreciation, advertising and trade-show costs. This decrease was due primarily to a $363,000
decrease in salaries and benefits attributable to a decrease in the number of employees to 8 at the
end of the 2005 Six Months from 16 at the end of the 2004 Six Months. In addition, commencing in
the first quarter of fiscal 2005, the Company began allocating a portion of the cost of sales and
marketing functions to the Service Bureau segment based on the level of effort utilized in selling
Service Bureau products. The allocation was $48,000 for the 2005 Six Months. General and administrative  ICC.NET   General and administrative expenses
increased $223,000, or 12%, to $2,013,000 for the 2005 Six Months compared to $1,790,000 for the
2004 Six Months. General and administrative expenses consist primarily of salaries and employee
benefits, facility costs, legal and professional fees, insurance, travel meals and entertainment
and depreciation. Salaries and benefits increased $418,000 in the 2005 Six Months from the 2004
Six Months due to retention bonuses of $118,000 and the strengthening of executive management by
the addition of a new chief executive officer and chief operating officer subsequent to the 2004
Six Months. One-time relocation expenses for the corporate office including moving costs were
approximately $50,000




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##### Table of Contents



in the 2005 Six Months and Bad Debt expense increased by $88,000 in the 2005 Six Months from
the 2004 Six Months due to a large write off of a customer balance due to bankruptcy. These
increases were offset by an increase in the corporate allocation to the Service Bureau. Commencing
in the second fiscal quarter of 2003, ICC.NET began allocating a portion of the cost of executive
management, human resources, accounting and finance functions to the Service Bureau segment based
on the level of services provided, and in the 2005 Quarter, the cost of the MIS function was added
to those being allocated. This corporate allocation to the Service Bureau segment increased
$180,000 in the 2005 Six Months from the 2004 Six Months, to $270,000 from $90,000. Non-cash charges  ICC.NET   Non-cash charges for stock-based compensation
decreased $122,000, or 23%, to $404,000 for the 2005 Six Months compared to $526,000 for the 2004
Six Months. Non-cash charges for stock-based compensation consist of value for stock options
issued to employees and directors and for shares of class A common stock issued to non-employee
directors as compensation for the directors fees. The fair value method has been applied
prospectively to all employee and director awards granted, modified, or settled after July 31, 2003
(see Note 3).




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##### Table of Contents



Results of Operations  Service Bureau The following table summarizes operating results for our Service Bureau for the six months
ended January 31, 2005 and 2004: Six Months EndedJanuary 31,
    
    
    Variance2005
    
    
    2004
    
    
    $
    
    
    %Revenues:Services
    
    $
    1,673,027
    
    
    $
    579,194
    
    
    
    1,093,833
    
    
    
    189Expenses:Cost of services
    
    
    502,217
    
    
    
    400,489
    
    
    
    101,728
    
    
    
    25Impairment of capitalized software
    
    
    
    
    
    
    44,983
    
    
    
    (44,983
    )
    
    
    (100
    )Product development and enhancement
    
    
    170,256
    
    
    
    64,253
    
    
    
    106,003
    
    
    
    165Selling and marketing
    
    
    298,307
    
    
    
    37,946
    
    
    
    260,361
    
    
    
    686General and administrative
    
    
    760,793
    
    
    
    160,225
    
    
    
    600,568
    
    
    
    3751,731,573
    
    
    
    707,896
    
    
    
    1,023,677
    
    
    
    145Operating loss
    
    
    (58,546
    )
    
    
    (128,702
    )
    
    
    70,156
    
    
    
    (55
    )Other income (expense), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (58,546
    )
    
    $
    (128,702
    )
    
    
    70,156
    
    
    
    (55
    )
 Revenue  Service Bureau Revenue from Service Bureau was 23% of consolidated revenues
for the 2005 Six Months compared to 10% for the 2004 Six Months. The revenue increased $1,094,000,
or 189%, to $1,673,000 for the 2005 Six Months compared to $579,000 for the 2004 Six Months. The
revenue was primarily generated from services performed, customer support and licensing fees. The
increase was primarily due to the acquisition of ECS in June 2004. Cost of services  Service Bureau Cost of services was 30% of revenue from the service
bureau for the 2005 Six Months, compared to 69% for the 2004 Six Months. Total cost of services
increased $102,000, or 25%, to $502,000 for the 2005 Six Months compared to $400,000 for the 2004
Six Months. Cost of services relating to our Service Bureau consists primarily of salaries and
employee benefits, amortization, connectivity fees and rent. Amortization was $88,000 in the 2005
Six Months with no amount in the 2004 Six Months due to the amortization of technology obtained in
the acquisition of ECS. Connectivity fees increased $74,000 in the 2005 Six Months from the 2004
Six Months due an increase in the level of business conducted from the acquisition of ECS.
Offsetting these increases, allocation of expense from the product development and enhancement
department decreased $56,000 in the 2005 Six Months from the 2004 Six Months. Impairment of capitalized software  Service Bureau In January 2004, the Company recorded an
impairment charge of approximately $45,000 for previously capitalized software development costs
related to a completed development project of its Service Bureau. The Company determined during the
quarter ended January 31, 2004 that projected sales of this software were not sufficient to support
its carrying value. Product development and enhancement  Service Bureau Product development and enhancement
costs increased $106,000, or 165%, to $170,000 for the 2005 Six Months compared to $64,000 for the
2004 Six Months. Salaries and benefits increased $46,000 in the 2005 Six Months from the 2004 Six
Months due primarily to a change in the mix of employees with the ECS acquisition. In addition,
allocation of product development salaries to other departments decreased $60,000 in the 2005 Six
Months from the 2004 Six Months. Selling and marketing  Service Bureau- Selling and marketing expenses increased $260,000, or
686%, to $298,000 for 2005 Six Months compared to $38,000 for 2004 Six Months. Salaries and
benefits increased $170,000 in the 2005 Six Months from the 2004 Six Months due to an increase in
the number of employees to five at the end of the 2005 Six Months from one at the end of the 2004
Six Months. Amortization was $22,000 in the 2005 Six Months with no amount in the 2004 Six Months
due to the amortization of customer relationships obtained in the acquisition of ECS. Allocation of
selling and marketing expenses from increased $48,000 in the 2005 Six Months




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##### Table of Contents



from the 2004 Quarter. See Selling and marketing  ICC.NET above for a discussion of the
allocation of selling and marketing expenses between segments. General and administrative  Service Bureau General and administrative expenses increased
$601,000, or 375%, to $761,000 for the 2005 Six Months compared to $160,000 for the 2004 Six
Months. General and administrative expenses consist primarily of salaries and employee benefits,
facility costs, legal and professional fees, insurance, travel meals and entertainment and
depreciation. Salaries and employee benefits increased $274,000 in the 2005 Six Months from the
2004 Six Months due primarily to an increase in the number of employees to four at the end of the
2005 Six Months from two at the end of the 2004 Six Months. Rent, travel, depreciation and
telephone costs increased $35,000, $19,000, $21,000 and $25,000, respectively, in the 2005 Six
Months from the 2004 Six Months as a result of the addition of new facilities resulting from the
acquisition of ECS. Allocation of general and administrative expenses from ICC.NET increased
$180,000 in the 2005 Six Months from the 2004 Six Months. See General and administrative -
ICC.NET above for a discussion of the allocation of general and administrative expenses between
segments.




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##### Table of Contents



Liquidity and Capital Resources Our principal sources of liquidity, which consist of unrestricted cash and cash equivalents,
decreased to $3,151,000 as of January 31, 2005 from $3,790,000 as of July 31, 2004. We believe
these resources will provide us with sufficient liquidity to continue in operation through July 31,
2005. On April 20, 2004, the Company completed a private placement of common stock and warrants to
purchase shares of common stock (the 2004 Private Placement) that provided aggregate gross
proceeds of approximately $4,955,000. In the 2004 Private Placement, the Company sold 2,831,707 shares of its class A common stock
and warrants to purchase 849,507 shares of our class A common stock. These warrants are exercisable
for five years commencing on October 20, 2004 at an exercise price of $2.22 per share. In connection with the 2004 Private Placement, the Company incurred fees and expenses of
$772,001, of which $423,274 was paid in cash at closing, $122,822 is payable in cash and $225,905
was paid by issuing warrants to purchase 283,170 shares of class A common stock. The fair value of
the warrants was estimated by management using the Black-Scholes option-pricing model. These
warrants have substantially the same terms as the warrants issued in the 2004 Private Placement. No
directors, officers or entities with which the Companys directors, or officers are affiliated
participated in the 2004 Private Placement. In connection with the 2004 Private Placement, the Company entered into a registration rights
agreement with the investors, dated as of April 20, 2004, and filed a registration statement with
the SEC on April 30, 2004 pursuant to this agreement. The registration statement was declared
effective on August 20, 2004 and the Company is required to pay the holders of shares issued in the
2004 Private Placement liquidated damages totaling $3,300 because of a two-day delay in causing the
registration statement to become effective. If the effectiveness of the registration statement is
not maintained for the period required by the registration rights agreement, the Company may be
required to pay to the holders of shares issued in the 2004 Private Placement liquidated damages of
one percent (1%) of the purchase price paid for the shares by the holders for each 30 day period
(or portion thereof on a pro rata basis) that the effectiveness of the registration statement is
not maintained. On May 30, 2003, the Company executed an Accounts Receivable Financing Agreement (Financing
Agreement) with Silicon Valley Bank (the Bank) with a term of one year. Under the Financing
Agreement, the Company may borrow, subject to certain conditions, up to 80% of its outstanding
accounts receivable up to a maximum of $2,000,000. The applicable interest rate is the prime rate
plus .35% plus a collateral handling fee equal to .20% on the average daily outstanding receivable
balance, and interest is payable monthly. The Financing Agreement contains certain restrictive
covenants that are customary for a commercial transaction of this type, including, without
limitation, restrictions on the disposition or encumbrance of the collateral pledged to the Bank,
restrictions on incurring additional indebtedness and restrictions on the payment of dividends and
the redemption or repurchase of any capital stock. In addition, the Company is required to
maintain at all times a ratio of Quick Assets (i.e., consolidated, unrestricted cash, cash
equivalents, net accounts receivable and investments with maturities of fewer than 12 months
determined according to GAAP) to Current Liabilities (i.e., all obligations and liabilities of the
Company to Bank, plus, without duplication, the aggregate amount of the Companys total liabilities
which mature within one (1) year) minus Deferred Revenue (i.e., all amounts received in advance of
performance under contracts and not yet recognized as revenue) of at least 1.10 to 1.0. The Bank
has been granted a security interest in substantially all of the Companys assets. On October 22,
2003; August 31, 2004 and December 29, 2004, the Company and the Bank amended the Financing
Agreement to extend its term to August 31, 2004; December 29, 2004 and February 15, 2005,
respectively. As of January 31, 2005 and July 31, 2004, no amounts were outstanding under the
Financing Agreement. The Bank has approved a fourth loan modification agreement extending the term an additional
year that changes the interest under the Financing Agreement to prime rate plus .25% plus a
collateral handling fee equal to .15% on the average daily outstanding financed receivable balance
as long as the Company maintains an Adjusted Quick Ratio (as defined in the Financing Agreement) of
not less 1.25 to 1. Should the Company fail to maintain an Adjusted Quick Ratio of 1.25 to 1, the
interest rises to prime rate plus .75% and the collateral handling fee increases to .35% on the
average daily outstanding financed receivable balance.




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##### Table of Contents



The Company has net operating loss carryforwards for tax purposes of approximately $78.5
million as of July 31, 2004. These carryforwards expire from 2007 to 2024. The Internal Revenue
Code and Income Tax Regulations contain provisions which limit the use of available net operating
loss carryforwards in any given year should significant changes (greater than 50%) in ownership
interests occur. Due to the initial public offering in January 1995, the net operating loss
carryover of approximately $1.9 million incurred prior to the initial public offering is subject to
an annual limitation of approximately $400,000 until that portion of the net operating loss is
utilized or expires. Due to the private placement of series A preferred stock in April 1999, the
net operating loss carryover of approximately $18 million incurred prior to the private placement
and subsequent to the initial public offering is subject to an annual limitation of approximately
$1 million until that portion of the net operating loss is utilized or expires. Due to a 100%
ownership change of RTCI in November 2000, the acquired net operating loss of approximately $6.5
million incurred prior to the ownership change is subject to an annual limitation of approximately
$1.4 million until that portion of the net operating loss is utilized or expires. Also, due to a
100% ownership change of ECS in June 2004, the acquired net operating loss of approximately $1.1
million incurred prior to the ownership change is subject to an annual limitation of approximately
$128,000 until that portion of the net operating loss is utilized or expires. Consolidated Working Capital Consolidated working capital decreased to $4,069,000 at January 31, 2005 from $4,198,000 at
July 31, 2004. This decrease was primarily due to a decrease in accounts payable and accrued
expense of $370,000, an increase in accrued dividends on preferred stock of $201,000, an increase
in accounts receivable primarily attributable to slightly slower collections of $165,000 and an
increase in prepaid expense and other current assets of $173,000 primarily due to director fees. Analysis of Cash Flows Cash used in operating activities was $300,000 in the six months ended January 31, 2005
compared to $1,922,000 in the six months ended January 31, 2004. The decrease in the six months
ended January 31, 2005 of $1,623,000 was primarily the result of a significantly lower net loss of
$1,631,000. Cash used in investing activities increased to $280,000 in the six months ended January 31,
2005 from $59,000 provided by investing activities in the six months ended January 31, 2004. Cash
used in investing activities in the six months ended January 31, 2005 primarily resulted from
purchase of property and equipment of $158,000 and additional costs relating to the ECS acquisition
of $121,000. Cash provided by investing activities in the six months ended January 31, 2004 was
primarily the result of proceeds from the sale of marketable securities of $134,000 partially
offset by the purchase of property and equipment of $75,000. Cash used in financing activities was $60,000 in the six months ended January 31, 2005
compared to $470,000 provided by financing activities in the six months ended January 31, 2004.
Cash used in financing activities in the six months ended January 31, 2005 was primarily the result
of capital lease payments of $36,000 and net payments for the issuance of common stock and warrants
of $24,000. Cash provided by financing activities in the six months ended January 31, 2004 is
primarily the result of financing agreement net borrowings of $534,000.




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is primarily exposed to interest rate risk, equity risk and credit risk. Interest Rate Risk- Interest rate risk refers to fluctuations in the value of a security
resulting from changes in the general level of interest rates. Investments that are classified as
cash and cash equivalents have original maturities of three months or less. Changes in interest
rates may affect the value of these investments. Credit Risk- Our accounts receivables are subject, in the normal course of business, to
collection risks. We regularly assess these risks and have established policies and business
practices to protect against the adverse effects of collection risks. As a result we do not
anticipate any material losses in this area. 
 Item 4. Controls and Procedures Our management, including our chief executive officer and chief financial officer, have
carried out an evaluation of the effectiveness of our disclosure controls and procedures as of
January 31, 2005, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e). Based upon that
evaluation, our chief executive officer and chief financial officer have concluded that as of such
date, our disclosure controls and procedures in place are adequate to ensure material information
and other information requiring disclosure is identified and communicated on a timely basis.




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings None. 
 Item 2. Changes in Securities and Use of Proceeds None. 
 Item 3: Defaults Upon Senior Securities The Company has recorded the issuance of the payment in kind of the 4% annual dividend due in
January 2005 per the terms of the Companys Series C preferred stock in the financial statements.
The Company is currently in discussions with the holder of its Series C preferred stock, Cable and
Wireless PLC to eliminate the Series C preferred stock, and accordingly has not delivered the
documentation for the issued shares pending completion of those discussions. 
 Item 4: Submission of Matters to a Vote of Security Holders None. 
 Item 5. Other Information None. 
 Item 6. Exhibits and Reports on Form 8-K (a)
    
    Exhibits31.1
    
    
    Certificate of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certificate of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    
    Certification of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 (b)
    
    Reports on Form 8-KCurrent Report Form 8-K dated November 2, 2004 (Item 5.02).Current Report Form 8-K dated December 15, 2004 (Item 2.02 and 9.01)Current Report Form 8-K dated January 19, 2005 Item 4.01 and 9.01).




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. Date: March 16, 2005 INTERNET COMMERCE CORPORATIONby:
    
    /s/ Thomas J. StallingsThomas J. StallingsChief Executive Officerby:
    
    /s/ Glen ShipleyGlen Shipley
Chief Financial Officer