U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                                  _____________


|X|   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the quarterly period ended October 31, 2004


|_|   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                                         13-3645702
  (State of incorporation)                              (I.R.S. Employer
                                                      Identification Number)

                           805 Third Avenue, 9th Floor
                            New York, New York 10022
          (Address of principal executive offices, including zip code)

                                 (212) 271-7640
              (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 |X| No |_|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes |_| No |X|

      As of December 14, 2004, the registrant had outstanding 19,058,187 shares
of Class A Common Stock.

<PAGE>

                          INTERNET COMMERCE CORPORATION

                               INDEX TO FORM 10-Q

                                                                           PAGE
                                                                           ----

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

   Consolidated balance sheets as of October 31, 2004 (unaudited)
   and July 31, 2004....................................................      3

   Consolidated statements of operations and comprehensive loss
   for the three months ended October 31, 2004 (unaudited)
   and October 31, 2003 (unaudited).....................................      4

   Consolidated statements of cash flows for the three months
   ended October 31, 2004 (unaudited) and October 31, 2003
   (unaudited)..........................................................      5

   Notes to consolidated financial statements (unaudited)...............      6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations............................     18

Item 3.  Quantitative and Qualitative Disclosures About
         Market Risk....................................................     36

Item 4. Controls and Procedures.........................................     36

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings..............................................    37

Item 2.  Unregistered Sales of Equity...................................    37

Item 3.  Defaults Upon Senior Securities................................    37

Item 4.  Submission of Matters to a Vote of Security Holders............    38

Item 5.  Other Information..............................................    38

Item 6.  Exhibits ......................................................    38


SIGNATURES

CERTIFICATIONS


                                       2

<PAGE>

INTERNET COMMERCE CORPORATION

Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                  October 31,          July 31,
                                                                                     2004                2004
                                                                                -------------         ------------
                                                                                 (unaudited)
ASSETS

<S>                                                                             <C>                   <C>
Current assets:
   Cash and cash equivalents                                                    $  3,645,535          $  3,789,643
   Accounts receivable, net of allowance
     for doubtful accounts of $338,409 and $308,867,
     respectively                                                                  2,475,352             2,154,463
   Prepaid expenses and other current assets                                         213,600               244,900
                                                                                ------------          ------------
       Total current assets                                                        6,334,487             6,189,006

Restricted cash                                                                      107,992               107,658
Property and equipment, net                                                          253,472               295,556
Capitalized software development costs, net                                            4,465                17,860
Goodwill                                                                           2,619,048             2,539,238
Other intangible assets, net                                                       1,971,371             2,265,010
Other assets                                                                          14,237                14,237
                                                                                ------------          ------------
       Total assets                                                             $ 11,305,072          $ 11,428,565
                                                                                ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                             $    718,780          $    523,703
   Accrued expenses                                                                  978,952             1,004,461
   Accrued dividends - preferred stock                                               333,333               232,787
   Deferred revenue                                                                  136,273               133,063
   Capital lease obligation                                                           27,507                52,291
   Other liabilities                                                                  22,085                45,111
                                                                                ------------          ------------
          Total current liabilities                                                2,216,930             1,991,416

Capital lease obligation - less current portion                                        1,197                 2,908
                                                                                ------------          ------------
          Total liabilities                                                        2,218,127             1,994,324
                                                                                ------------          ------------

Commitments and contingencies

Stockholders' 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 $10,333,333)                                                100                   100
     Series D preferred stock - 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; 19,058,187 and 19,058,187
       shares issued and outstanding, respectively                                   190,582               190,582
Additional paid-in capital                                                        95,197,670            95,143,356
Accumulated deficit                                                              (86,301,410)          (85,899,800)
                                                                                ------------          ------------
          Total stockholders' equity                                               9,086,945             9,434,241
                                                                                ------------          ------------

          Total liabilities and stockholders' equity                            $ 11,305,072          $ 11,428,565
                                                                                ============          ============
</TABLE>


                 See notes to consolidated financial statements.


                                       3
<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Operations and Comprehensive Loss (unaudited)

                                                                                     Three Months Ended
                                                                                        October 31,
                                                                                -----------------------------
                                                                                   2004             2003
                                                                                ------------     ------------

<S>                                                                             <C>              <C>
Revenue:
   Services                                                                     $  3,746,540     $  3,103,352
                                                                                ------------     ------------

Expenses:
Cost of services (excluding non-cash compensation of $2,143
  for the three months ended October 31, 2004)                                     1,417,426        1,860,309
Product development and enhancement (excluding non-cash
  compensation of $7,552 for the three months ended
  October 31, 2004)                                                                  222,711          225,214
Selling and marketing  (excluding non-cash compensation of
  $2,643 for the three months ended October 31, 2004)                                838,118          825,681
General and administrative (excluding non-cash compensation
   of  $198,495 and $52,943 for the three months ended October 31,
   2004 and 2003, respectively)                                                    1,462,165          945,385
Non-cash charges for stock-based compensation and services                           210,833           52,943
                                                                                ------------     ------------
  Total expenses                                                                   4,151,253        3,909,532
                                                                                ------------     ------------
Operating loss                                                                      (404,713)        (806,180)
                                                                                ------------     ------------

Other income and (expense):
   Interest and investment income                                                      6,098              858
   Interest expense                                                                   (2,996)         (12,425)
                                                                                ------------     ------------

                                                                                       3,102          (11,567)
                                                                                ------------     ------------
Net loss                                                                        $   (401,611)    $   (817,747)

Dividends on preferred stock                                                        (100,546)        (100,561)
                                                                                ------------     ------------

Loss attributable to common stockholders                                        $   (502,157)    $   (918,308)
                                                                                ============     ============

Basic and diluted loss per common share                                         $      (0.03)    $      (0.07)
                                                                                ============     ============

Weighted average number of common shares outstanding -
   basic and diluted                                                              19,058,187       13,797,567
                                                                                ============     ============

COMPREHENSIVE LOSS:
Net loss                                                                        $   (401,611)    $   (817,747)

Other comprehensive income:
Unrealized gain - marketable securities                                                 --              9,023
                                                                                ------------     ------------

Comprehensive loss                                                              $   (401,611)    $   (808,724)
                                                                                ============     ============
</TABLE>


                 See notes to consolidated financial statements.


                                       4
<PAGE>

<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows (unaudited)

                                                                           Three Months Ended October 31,
                                                                         -------------------------------
                                                                             2004               2003
                                                                         -----------         -----------

<S>                                                                     <C>                  <C>
Cash flows from operating activities:
 Net loss                                                                $  (401,611)        $  (817,747)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
   Depreciation and amortization                                             381,260             385,804
   Bad debt expense                                                           29,542              15,517
   Non-cash interest expense                                                    --                 8,605
   Non-cash charges for equity instruments
     issued for compensation and services                                    210,833              52,943
   Changes in:
     Accounts receivable                                                    (350,431)           (213,365)
     Prepaid expenses and other assets                                         3,883              42,717
     Accounts payable                                                        195,077            (264,772)
     Accrued expenses                                                        (30,885)           (245,909)
     Deferred revenue                                                          3,210             (27,351)
     Other liabilities                                                       (23,026)            (39,520)
                                                                         -----------         -----------

        Net cash provided by (used in) operating activities                   17,852          (1,103,078)
                                                                         -----------         -----------

Cash flows from investing activities:
 Additional costs of previous acquisition                                    (79,810)               --
 Purchases of property and equipment                                         (32,142)            (46,188)
 Purchase of certificates of deposit                                            --                  (421)
                                                                         -----------         -----------

        Net cash used in investing activities                               (111,952)            (46,609)
                                                                         -----------         -----------

Cash flows from financing activities:
 Net proceeds from the issuance of common
   stock and warrants                                                        (23,512)               --
 Payments of capital lease obligations                                       (26,496)            (36,136)
                                                                         -----------         -----------

        Net cash used in financing activities                                (50,008)            (36,136)
                                                                         -----------         -----------

Net decrease in cash and cash equivalents                                   (144,108)         (1,185,823)

Cash and cash equivalents, beginning of period                             3,789,643           2,283,339
                                                                         -----------         -----------

Cash and cash equivalents, end of period                                 $ 3,645,535         $ 1,097,516
                                                                         ===========         ===========

Supplemental disclosure of cash flow information:
 Cash paid for interest during the period                                $     2,996         $     3,820
</TABLE>


                      See notes to consolidated financial statements.


                                       5
<PAGE>

INTERNET COMMERCE CORPORATION


1.    BASIS OF PRESENTATION

      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 month period ended October 31, 2004 are
      not necessarily indicative of the results that may be expected for the
      fiscal year ending July 31, 2005.

2.    ORGANIZATION AND NATURE OF BUSINESS

      ICC provides Internet-based services for the e-commerce
      business-to-business communication services market. ICC.NET, our global
      Internet-based value added network, or VAN, provides supply chain
      connectivity solutions for electronic data interchange, or EDI, and
      e-commerce, and offers users a vehicle to securely send and receive files
      of any format and size.

      The ICC.NET system uses the Internet and proprietary technology to deliver
      the Company's customers' documents and data files to members of their
      trading communities, many of which have incompatible systems, by
      translating the documents and data files into any format required by the
      receiver. The system can be accessed using a standard Web browser or
      virtually any other communications protocol.

      The Company has the capability to facilitate the development and operation
      of comprehensive business-to-business electronic commerce solutions. The
      Company can provide professional service electronic commerce solutions
      involving EDI and EAI (Enterprise Application Integration) by providing
      mission critical electronic commerce consulting, electronic commerce
      software, outsourced electronic commerce services and technical resource
      management.

      ICC's capabilities also include an EDI Service Bureau, which provides EDI
      services to small and mid-sized companies. The Service Bureau's services
      include the conversion of electronic forms into hard copies and the
      conversion of hard copies to an EDI format. The Service Bureau also
      provides Universal Product Code ("UPC") services and maintains UPC
      catalogs for its customers.

      On June 22, 2004, the Company acquired Electronic Commerce Systems, Inc.
      ("ECS"). ECS offers ongoing EDI compliance within e-business solutions to
      suppliers. ECS provides Internet-based services, software, and service
      bureau services for the e-commerce business-to-business communication
      service market. The operating results of ECS are included in the Service
      Bureau segment.

      On September 28, 2004, ICC announced that the Board of Directors approved
      the relocation of the corporate headquarters to Atlanta, Georgia. This
      move, which is targeted for completion by mid-January 2005, will
      consolidate corporate operations in one city. The East Setauket, NY; Cary,
      GA; and Carrollton, GA facilities and offices will be unaffected by this
      move. Since the lease of the present corporate headquarters in New York,
      NY, expires on January 31, 2005, the Company does not expect to incur any
      lease termination expenses. The Company expects to incur expenses of
      approximately $200,000 for moving, new leasehold improvements and
      retention bonuses, which will be recognized when incurred.

                                       6

<PAGE>

INTERNET COMMERCE CORPORATION


3.    SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES

      Principles of consolidation:

      The consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiaries. All significant intercompany
      transactions have been eliminated in consolidation.

      Revenue recognition:

      The Company derives revenue from subscriptions to its ICC.NET service,
      which includes transaction, mailbox and fax transmission fees. The
      subscription fees are comprised of both fixed and usage-based fees. Fixed
      subscription fees are recognized on a pro-rata basis over the subscription
      period, generally three to six months. Usage fees are recognized in the
      period the services are rendered. The Company also derives revenue through
      implementation fees, interconnection fees and by providing data mapping
      services to its customers. Implementation fees are recognized over the
      life of the subscription period. Interconnection fees are fees charged to
      connect to another VAN service and are recognized when the data is
      transmitted to the connected service. Revenue from data mapping services
      is recognized when the map has been completed and delivered to the
      customer. The Company has a limited number of fixed fee data mapping
      service contracts. Under these contracts, the Company is required to
      provide a specified number of maps for a fixed fee. Revenue from such
      contracts is recognized using the percentage-of-completion method of
      accounting (see below).

      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. Revenue from EDI and electronic commerce
      consulting services and education and training seminars were recognized
      when the services were provided. The Company discontinued its EDI
      education and training seminars in February 2004. Revenues from our EDI
      education and training seminars were immaterial in all periods presented.

      Revenue from fixed fee data mapping and professional service contracts are
      recognized using the percentage-of-completion method of accounting, as
      prescribed by SOP 81-1 "Accounting for Performance of Construction-Type
      and Certain Production-Type Contracts."

      The percentage of completion for each contract is determined based on the
      ratio of direct labor hours incurred to total estimated direct labor hours
      required to complete the contract. The Company may periodically encounter
      changes in estimated costs and other factors that may lead to a change in
      the estimated profitability of a fixed-price contract. In such
      circumstances, adjustments to cost and profitability estimates are made in
      the period in which the underlying factors requiring such revisions become
      known. If such revisions indicate a loss on a contract, the entire loss is
      recorded at such time. Amounts billed in advance of services being
      performed are recorded as deferred revenue. Certain fixed-fee contracts
      may have substantive customer acceptance provisions. The acceptance terms
      generally include a single review and revision cycle for each deliverable
      to incorporate the customer's suggested or required modifications.
      Deliverables are considered accepted upon completion of the review and
      revision cycle and revenue is recognized upon that acceptance.

      The Company also derives revenue from its Service Bureau. Service Bureau
      revenue is comprised of EDI services, including data translation services,
      purchase order and invoice processing from EDI-to-print and print-to-EDI,
      UPC services, including UPC number generation, UPC catalog maintenance and
      UPC label printing. The Service Bureau also derives revenue from software
      licensing and provides software maintenance and support. Revenue from the
      EDI services and UPC services is recognized when the services are
      provided. The Company accounts for its EDI software license sales in
      accordance with the American Institute of Certified Public Accountants'
      Statement of Position 97-2, "Software Revenue Recognition," as amended
      ("SOP 97-2"). Revenue from software licenses is recognized when all of the
      following conditions are met: (1) a non-cancelable, non-contingent license
      agreement has been signed; (2) the software product has been delivered;
      (3) there are no material uncertainties regarding customer acceptance; and
      (4) collection of the resulting receivable is probable. Revenue from
      software maintenance

                                       7
<PAGE>

INTERNET COMMERCE CORPORATION


3.    SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (CONTINUED)

      and support contracts is recognized ratably over the life of the contract.
      The Service Bureau's software license revenue was not significant in any
      of the periods presented.

      In addition, SOP 97-2 generally requires that revenue from software
      arrangements involving multiple elements be allocated among each element
      of the arrangement based on the relative fair values of the elements, such
      as software licenses, post contract customer support, installation or
      training. Furthermore, SOP 97-2 requires that revenue be recognized as
      each element is delivered and the Company has no significant performance
      obligations remaining. The Company's multiple element arrangements
      generally consist of a software license and post contract support. The
      Company allocates the aggregate revenue from multiple element arrangements
      to each element based on vendor specific objective evidence. The Company
      has established vendor specific objective evidence for each of the
      elements as it sells both the software and post contract customer support
      independent of multiple element agreements. Customers are charged standard
      prices for the software and post contract customer support and these
      prices do not vary from customer to customer.

      If the Company enters into a multiple element agreement where vendor
      specific objective evidence of fair value for each element of the
      arrangement does not exist, all revenue from the arrangement is deferred
      until all elements of the arrangement are delivered.

      Service revenue from post contract customer support is recognized ratably
      over the term of the support contract, on a straight-line basis. Other
      service revenue is recognized at the time the service is performed.

      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 or prior to the shipment of software.

      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.
      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" ("APB 25"), except to the extent that prior years' awards are
      modified subsequent to August 1, 2003. Option awards granted prior to
      August 1, 2003 that have not been modified or settled continue to be
      accounted for under the intrinsic value method of APB 25. 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.



                                       8

<PAGE>

INTERNET COMMERCE CORPORATION



3.    SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (CONTINUED)

                                                        Three Months Ended
                                                            October 31,
                                                     --------------------------
                                                         2004          2003
                                                     -----------    -----------

         Net loss, as reported                       $  (401,611)   $  (817,747)
         Add: Stock-based employee compensation
                expense included in reported
                net loss                                 178,373           --
         Deduct: Total stock-based employee
                   compensation expense determined
                   under fair value based method
                   for all awards                       (178,373)      (189,820)
                                                     -----------    -----------
         Pro forma net loss                          $  (401,611)   $(1,007,567)
                                                     ===========    ===========
         Basic and diluted loss per
         common share:
           As reported                               $     (0.03)   $     (0.07)
           Pro forma                                 $     (0.03)   $     (0.08)

      Use of estimates:

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the amounts of
      assets and liabilities and disclosure of contingent assets and liabilities
      at the date of the financial statements and reported amounts of revenue
      and expense during the reporting period. Actual results could differ from
      those estimates. Significant accounting estimates used in the preparation
      of the Company's consolidated financial statements include the fair value
      of equity securities underlying stock based compensation, the
      realizability of deferred tax assets, the carrying value of goodwill,
      intangible assets and long-lived assets, and depreciation and
      amortization.

      Recent Accounting Pronouncements:

      In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
      with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 supersedes
      Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
      Certain Employee Termination Benefits and Other Costs to Exit an Activity
      (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires
      that costs associated with an exit or disposal plan be recognized when
      incurred rather than at the date of a commitment to an exit or disposal
      plan. SFAS 146 is to be applied prospectively to exit or disposal
      activities initiated after December 31, 2002. The Company adopted SFAS 146
      on January 1, 2003. The adoption of this standard did not have a
      significant impact on the Company's consolidated financial position or
      results of operations.

      In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness to Others" which elaborates on the disclosures
      to be made by a guarantor in its interim and annual financial statements
      about its obligations under certain guarantees that it has issued. It also
      clarifies that a guarantor is required to recognize, at the inception of a
      guarantee, a liability for the fair value of the obligation undertaken in
      issuing the guarantee. The initial recognition and measurement provisions
      of Interpretation No. 45 are applicable on a prospective basis to
      guarantees issued or modified after December 31, 2002. The disclosure
      requirements in this Interpretation are effective for financial statements
      of interim or annual periods ending after December 15, 2002. The Company
      has provided information regarding commitments and contingencies relating
      to guarantees in Note 10. The adoption of this standard did not have a
      significant impact on the Company's consolidated financial position or
      results of operations.


                                       9
<PAGE>

INTERNET COMMERCE CORPORATION


3.    SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (CONTINUED)

      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 December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
      Compensation-Transition and Disclosure-an amendment of FASB Statement No.
      123" ("SFAS 148"). SFAS 148 amends SFAS 123, "Accounting for Stock-Based
      Compensation" to provide alternative methods to account for the transition
      from the intrinsic value method of recognition of stock-based employee
      compensation in accordance with APB Opinion No. 25, "Accounting for Stock
      Issued to Employees" to the fair value recognition provisions under SFAS
      123. SFAS 148 provides two additional methods of transition and will no
      longer permit the SFAS 123 prospective method to be used for fiscal years
      beginning after December 15, 2003. In addition, SFAS 148 amends the
      disclosure requirements of SFAS 123 to require prominent disclosure in
      both annual and interim financial statements about the method of
      accounting for stock-based employee compensation and the pro-forma effects
      had the fair value recognition provisions of SFAS 123 been used for all
      periods presented. The adoption of SFAS 148 did not have a significant
      impact on the Company's consolidated financial position and results of
      operations. The Company adopted the fair-value recognition provisions of
      SFAS 123 in January 2004.

      In January 2003, the FASB issued FASB Interpretation No. 46,
      "Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 clarifies
      the application of Accounting Research Bulletin No. 51, "Consolidated
      Financial Statements" to certain entities in which equity investors do not
      have the characteristics of a controlling financial interest or do not
      have sufficient equity at risk for the entity to finance its activities
      without additional subordinated financial support from other parties. In
      December 2003, the FASB issued FIN No. 46 (Revised) ("FIN 46R") to address
      certain FIN 46 implementation issues. This interpretation requires that
      the assets, liabilities and results of activities of a Variable Interest
      Entity ("VIE") be consolidated into the financial statements of the
      enterprise that is the primary beneficiary of the VIE. FIN 46R also
      requires additional disclosures by primary beneficiaries and other
      significant variable interest holders. This interpretation is effective no
      later than the end of the first interim or reporting period ending after
      March 15, 2004, except for those VIE's that are considered to be special
      purpose entities, for which the effective date is no later than the end of
      the first interim or annual reporting period ending after December 15,
      2003. The Company adopted FIN 46 in its entirety as of January 31, 2003.
      Since the Company does not have any VIE's, the adoption of FIN 46 did not
      have an impact on the Company's financial position or results of
      operations.

      In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
      Derivative Instruments and Hedging Activities" ("SFAS 149"), which amends
      and clarifies accounting for derivative instruments and for hedging
      activities under SFAS 133. Specifically, SFAS 149 requires that contracts
      with comparable characteristics be accounted for similarly. Additionally,
      SFAS 149 clarifies the circumstances in which a contract with an initial
      net investment meets the characteristics of a derivative and when a
      derivative contains a financing component that requires special reporting
      in the statement of cash flows. SFAS 149 is generally effective for
      contracts entered into or modified after June 30, 2003 and 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 is effective at the
      beginning of the first interim period beginning after June 15, 2003. For
      financial instruments created before the issuance date of this SFAS 150
      and still existing at the beginning of the

                                       10
<PAGE>

INTERNET COMMERCE CORPORATION


3.    SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (CONTINUED)

      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 SFAS 150, effective
      August 1, 2003, did not have a material impact on the Company's
      consolidated financial position or results of operations.

4.    CONCENTRATION OF CREDIT RISK

      Financial instruments that potentially subject the Company to
      concentrations of credit risk primarily consist of accounts receivable.
      The Company believes that any credit risk associated with receivables is
      minimal due to the number and credit worthiness of its customers.
      Receivables are stated at estimated net realizable value, which
      approximates fair value. For the three-month period ended October 31, 2004
      and 2003, no single customer accounted for more than 10% of revenue. No
      single customer accounted for more than 10% of accounts receivable at July
      31, 2004 or October 31, 2004.

5.    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
                                                            October 31,
                                                        2004           2003
                                                     ---------------------------

           Revenues                                  $ 3,747,000    $ 3,596,000
           Net loss                                  $  (402,000)   $  (792,000)
           Basic and diluted loss per common share   $     (0.03)   $     (0.06)


6.    BUSINESS SEGMENT INFORMATION

      The Company's two operating segments are:


                                       11
<PAGE>

INTERNET COMMERCE CORPORATION


6.    BUSINESS SEGMENT INFORMATION (CONTINUED)

      o     ICC.NET - The Company's global Internet-based value added network,
            or VAN, uses the Internet and proprietary technology to deliver
            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, and the development and operation of comprehensive
            business-to-business e-commerce solutions. Until January 2004, this
            segment also conducted a series of product-independent, one-day EDI
            seminars for e-commerce users. The Company discontinued offering
            seminars at the end of January 2004. Revenue from these seminars was
            immaterial in all periods presented.

            In response to continuing weak demand for its professional services,
            in February 2004 the Company combined these activities with ICC.NET
            to reduce operating costs. As a result, effective February 2004, the
            Company no longer reports the results for its professional services
            activities in a separate segment and includes these results in the
            ICC.NET segment. These activities were previously reported in the
            Professional Services segment.

      o     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 (universal product code)
            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 summarize information about operations and long-lived
      assets as of and for the three months ended October 31, 2004 and 2003.
      Such information has been recast for each period presented, to reflect
      this reorganization as if it had occurred on August 1, 2003.

<TABLE>
<CAPTION>

                                                                                Service
                                                          ICC.NET                Bureau               Total
                                                        -----------           -----------          -----------

<S>                                                     <C>                   <C>                  <C>
Three Months  - October 31, 2004
Revenues from external customers                        $ 2,825,242           $   921,298          $ 3,746,540
                                                        ===========           ===========          ===========
Operating income (loss)                                 $  (477,713)          $    73,000          $  (404,713)

Other income, net                                             3,102                  --                  3,102
                                                        -----------           -----------          -----------
Net income (loss) (1)                                   $  (474,611)          $    73,000          $  (401,611)
                                                        ===========           ===========          ===========
Supplemental segment information:
Amortization and depreciation                           $   308,711           $    72,549          $   381,260
Non-cash charges for stock-based
   compensation and services                            $   210,833           $      --            $   210,833

As of October 31, 2004
Property and Equipment, net                             $   189,202           $    64,270          $   253,472
Capitalized software development costs, net                   4,465                  --                  4,465
Goodwill                                                  1,211,925             1,407,123            2,619,048
Other intangibles assets, net                               956,000             1,015,371            1,971,371
                                                        -----------           -----------          -----------
Long lived assets, net                                  $ 2,361,592           $ 2,486,764          $ 4,848,356
                                                        ===========           ===========          ===========
</TABLE>

      (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 of selling and marketing costs to the Service
            Bureau during the three months ended October 31, 2004. 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
            of general and administrative costs for these services to the
            Service Bureau for the three months ended October 31, 2004.


                                       12

<PAGE>

INTERNET COMMERCE CORPORATION


6.    BUSINESS SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>

                                                                           Service
                                                       ICC.NET              Bureau                Total
                                                     -----------          -----------          -----------
                                                    (As recasted)

<S>                                                  <C>                  <C>                  <C>
Three Months  - October 31, 2003
Revenues from external customers                     $ 2,795,701          $   307,651          $ 3,103,352
                                                     ===========          ===========          ===========
Operating loss (1)                                   $  (775,246)         $   (30,934)         $  (806,180)
Other expense, net                                       (11,567)                --                (11,567)
                                                     -----------          -----------          -----------
Net loss                                             $  (786,813)         $   (30,934)         $  (817,747)
                                                     ===========          ===========          ===========
Supplemental segment information:
Amortization and depreciation                        $   372,516          $    13,288          $   385,804
Non-cash charges for stock-based
  compensation and services                          $    52,943          $      --            $    52,943

As of  October 31, 2003
Property and Equipment, net                          $   440,079          $    35,221          $   475,300

Capitalized software, net                                   --                108,738              108,738

Acquired identified intangibles, net                   1,912,000                 --              1,912,000

Goodwill                                                  26,132            1,185,793            1,211,925
                                                     -----------          -----------          -----------
Long lived assets, net                               $ 2,378,211          $ 1,329,752          $ 3,707,963
                                                     ===========          ===========          ===========
</TABLE>

(1)   Commencing in the second quarter of fiscal 2003, certain costs for
      executive management, human resources, accounting and finance were
      allocated to the Service Bureau from ICC.NET based on the level of
      services performed. In an effort to operate more efficiently and to reduce
      costs, these functions were consolidated and are performed by ICC.NET
      personnel. ICC.NET allocated $45,000 to the Service Bureau during the
      three month period ended October 31, 2003.

7.    STOCKHOLDERS' EQUITY

      2004 Private Placement of Common Stock:

      On April 20, 2004, the Company completed a private placement of class A
      common stock and warrants to purchase shares of class A common stock (the
      "2004 Private Placement") for aggregate gross proceeds of approximately
      $4,955,500. In the 2004 Private Placement, the Company sold 2,831,707
      shares of class A common stock and warrants to purchase 849,507 shares of
      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. 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 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.

      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 was 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


                                       13

<PAGE>

INTERNET COMMERCE CORPORATION


7.    STOCKHOLDERS' EQUITY (CONTINUED)

      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.

      No directors, officers or entities with which the Company's directors or
      officers are affiliated participated in the 2004 Private Placement.

      2003 Private Placement of Common Stock and Preferred Stock:

      During April and May 2003, the company completed a private placement of
      common stock, convertible preferred stock and warrants to purchase shares
      of common stock (the "2003 Private Placement") for aggregate gross
      proceeds of approximately $2,085,000.

      In the 2003 Private Placement, the Company sold 1,682,683 shares of class
      A common stock and warrants to purchase 1,346,140 of class A common stock
      for gross proceeds of approximately $1,835,000 and 250 shares of series D
      convertible redeemable preferred stock ("series D preferred") and warrants
      to purchase 153,845 shares of class A common stock for $250,000. All
      warrants are immediately exercisable and have an exercise price of $1.47
      per share. The warrants are exercisable until the fifth anniversary of the
      date of issuance. In addition, the warrants are redeemable at the
      Company's option, if the closing bid price of the Company's class A common
      stock exceeds 200% of the exercise price of the warrants for 30
      consecutive trading days. The redemption price is $0.10 per share for each
      share issuable under the warrants.

      The 250 shares of series D preferred are convertible into 192,307 shares
      of class A common stock. The allocation of the proceeds from the sale of
      the series D preferred between the fair value of the series D and the fair
      value of the detachable warrants 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 immediately convertible upon
      issuance.

      In connection with the 2003 Private Placement, the Company incurred fees
      of $325,750 of which $237,938 was payable in cash and $87,802 was paid by
      issuing warrants to purchase 110,680 shares of class A common stock. These
      warrants have substantially the same terms as the warrants issued in the
      2004 Private Placement.

      In connection with the 2003 Private Placement, the Company issued 48,076
      shares of class A common stock and warrants to purchase 38,460 shares of
      class A common stock in settlement of certain outstanding payables. The
      common stock and warrants were valued at $50,000, the invoice amount of
      the services provided to the Company.

      Approximately 21%, or $432,000, of the gross proceeds from the 2003
      Private Placement was received from directors and officers and entities
      with which the Company's directors are affiliated. Subsequent to the
      completion of the 2003 Private Placement, the Company determined that in
      order to comply with NASD Marketplace Rule 4350(i)(1)(A), the purchase
      price per share for the shares of class A common stock purchased by
      directors and officers in the private placement should be increased to
      market value, and on June 17, 2003 the directors and officers agreed to do
      so. As a result, two directors and three officers agreed to pay an
      additional $0.58 per share, or an aggregate of $85,502, for the shares of
      class A common stock they purchased in the private placement. In August of
      2003 the Company paid bonuses of $40,000 to reimburse the officers for
      their additional $0.58 per share payment and in January 2004, at the
      request of the NASD, these officers returned to the Company an aggregate
      of 11,091 shares of class A common stock they purchased in the private
      placement in order to increase their purchase price to $1.45 per share
      without regard to the bonuses.


                                       14
<PAGE>

INTERNET COMMERCE CORPORATION


7.    STOCKHOLDERS' EQUITY (CONTINUED)

      Stock Based Compensation:

      On March 10, 2003, options and shares of class A common stock were awarded
      to a non-employee director as compensation for consulting services. This
      individual was awarded 20,000 shares of class A common stock, valued at
      $18,000, which was recorded as a non-cash charge for stock-based
      compensation in the quarter ended April 30, 2003. Also on March 10, 2003,
      this individual was also granted options to purchase 100,000 shares of
      class A common stock, of which options to purchase 60,000 shares have an
      exercise price of $1.00 per share and vest six months from the date of
      issuance, and options to purchase 40,000 shares have an exercise price of
      $1.25 per share and vest one year from the date of issuance. The options
      have a fair value of $67,000, of which $15,440 has been recorded as a
      non-cash stock-based compensation charge for services during the three
      months ended October 31, 2003. In November 2003, this individual
      surrendered the 100,000 options noted above to the Company with no
      additional compensation charge recorded.

      Each non-employee member of the board of directors receives annual
      compensation of $25,000 for his current term of office, payable quarterly,
      in shares of class A common stock of the Company. The Company has recorded
      a compensation charge of $32,460 and $37,503 for the three months ended
      October 31, 2004 and 2003, respectively.

      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.

      Prior to August 1, 2003, the Company accounted for its employee stock
      options under the intrinsic value method of APB Opinion No. 25,
      "Accounting for Stock Issued to Employees," and related interpretations
      ("APB 25"). No stock-based employee compensation expense is reflected in
      the statement of operations for options granted to employees to purchase
      common stock granted with an exercise price equal to or greater that the
      market value of the underlying common stock on the date of grant.
      Effective August 1, 2003, the Company adopted the fair value recognition
      provisions of FASB Statement No. 123, "Accounting for Stock-Based
      Compensation" (FASB No. 123"). The fair value method has been applied
      prospectively to all employee awards granted, modified or settled after
      August 1, 2003. Options granted prior to August 1, 2003 that have not been
      modified or settled continue to be accounted for under the intrinsic value
      method of APB 25. During the three months ended October 31, 2004 the
      Company recorded non-cash charges for stock-based compensation of $178,373
      and recorded no such charges during the three months ended October 31,
      2003, as a result of the adoption of the fair value recognition provisions
      of FASB No. 123.


                                       15
<PAGE>

INTERNET COMMERCE CORPORATION


8.    IMPAIRMENT OF SOFTWARE DEVELOPMENT COSTS, INVESTMENTS AND SOFTWARE
      INVENTORY

      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.

9.    GOODWILL AND OTHER INTANGIBLE ASSETS

      On August 1, 2001, the Company adopted the provisions of SFAS No. 141,
      "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other
      Intangible Assets" ("SFAS 142"). SFAS 142 requires that intangible assets
      with indefinite useful lives no longer be amortized, but rather be tested
      at least annually for impairment. The Company's reporting units utilized
      for evaluating the recoverability of goodwill are the same as its
      operating segments.

      Intangible assets and related accumulated amortization consisted of the
      following at October 31, 2004 and July 31, 2004.

<TABLE>
<CAPTION>

                                                 October 31, 2004
                                                    (Unaudited)                                July 31, 2004
                                        Gross                          Net         Gross                            Net
                                      Carrying     Accumulated      Carrying      Carrying      Accumulated      Carrying
                                        Value      Amortization       Value         Value       Amortization       Value
                                     -------------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>            <C>            <C>            <C>
Data mapping technology (a)(c)       $4,780,000     $3,824,000     $  956,000     $4,780,000     $3,585,000     $1,195,000
Other technology (a) (d)                877,000         62,000        815,000        877,000         18,000        859,000
Customer relationships (b) (d)          216,000         16,000        200,000        216,000          5,000        211,000
                                     -------------------------------------------------------------------------------------
                                     $5,873,000     $3,902,000     $1,971,000     $5,873,000     $3,608,000     $2,265,000
                                     =====================================================================================
</TABLE>

            (a)   Amortized over five years on a straight-line basis.
                  Amortization expense recorded in cost of services.

            (b)   Amortized over five years on a straight-line basis.
                  Amortization expense recorded in selling and marketing.

            (c)   Acquired in the acquisition of Research Triangle Commerce,
                  Inc.

            (d)   Acquired in the acquisition of Electronic Commerce Systems,
                  Inc.

      The Company did not have any indefinite lived intangible assets that were
      not subject to amortization as of October 31, 2004 and July 31, 2004. The
      aggregate amortization expense for other intangible assets were $294,000
      and $239,000 during each of the three months ended October 31, 2004 and
      2003, respectively.

      At October 31, 2004, estimated amortization expense for other intangible
      assets over the remaining life of those assets is as follows:

                 Fiscal
                  Year      Estimated Remaining Amortization Expense
                  ----      ----------------------------------------
                  2005                  $880,000
                  2006                  $458,000
                  2007                  $219,000
                  2008                  $219,000
                  2009                  $195,000


                                       16
<PAGE>

INTERNET COMMERCE CORPORATION


9.    GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)

      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.

      The Company recorded an additional $79,810 to goodwill in the quarter
      ended October 31, 2004 relating to the ECS acquisition as a result of
      additional professional fees incurred after July 31, 2004.

      The change in carrying amount of goodwill for the three months ended
      October 31, 2004 is shown below:

                                                      Service
                                        ICC.NET        Bureau          Total
                                       ----------------------------------------

        Balance at July 31, 2004       $  26,132    $ 2,513,106     $ 2,539,238
        Additional cost of previous
          acquisition                         -          79,810          79,810
                                       ----------------------------------------
        Balance at October 31, 2004    $  26,132    $ 2,592,916     $ 2,619,048

      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.

10.   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 October 31, 2004, the Company was not
      subject to any litigation alleging that the Company's products infringe
      the intellectual property rights of any third parties.



                                       17
<PAGE>

INTERNET COMMERCE CORPORATION


11.   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 1 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. Interest is payable
      monthly. The Bank has been granted a security interest in substantially
      all of the Company's assets. In connection with the Financing Agreement,
      the Company issued the bank warrants to purchase 40,000 shares of the
      Company's class A common stock. The warrants are immediately exercisable
      at an exercise price of $1.39, equal to the fair market value of the
      Company's class A common stock at the date of closing of the Financing
      Agreement. The warrants are exercisable for seven years. The fair value of
      the warrants in the amount of approximately $34,000 was amortized to
      interest expense over the term of the Financing Agreement. During the
      fiscal year ended July 31, 2004, the Company recorded interest expense in
      the amount of approximately $28,434 for the amortization of the fair value
      of the warrants. No amortization expense was taken in the 2005 fiscal
      year. On October 22, 2003 and August 31, 2004, the Company and the Bank
      amended the Financing Agreement to extend its term to August 31, 2004 and
      December 29, 2004, respectively. As of October 31, 2004 and July 31, 2004,
      no amounts were outstanding under the Financing Agreement.





                                       18

<PAGE>

INTERNET COMMERCE CORPORATION


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
Quarterly 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.

      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 and its wholly owned subsidiaries.

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.

      As the Company approaches cash flow break-even, we have strengthened the
executive management team by the addition of a new Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer to capitalize on the
individual skills of senior management and more precisely align those skills
with the many new opportunities currently developing. We are focusing on the
future direction of the markets in which we compete, mergers and acquisitions
and the development of important strategic relationships, such as our Microsoft
Business Network opportunity, that have the potential to increase our revenues
and profits.

      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 significant 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. Professional Services
assists its clients to conduct business electronically through a continuum of
services including eConsulting, data transformation mapping (EDI, EAI, XML) and
internetworking. 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 departments.

      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, and in fact have improved, our margins, but we have experienced
some 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

                                       19
<PAGE>

INTERNET COMMERCE CORPORATION


competitors. To counteract this negative impact on our revenue growth,
management has deployed a new dual pronged strategy. We expect to add revenue
through 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 capabilities has refocused the attention of
industry. AS2 is a service offering on the Internet, which handles primary XML
documents, which are an extension of traditional EDI. We have incorporated this
communication methodology into our standard network services and are achieving
success in stemming a migration of our customers network traffic to those who
could otherwise purchase an AS2 software offering.

      Data synchronization has forced the industry to change its focus from cost
savings to compliance. Data synchronization is a methodology by which
descriptive data identifying an item or items is stored in a central depository
resulting in one common source of truth about the product description. We
believe this will be an industry focus for a year or so and thereafter be a
standard business practice. We have become a certified data synchronization
"on-boarder" and are currently offering training and consulting services to
capitalize on this emerging initiative.

      During the fiscal quarter ended October 31, 2004, we further improved our
operational leverage by increasing our consolidated revenue by $643,000 and by
reducing our operating loss by $401,000 from the fiscal quarter ended October
31, 2003.

      Consolidated revenue for the three months ended October 31, 2004 increased
from the three months ended October 31, 2003 by $643,000; however, our EDI
educational services and seminars unit that was discontinued in February 2004
due to continued operating losses produced revenue of $82,000 in the three
months ended October 31, 2003. VAN services revenue increased $266,000 or
approximately 11%. Service Bureau revenue in the quarter ended October 31, 2004
significantly increased $614,000, or 200%, over the three months period ended
October 31, 2003 due to the ECS acquisition. Professional services and mapping
revenues continue to be weak due to slow demand for these services. Commencing
in the third quarter of fiscal 2004 we combined the Professional Services
operating segment with ICC.NET to further minimize operating costs.

      As a result, the Company, effective February 2004, no longer separately
reports the operating results for its professional services activities as a
separate segment and began including these results in the ICC.NET segment. These
activities were previously reported in the Professional Services segment.

      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.

      On September 28, 2004, ICC announced that the Board of Directors approved
the relocation of the corporate headquarters to Atlanta, Georgia. This move,
which is targeted for completion by mid-January 2005, will consolidate corporate
operations in one city. The East Setauket, NY; Cary, GA; and Carrollton, GA
facilities and offices will be unaffected by this move. Since the lease of the
present corporate headquarters in New York, NY, expires on January 31, 2005, the
Company does not expect to incur any lease termination expenses. The Company
expects to incur expenses of approximately $200,000 for moving, new leasehold
improvements and retention bonuses, which will be recognized when incurred.

Critical Accounting Policies and Significant Use of Estimates in Financial
Statements

      Critical accounting policies are those policies that require application
of management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain and may change in subsequent periods.

      The following list of critical accounting policies is not intended to be a
comprehensive list of all of our accounting policies. Our significant accounting
policies are more fully described in note 2 of the notes to the consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended July 31, 2004. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting principles
with no need for management's judgment in their application. There are also
areas in which

                                       20
<PAGE>

INTERNET COMMERCE CORPORATION


management's judgment in selecting any available alternative would not produce a
materially different result. We have identified the following to be critical
accounting policies of the Company:

      Revenue Recognition: The Company derives revenue from subscriptions to its
ICC.NET service, which includes transaction, mailbox and fax transmission fees.
The subscription fees are comprised of both fixed and usage-based fees. Fixed
subscription fees are recognized on a pro-rata basis over the subscription
period, generally three to six months. Usage fees are recognized in the period
the services are rendered. The Company also derives revenue through
implementation fees, interconnection fees and by providing data mapping services
to its customers. Implementation fees are recognized over the life of the
subscription period. Interconnection fees are fees charged to connect to another
VAN service and are recognized when the data is transmitted to the connected
service. Revenue from data mapping services is recognized when the map has been
completed and delivered to the customer. The Company has a limited number of
fixed fee data mapping services contracts. Under these arrangements the Company
is required to provide a specified number of maps for a fixed fee. Revenue from
such arrangements is recognized using the percentage-of-completion method of
accounting (see below).

      The Company provides a range of EDI and electronic commerce consulting
services and EDI education and training seminars throughout the United States.
Revenue from EDI and electronic commerce consulting services and education and
training seminars are recognized when the services are provided. The Company
discontinued its EDI education and training seminars in February 2004. Revenues
from our EDI education and training seminars were immaterial in all periods
presented.

      Revenue from fixed fee data mapping and professional service contracts is
recognized using the percentage-of-completion method of accounting, as
prescribed by SOP 81-1 "Accounting for Performance of Construction-Type and
Certain Production-Type Contracts."

      The percentage of completion for each contract is determined based on the
ratio of direct labor hours incurred to total estimated direct labor hours
required to complete the contract. The Company may periodically encounter
changes in estimated costs and other factors that may lead to a change in the
estimated profitability of a fixed-price contract. In such circumstances,
adjustments to cost and profitability estimates are made in the period in which
the underlying factors requiring such revisions become known. If such revisions
indicate a loss on a contract, the entire loss is recorded at such time. Amounts
billed in advance of services being performed are recorded as deferred revenue.
Certain fixed-fee contracts may have substantive customer acceptance provisions.
The acceptance terms generally include a single review and revision cycle for
each deliverable to incorporate the customer's suggested or required
modifications. Deliverables are considered accepted upon completion of the
review and revision and revenue cycle is recognized upon acceptance.

      Service Bureau revenue is comprised of EDI services including data
translation services, EDI-to-print and print-to-EDI purchase order and invoice
processing, UPC services including UPC number generation, UPC catalog
maintenance and UPC label printing. The Service Bureau also derives revenue from
licensing software and providing software maintenance and support. Revenue from
EDI services and UPC services is recognized when the services are provided. The
Company accounts for its EDI software license sales in accordance with the
American Institute of Certified Public Accountants' Statement of Position 97-2,
"Software Revenue Recognition," as amended ("SOP 97-2"). Revenue from software
licenses is recognized when all of the following conditions are met: (1) a
non-cancelable non-contingent license agreement has been signed; (2) the
software product has been delivered; (3) there are no material uncertainties
regarding customer acceptance; and (4) collection of the resulting receivable is
probable. Revenue from software maintenance and support contracts is recognized
ratably over the life of the contract. The Service Bureau's software license
revenue was not significant in any of the periods presented.

      In addition, SOP 97-2 generally requires that revenue from software
arrangements involving multiple elements be allocated among each element of the
arrangement based on the relative fair values of the elements, such as software
licenses, post contract customer support, installation or training. Furthermore,
SOP 97-2 requires that revenue be recognized as each element is delivered with
no significant performance obligation remaining on the part of the Company. The
Company's multiple element arrangements generally consist of a software license
and post contract support. The Company allocates the aggregate revenue from
multiple element arrangements to each element based on vendor specific objective
evidence. The Company has established vendor specific objective evidence for
each of the elements as it sells both the software and post contract customer
support independent of

                                       21
<PAGE>

INTERNET COMMERCE CORPORATION


multiple element agreements. Customers are charged standard prices for the
software and post contract customer support and these prices do not vary from
customer to customer.

      If the Company enters into a multiple element agreement for which vendor
specific objective evidence of fair value for each element of the arrangement
does not exist, all revenue from the arrangement is deferred until all elements
of the arrangement are delivered.

      Service revenue from post contract customer support is recognized ratably
over the term of the support contract, on a straight-line basis. Other service
revenue is recognized at the time the service is performed.

      Goodwill: Goodwill consists of the excess purchase price over the fair
value of identifiable net assets of acquired businesses. The carrying value of
goodwill is evaluated for impairment on an annual basis. Management also reviews
goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount of goodwill may be impaired. If it is determined that
an impairment in value has occurred, goodwill is written down to its implied
fair value. The Company's reporting units utilized for evaluating the
recoverability of goodwill are the same as its operating segments.

      Other Intangible Assets: Other intangible assets are carried at cost less
accumulated amortization. Other intangible assets are amortized on a
straight-line basis over their expected lives, which are estimated to be five
years. The Company did not have any indefinite lived intangible assets other
than goodwill that were not subject to amortization.

      Impairment of long-lived assets: Long-lived assets of the Company,
including amortizable intangibles, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. Management also reevaluates the periods of amortization of
long-lived assets to determine whether events and circumstances warrant revised
estimates of useful lives. When such events or changes in circumstances occur,
the Company tests for impairment by comparing the carrying value of the
long-lived asset to the estimated undiscounted future cash flows expected to
result from use of the asset and its eventual disposition. If the sum of the
expected undiscounted future cash flows is less than the carrying amount of the
asset, the Company would recognize an impairment loss. The amount of the
impairment loss will be determined by comparing the carrying value of the
long-lived asset to the present value of the net future operating cash flows to
be generated by the asset.

      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.
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" ("APB 25"), except to the extent that prior years'
awards are modified subsequent to August 1, 2003. Option grants issued prior to
August 1, 2003 that have not been modified or settled continue to be accounted
for under the intrinsic value method of APB 25. 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.

      Income Taxes: Deferred income taxes are determined by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements. A valuation allowance is provided based on
the weight of available evidence, if it is considered more likely than not that
some portion, or all, of the deferred tax assets will not be realized.

      Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenue and expense
during the reporting period. Actual results could

                                       22
<PAGE>

INTERNET COMMERCE CORPORATION


differ from those estimates. The following discussion reviews items incorporated
in our financial statements during the three month periods ended October 31,
2004 and 2003 or as of October 31, 2004 and July 31, 2004 that required the use
of significant management estimates.

      As discussed above, 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"). During the three months ended
October 31, 2004 the Company recorded non-cash charges for stock-based
compensation of $178,373 and recorded no such amounts during the three months
ended October 31, 2003 as a result of the adoption of the fair value recognition
provisions of SFAS 123. The Black-Scholes option-pricing model was used to
determine the estimated fair value of stock options issued and modified. 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. Changes in such
estimates could have a significant impact on the estimated fair value of those
equity instruments.

      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. The
Black-Scholes option-pricing model requires 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. Changes in such
estimates could have a significant impact on the estimated fair value of those
equity instruments.

      In connection with the Company's April 2004 private placement, the Company
incurred fees which 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.



                                       23
<PAGE>

INTERNET COMMERCE CORPORATION


      On May 30, 2003, the Company executed an Accounts Receivable Financing
Agreement ("Financing Agreement") with Silicon Valley Bank ("Bank") with a term
of 1 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. Interest is payable monthly. The Bank has been granted a
security interest in substantially all of the Company's assets. In connection
with the Financing Agreement, the Company issued the bank warrants to purchase
40,000 shares of the Company's class A common stock. The warrants are
immediately exercisable at an exercise price of $1.39, equal to the fair market
value of the Company's class A common stock at the date of closing of the
Financing Agreement. The warrants are exercisable for seven years. The fair
value of the warrants in the amount of approximately $34,000 was amortized to
interest expense over the term of the Financing Agreement. During the fiscal
year ended July 31, 2004, the Company recorded interest expense in the amount of
approximately $28,434 for the amortization of the fair value of the warrants. No
amortization expense was taken in the 2005 fiscal year. On October 22, 2003 and
August 31, 2004, the Company and the Bank amended the Financing Agreement to
extend its term to August 31, 2004 and December 29, 2004, respectively. As of
July 31, 2004 and October 31, 2004, no amounts were outstanding under the
Financing Agreement.

      On March 10, 2003, the Company issued options to purchase 100,000 shares
of class A common stock to a non-employee member of the board of directors as
compensation for consulting services. The estimated fair value of the options
was determined by management to be $42,000. In November 2003, this individual
surrendered his 100,000 options noted above to the Company with no additional
compensation charge recorded.

      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.

      In connection with the private placement that closed during April and May
of 2003, the Company incurred fees which were paid by issuing warrants to
purchase 110,680 shares of class A common stock at an exercise price of $1.47
per share. The fair value of the warrants was determined by management to be
$87,800.

      In connection with the acquisition of RTCI on November 6, 2000, issued and
outstanding options and warrants to purchase RTCI common stock were exchanged
for options and warrants of ICC, providing the holders the right to receive,
upon exercise, an aggregate of 394,905 shares of ICC class A common stock and
$343,456 of cash. The options and warrants were valued using the Black-Scholes
option-pricing model. The fair value of the vested portion of the options was
included in the purchase price for RTCI.

      Goodwill is evaluated for impairment at least annually and whenever events
or circumstances indicate impairment may have occurred. The assessment requires
the comparison of the fair value of each of the Company's reporting units to the
carrying value of its respective net assets, including allocated goodwill. If
the carrying value of the reporting unit exceeds its fair value, the Company
must perform a second test to measure the amount of impairment. The second step
of the goodwill impairment test compares the implied fair value of reporting
unit goodwill with the carrying amount of that goodwill. The Company allocates
the fair value of a reporting unit to all of the assets and liabilities of that
unit as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the price paid to acquire the reporting
unit. The excess of the fair value of a reporting unit over the amounts assigned
to its assets and liabilities is the implied fair value of goodwill. If the
carrying amount of reporting unit goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recognized by the Company in an amount
equal to that excess.

      The Company estimates the fair value of its reporting units based on the
net present value of expected future cash flows. The use of this method requires
management to make estimates of the expected future cash flows of the reporting
unit and the Company's weighted average cost of capital. Estimating the
Company's weighted average cost of capital requires management to make estimates
for long-term interest rates, risk premiums, and beta coefficients. Management
estimated these items based on information that was available to management at
the time

                                       24
<PAGE>

INTERNET COMMERCE CORPORATION



the Company prepared its estimate of the fair value of the reporting unit.
Changes in either the expected cash flows or the weighted average cost of
capital could have a significant impact on the estimated fair value of the
Company's reporting units.

      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. 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 units. The Company concluded that no impairment existed at that
date.





                                       25
<PAGE>

INTERNET COMMERCE CORPORATION



Three Months Ended October 31, 2004 Compared with Three Months Ended October 31,
2003.

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 subsidiaries.

                                                      Three Months Ended
                                                         October 31,
                                                 ---------------------------
Consolidated net loss:                               2004          2003 (1)
                                                 -----------     -----------

ICC.NET                                          $  (474,611)    $  (786,813)
Service Bureau                                        73,000         (30,934)
                                                 -----------     -----------
Consolidated loss                                $  (401,611)    $  (817,747)
                                                 ===========     ===========

(1)   Recasted to reflect the inclusion of Professional Services within the
      ICC.NET segment.

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. In addition, ICC.NET
facilitates the development and operation of comprehensive business-to-business
e-commerce solutions. These professional services assist our clients to conduct
business electronically through a continuum of services including eConsulting,
data transformation mapping (EDI, EAI, XML) and internetworking. The following
table summarizes operating results for our ICC.NET service for the three months
ended October 31, 2004 and 2003:

<TABLE>
<CAPTION>

                                                           Three Months Ended
                                                               October 31,                       Variance
                                                      -----------------------------------------------------------
                                                          2004             2003 (1)           $              %
                                                     -----------        -----------        ----------------------
<S>                                                  <C>                <C>                    <C>            <C>
Revenue:
VAN services                                         $ 2,621,838        $ 2,355,730        $   266,108        11
Professional services                                    138,775            355,162           (216,387)      (61)
Mapping services                                          64,629             84,808            (20,179)      (24)
                                                     -----------        -----------        -----------
                                                       2,825,242          2,795,700             29,542         1
Expenses:
Cost of services                                       1,200,157          1,656,407           (456,250)      (28)
Product development and enhancement                      134,077            190,965            (56,888)      (30)
Selling and marketing                                    688,312            807,231           (118,919)      (15)
General and administrative                             1,069,576            863,401            206,175        24
Non-cash charges for stock-based compensation            210,833             52,942            157,891       298
                                                     -----------        -----------        -----------
                                                       3,302,955          3,570,946           (267,991)       (8)
                                                     -----------        -----------        -----------

Operating loss                                          (477,713)          (775,246)           297,533       (38)

Other expense, net                                         3,102            (11,567)            14,669      (127)
                                                     -----------        -----------        -----------

Net loss                                             $  (474,611)       $  (786,813)       $   312,202       (40)
                                                     ===========        ===========        ===========
</TABLE>

(1)   Recasted to reflect the inclusion of Professional Services within the
      ICC.NET segment.


                                       26

<PAGE>

INTERNET COMMERCE CORPORATION


      Revenue - ICC.NET - Revenue related to our ICC.NET service was 75% of
consolidated revenue for the quarter ended October 31, 2004 (the "2005 Quarter")
and 90% of consolidated revenue for the quarter ended October 31, 2003 (the
"2004 Quarter"). Total ICC.NET revenue increased $30,000 in the 2005 Quarter
from the 2004 Quarter, or approximately 1%. VAN services revenue increased
$266,000, or approximately 11%, in the 2005 Quarter from the 2004 Quarter. The
increase in VAN services revenue is primarily attributable to an increase in the
monthly mailbox fee during the 2005 Quarter. Professional services revenue
decreased $216,000, or approximately 61%, in the 2005 Quarter from the 2004
Quarter, partially due to a decrease of $82,000 in revenue from EDI educational
services and seminars. We discontinued our EDI educational services and seminars
in January 2004. In addition, revenue from our professional services decreased
$107,000, or approximately 39%, in the 2005 Quarter from the 2004 Quarter due to
a continued slowing in demand for these services. Mapping revenue decreased
$20,000, or approximately 24%, in the 2005 Quarter from the 2004 Quarter,
primarily due to a decrease in the number of customers and smaller mapping
projects resulting from the continued slowing in demand for these services.

      Cost of services - ICC.NET - Cost of services relating to our ICC.NET
service was 43% of revenue derived from the ICC.NET service in the 2005 Quarter,
compared to 59% of such revenue in the 2004 Quarter. Cost of services relating
to our ICC.NET service consists primarily of salaries and employee benefits,
connectivity fees, amortization and rent. Total cost of services decreased
$456,000 in the 2005 Quarter from the 2004 Quarter. Salaries and benefits and
fees paid to consultants decreased $297,000 in the 2005 Quarter from the 2004
Quarter, primarily due to a decrease in headcount to 16 in October 2004 from 34
in October 2003 and a decrease in the use of consultants. Allocation of salaries
from product and development decreased $46,000 in the 2005 Quarter from the 2004
Quarter, due to less developer time spent on costs of services projects. In
addition, travel and entertainment decreased $35,000 in the 2005 Quarter from
the 2004 Quarter due to the completion of professional service projects
requiring travel and the discontinuance of our educational services and seminars
in January 2004. Depreciation expense decreased $20,000 in the 2005 from the
2004 Quarter due to assets reaching the end of their useful lives subsequent to
the 2004 Quarter.

      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
$57,000 in the 2005 Quarter from the 2004 Quarter. Salaries and benefits
decreased $83,000 in the 2005 Quarter from the 2004 Quarter, primarily due to a
decrease in the number of employees to 7 at the end of the 2005 Quarter from 10
at the end of the 2004 Quarter. Depreciation expense decreased $11,000 in the
2005 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 $38,000 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 $119,000 in the
2005 Quarter from the 2004 Quarter. Salaries and benefits decreased $80,000 in
the 2005 Quarter from the 2004 Quarter primarily due to a decrease in the number
of employees to 14 at the end of the 2005 Quarter from 21 at the end of the 2004
Quarter. Commencing in the 2005 Quarter, 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 $206,000 in the 2005 Quarter from the 2004 Quarter.
Salaries and benefits increased $253,000 in the 2005 Quarter from the 2004
Quarter due to retention bonuses of $118,000 for finance department employees in
the 2005 Quarter and due the strengthening of executive management by the
addition of a new chief executive officer and chief operating officer subsequent
to the 2004 Quarter. Legal and professional fees increased $64,000 in the 2005
Quarter from the 2004 Quarter due to an increase in the use of these services.
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

                                       27
<PAGE>

INTERNET COMMERCE CORPORATION


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 $211,000 in
the 2005 Quarter consist of $178,000 for stock options issued to employees and
directors and of $33,000 for shares of class A common stock to be issued to
non-employee directors as compensation for 2004 directors' fees. Non-cash
charges of approximately $53,000 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 in the amount of $38,000. In addition,
$15,000 of expense was recognized during the 2004 Quarter for stock options
issued to a non-employee director as compensation for consulting services.

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 (Universal Product Code) 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:

<TABLE>
<CAPTION>

                                        Three Months Ended
                                            October 31,                      Variance
                                                                       --------------------
                                       2004            2003              $             %
                                    ----------------------------------------------------------
<S>                                 <C>              <C>               <C>              <C>
Revenue:
Services                            $ 921,298        $ 307,651         $ 613,647           199
                                    ---------        ---------         ---------     ---------

Expenses:

Cost of services                      217,270          203,901            13,369             7

Product development
  and enhancement                      88,635           34,249            54,386           159

Selling and marketing                 149,806           18,450           131,356           712

General and administrative            392,587           81,985           310,602           379
                                    ---------        ---------         ---------     ---------
                                      848,298          338,585           509,713           151

                                    ---------        ---------         ---------     ---------
Operating income (loss)                73,000          (30,934)          103,934          (336)

Other income, net                        --               --                --            --

                                    ---------        ---------         ---------     ---------
Net income (loss)                   $  73,000        $ (30,934)        $ 103,934     $    (336)
                                    =========        =========         =========     =========
</TABLE>

      Revenue - Service Bureau - Revenue relating to our Service Bureau was 25%
of consolidated revenue in the 2005 Quarter and 10% of consolidated revenue in
the 2004 Quarter. The Service Bureau's revenue was primarily generated from
services performed, customer support and licensing fees. Revenue in the 2005
Quarter increased $614,000, or 200%, from the 2004 Quarter due to the
acquisition of ECS in June 2004.

      Cost of services - Service Bureau - Cost of services relating to our
service bureau was 24% of revenue derived from the Service Bureau in the 2005
Quarter, compared to 66% 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 $13,000 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 $10,000 in the 2005 Quarter from the 2004 Quarter
due an increase in the level of business conducted. Offsetting these increases,


                                       28
<PAGE>

INTERNET COMMERCE CORPORATION


allocation of expense from the product development and enhancement department
decreased $28,000 in the 2005 Quarter from the 2004 Quarter.

      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 $54,000 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 an increase in the number of employees to 4 at the end of the 2004
Quarter from 3 at the end of the 2003 Quarter. Allocation of product development
salaries to other departments decreased $29,000 in the 2005 Quarter from the
2004 Quarter.

      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 $131,000 in the 2005 Quarter from the 2004 Quarter.
Salaries and benefits increased $82,000 in the 2005 Quarter from the 2004
Quarter due to an increase in the number of employees to 4 at the end of the
2005 Quarter from 1 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 $311,000 in
the 2005 Quarter from the 2004 Quarter. Salaries and employee benefits increased
$143,000 in the 2005 Quarter from the 2004 Quarter due primarily to an increase
in the number of employees to 5 at the end of the 2005 Quarter from 1 at the end
of the 2004 Quarter. Rent, office expense, telephone expenses and depreciation
increased $23,000, $16,000, $14,000 and $10,000, 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.

Liquidity and Capital Resources

      Our principal sources of liquidity, which consist of unrestricted cash and
cash equivalents, decreased slightly to $3,646,000 as of October 31, 2004 from
$3,790,000 as of July 31, 2004. We believe these resources provide us with
sufficient liquidity to continue in operation at least 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

                                       29
<PAGE>

INTERNET COMMERCE CORPORATION


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.

      During April and May 2003, the Company completed a private placement of
shares of its class Acommon stock, convertible preferred stock and warrants to
purchase shares of common stock (the "2003 Private Placement") for aggregate
gross proceeds of approximately $2,085,000.

      In the 2003 Private Placement, the Company sold 1,682,683 shares of class
A common stock and warrants to purchase 1,346,140 of class A common stock
providing gross proceeds of approximately $1,835,000 and 250 shares of series D
convertible redeemable preferred stock ("series D preferred") and warrants to
purchase 153,845 shares of class A common stock for $250,000. All warrants are
immediately exercisable and have an exercise price of $1.47 per share. The
warrants are exercisable until the fifth anniversary of the date of issuance. In
addition, the warrants are redeemable at the Company's option, if the closing
bid price of the Company's class A common exceeds 200% of the exercise price of
the warrants for 30 consecutive trading days. The redemption price is $0.10 per
share for each share issuable under the warrants.

      The 250 shares of series D preferred are convertible into 192,307 shares
of class A common stock. The allocation of the proceeds from the sale of the
series D preferred between the fair value of the series D and the fair value of
the detachable warrants 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 was eligible for conversion upon issuance.

      In connection with the 2003 Private Placement, the Company incurred fees
of $325,750, of which $237,938 was payable in cash and $87,802 was paid by
issuing warrants to purchase 110,680 shares of class A common stock. These
warrants have substantially the same terms as the warrants issued in the 2003
Private Placement.

      In connection with the 2003 Private Placement, the Company issued 48,076
shares of class A common stock and warrants to purchase 38,460 shares of class A
common stock in settlement of certain outstanding payables. The common stock and
warrants were valued at $50,000, the invoice amount of the services provided to
the Company.

      Approximately 21%, or $432,000, of the gross proceeds from the 2003
Private Placement was received from directors and officers and entities with
which the Company's directors are affiliated.

      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. In
connection with the Financing Agreement, the Company issued the Bank warrants to
purchase 40,000 shares of the Company's class A common stock. The warrants are
immediately exercisable at an exercise price of $1.39, equal to the fair market
value of the Company's class A common stock on the date of closing of the
Financing Agreement. The warrants are exercisable for a seven-year period. The
fair value of the warrants in the amount of approximately $34,000 will be
amortized to interest expense over the term of the

                                       30

<PAGE>

INTERNET COMMERCE CORPORATION


Financing Agreement. During the three-month period ended October 31, 2004 and
2003, the Company recorded interest expense in the amount of approximately $0
and $8,600, respectively, for the amortization of the fair value of the
warrants. On October 22, 2003 and August 31, 2004, the Company and the Bank
amended the Financing Agreement to extend its term to August 31, 2004 and
December 29, 2004, respectively. At October 31, 2004 and July 31, 2004, there
were no amounts outstanding under the Financing Agreement.

      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 slightly to $4,118,000 at October
31, 2004 from $4,198,000 at July 31, 2004.

Analysis of Cash Flows

      Cash provided by operating activities was $18,000 in the 2005 Quarter
compared to cash used in operating activities of $1,103,000 in the 2004 Quarter.
Cash provided by operating activities in the 2005 Quarter is primarily the
result of an increase in accounts payable of $195,000 and increase in non-cash
charges of $211,000 and a lower operating losses. The decrease in the 2004
Quarter is primarily the result of a decrease in accounts payable and accrued
expense of $511,000 coupled with an increase in accounts receivable of $213,000
and operating losses.

      Cash used in investing activities was $135,000 in the 2005 Quarter from
$47,000 in the 2004 Quarter. Cash used in investing activities in the 2005
Quarter resulted from the professional fees relating to the acquisition of ECS
of $80,000, professional fees relating to the 2004 Private Placement of $24,000
and expenditures from the purchase of property and equipment of $32,000. Cash
used in investing activities in the 2004 Quarter was primarily the result of
purchases of property and equipment of $46,000.

      Cash used in financing activities was $26,000 in the 2005 Quarter compared
to $36,000 in the 2004 Quarter. Cash used in financing activities in the both
the 2005 and 2004 Quarters represent payments of capital lease obligations.

Recent Accounting Pronouncements

      In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 supersedes Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 requires that costs associated
with an exit or disposal plan be recognized when incurred rather than at the
date of a commitment to an exit or disposal plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company adopted SFAS 146 on January 1, 2003. The adoption of this standard
did not have a significant impact on the Company's consolidated financial
position or results of operations.


                                       31
<PAGE>

INTERNET COMMERCE CORPORATION


      In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others" which elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of Interpretation
No. 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002. The disclosure requirements in this Interpretation are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company has provided information regarding commitments
and contingencies relating to guarantees in Note 10. The adoption of this
standard did not have a significant impact on the Company's consolidated
financial position or results of operations.

      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 December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123"
("SFAS 148"). SFAS 148 amends SFAS 123, "Accounting for Stock-Based
Compensation" to provide alternative methods to account for the transition from
the intrinsic value method of recognition of stock-based employee compensation
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees" to the fair value recognition provisions under SFAS 123. SFAS 148
provides two additional methods of transition and will no longer permit the SFAS
123 prospective method to be used for fiscal years beginning after December 15,
2003. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to
require prominent disclosure in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
pro-forma effects had the fair value recognition provisions of SFAS 123 been
used for all periods presented. The adoption of SFAS 148 did not have a
significant impact on the Company's consolidated financial position and results
of operations. The Company adopted the fair-value recognition provisions of SFAS
123 in January 2004 (Note 6).

      In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements" to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. In December 2003, the FASB
issued FIN No. 46 (Revised) ("FIN 46R") to address certain FIN 46 implementation
issues. This interpretation requires that the assets, liabilities and results of
activities of a Variable Interest Entity ("VIE") be consolidated into the
financial statements of the enterprise that is the primary beneficiary of the
VIE. FIN 46R also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. This interpretation is effective no
later than the end of the first interim or reporting period ending after March
15, 2004, except for those VIE's that are considered to be special purpose
entities, for which the effective date is no later than the end of the first
interim or annual reporting period ending after December 15, 2003. We adopted
FIN 46 in its entirety as of January 31, 2003. Since hawse have no VIE's, the
adoption of FIN 46 did not have an impact on our financial position or results
of operations.

      In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"), which amends and
clarifies accounting for derivative instruments and for hedging activities under
SFAS 133. Specifically, SFAS 149 requires that contracts with comparable
characteristics be accounted for similarly. Additionally, SFAS 149 clarifies the
circumstances in which a contract with an initial net investment meets the
characteristics of a derivative and when a derivative contains a financing
component that requires special reporting in the statement of cash flows. This
Statement is generally effective for contracts entered into or modified after
June 30, 2003 and 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

                                       32

<PAGE>

INTERNET COMMERCE CORPORATION


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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      The Company is primarily exposed to interest rate 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 our principal
accounting officer, have carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of October 31, 2004, pursuant to Exchange
Act Rules 13a-15(e) and 15(d)-15(e). Based upon that evaluation, our chief
executive officer and our principal accounting officer have concluded that as of
such date, our disclosure controls and procedures in place are effective to
ensure material information and other information requiring disclosure is
identified and communicated on a timely basis.




                                       33
<PAGE>

PART II.  OTHER INFORMATION
--------  -----------------

Item 1. Legal Proceedings

      None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

      None.

Item 3: Defaults Upon Senior Securities

      None.

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

      Exhibits.
      ---------

      31.1  Certificate of the Chief Executive Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002

      31.2  Certificate of the Chief Financial Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002

      32.1  Certification of the Chief Executive Officer pursuant to Section 906
            of the Sarbanes-Oxley Act of 2002

      32.2  Certification of the Chief Financial Officer pursuant to Section 906
            of the Sarbanes-Oxley Act of 2002









                                       34

<PAGE>

                                   SIGNATURES


      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date:  December 15, 2004

                                    INTERNET COMMERCE CORPORATION


                                    by: /s/ Thomas J. Stallings
                                       ----------------------------------
                                          Thomas J. Stallings
                                          Chief Executive Officer


                                    by: /s/ Glen Shipley
                                       ----------------------------------
                                          Glen Shipley
                                          Chief Financial Officer





                                       35