<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                   (Mark One)

(X)   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934.
      For the quarterly period ended June 30, 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: 000-30045

                                  CATUITY INC.
             (Exact Name of Registrant as specified in its charter)

           Delaware                                          38-3518829
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                          Identification Number)

2711 E. Jefferson Avenue Detroit, MI                            48207
(Address of principal executive offices)                      (Zip Code)

               Registrant's telephone number, including area code:
                                 (313) 567-4348

      Indicate by check mark whether the registrant (1) has filed all reports
required 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 in Rule 12b-2 of the Exchange Act).

                                 Yes ( ) No (X)
      Indicate the number of shares outstanding of each of the issuer's classes
of stock as of the latest practical date: Common stock outstanding - 11,676,775
shares as of July 31, 2004.

                                       1

<PAGE>

                                  CATUITY INC.
                                    FORM 10-Q
                                      INDEX

<TABLE>
<S>                                                                                                                  <C>
PART I.    FINANCIAL INFORMATION
   Item 1. Financial Statements
           Consolidated balance sheets- June 30, 2004 and December 31, 2003                                           3
           Consolidated statements of operations - Three and six months ended June 30, 2004 and 2003                  4
           Consolidated statements of cash flows - Six months ended June 30, 2004 and 2003                            5
           Notes to Consolidated Financial Statements - June 30, 2004                                                 6
   Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations                      8
   Item 3. Qualitative and Quantitative Disclosure about Market Risk                                                 11
   Item 4. Controls And Procedures                                                                                   12
PART II.    OTHER INFORMATION                                                                                        13
   Item 1. Legal Proceedings                                                                                         13
   Item 2. Changes in Securities and Use of Proceeds                                                                 13
   Item 3. Defaults Upon Senior Securities                                                                           13
   Item 4. Submission of Matters to a Vote of Security Holders                                                       13
   Item 5. Other Information                                                                                         13
   Item 6. Exhibits and Reports on Form 8-K                                                                          15
SIGNATURES                                                                                                           16
</TABLE>

                                       2

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                   CATUITY INC.
                                                           CONSOLIDATED BALANCE SHEETS
                                                           ---------------------------
                                                          JUNE 30, 2004     DECEMBER 31, 2003
                                                           (Unaudited)
<S>                                                       <C>               <C>
                        ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                               $  4,082,196        $  5,768,828
  Accounts receivable, less allowance of $7,000 at
     June 30, 2004 and $62,000 at December 31, 2003             33,732             402,109
   Restricted cash                                             214,352             119,009
   Work in process                                                 146              70,692
   Prepaid expenses and other                                   99,503             188,423
                                                          ------------        ------------
Total current assets                                         4,429,929           6,549,061

  Property and equipment, net                                  197,022             223,466
                                                          ------------        ------------
Total assets                                              $  4,626,951        $  6,772,527
                                                          ============        ============
             LIABILITIES AND SHAREHOLDERS'
                        EQUITY

CURRENT LIABILITIES:
  Accounts payable                                        $     56,126        $    101,335
  Deferred revenue                                              59,528             110,561
  Accrued compensation                                         144,129             345,476
  Other accrued expenses                                       122,016             116,742
  Trust liability                                               83,692              95,586
                                                          ------------        ------------
Total current liabilities                                      465,491             769,700

Accrued compensation                                            49,179              59,752

SHAREHOLDERS' EQUITY:
  Common stock - $.001 par value; Authorized - 100
      million shares: issued and outstanding -
      11,672,541 at June 30, 2004 and 11,659,850 at
      December 31, 2003                                         11,673              11,660
  Preferred stock - $.001 par value Authorized - 10
      million shares                                                --                  --
  Additional paid-in capital                                36,721,079          36,968,957
  Shareholder loans                                           (211,072)           (468,166)
  Foreign currency translation adjustment                       (8,579)             88,299
  Accumulated deficit                                      (32,400,820)        (30,657,675)
                                                          ------------        ------------
Total shareholders' equity                                   4,112,281           5,943,075
                                                          ------------        ------------
Total liabilities and shareholders' equity                $  4,626,951        $  6,772,527
                                                          ============        ============
</TABLE>

See accompanying notes.

                                       3

<PAGE>

                                  CATUITY INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                                              JUNE 30,                           JUNE 30,
                                                                   ------------------------------      ----------------------------
                                                                       2004               2003             2004            2003
                                                                   ------------       -----------      ------------    ------------
<S>                                                                <C>                <C>              <C>             <C>
REVENUES:
  Software development revenue                                     $     12,934       $   960,605      $    231,387    $ 1,209,010
  Service revenue                                                       111,545           120,604           360,828        274,941
  License revenue                                                        10,800           584,800            21,600      1,657,225
                                                                   ------------       -----------      ------------    -----------
Total revenues                                                          135,279         1,666,009           613,815      3,141,176

COST OF REVENUE AND OTHER OPERATING EXPENSES:
  Cost of software development                                            8,871           470,561            90,544        710,236
  Cost of service                                                        66,421           129,738           223,569        225,987
  Sales and marketing                                                   244,090           310,768           478,438        647,775
  Research and development                                              495,944             8,341           802,368        194,758
  General and administrative                                            482,748           811,670           816,246      1,140,485
  General and administrative-variable stock compensation                     --           (39,702)               --        (39,702)
                                                                   ------------       -----------      ------------    -----------
Total costs and expenses                                              1,298,074         1,691,376         2,398,165      2,879,539
                                                                   ------------       -----------      ------------    -----------
Operating income/(loss)                                              (1,162,795)          (25,367)       (1,797,350)       261,637

Interest income                                                          23,291            10,602            54,205         28,288
                                                                   ------------       -----------      ------------    -----------
Net income/(loss)                                                  $ (1,139,504)      $   (14,765)     $ (1,743,145)   $   289,925
                                                                   ============       ===========      ============    ===========

Net income/(loss) per share - basic and diluted                    $      (0.10)      $      0.00      $      (0.15)   $      0.03
                                                                   ============       ===========      ============    ===========
Weighted average shares outstanding-basic & diluted                  11,665,767         8,636,905        11,663,187      8,587,340
                                                                   ============       ===========      ============    ===========
</TABLE>

See accompanying notes.

                                       4

<PAGE>

                                  CATUITY INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED
                                                                              JUNE 30,
                                                             -----------------------------------------
                                                                 2004                         2003
                                                             -----------                   -----------
<S>                                                          <C>                           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)                                            $(1,743,145)                  $   289,925
Adjustments used to reconcile net income/(loss) to net
   cash used in operating activities:
General and Administrative variable stock compensation
(non-cash)                                                            --                       (39,702)
Depreciation                                                      22,840                       140,453

Changes in assets and liabilities:
   Accounts receivable                                           368,377                      (635,959)
   Other assets, net                                              64,122                       (12,004)
   Deferred revenue                                              (51,033)                   (1,695,957)
   Accounts payable                                              (45,209)                     (213,689)
   Accrued expenses and other liabilities                       (218,538)                      392,545
                                                             -----------                   -----------
Net cash used in operating activities                         (1,602,586)                   (1,774,388)
                                                             -----------                   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                              3,603                      (162,242)
                                                             -----------                   -----------
Net cash provided by/ (used in) investing activities               3,603                      (162,242)
                                                             -----------                   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Issuance of common stock, net of expenses                       9,229                       244,722
                                                             -----------                   -----------
Net cash provided by financing activities                          9,229                       244,722
                                                             -----------                   -----------

Foreign exchange effect on cash and cash equivalents             (96,878)                       84,837
                                                             -----------                   -----------
Net decrease in cash and cash equivalents                     (1,686,632)                   (1,607,071)
Cash and cash equivalents, beginning of period                 5,768,828                     3,611,447
                                                             -----------                   -----------
Cash and cash equivalents, end of period                     $ 4,082,196                   $ 2,004,376
                                                             ===========                   ===========
</TABLE>

See accompanying notes.

                                       5

<PAGE>

                                  CATUITY INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Catuity Inc.
(the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for annual
financial statements and notes. The balance sheet at December 31, 2003 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring items) considered
necessary for a fair presentation have been included. Operating results for the
three and six months period ended June 30, 2004 are not necessarily indicative
of the results that may be expected for any subsequent quarter or for the entire
year ended December 31, 2004. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 2003.

The accompanying interim, consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2003.

Certain prior year amounts have been reclassified to conform with the current
year presentation.

2. COMPREHENSIVE INCOME/ (LOSS)

Comprehensive income/(loss) is summarized as follows:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                     JUNE 30,                           JUNE 30,
                                            ------------------------         ------------------------------
                                               2004           2003              2004                 2003
                                            -----------     --------         -----------           --------
<S>                                         <C>             <C>              <C>                   <C>
Net income/(loss)                           $(1,139,504)    $(14,765)        $(1,743,145)          $289,925

   Foreign currency translation                (114,400)      40,461             (96,878)            84,840
                                            -----------     --------        ------------           --------
Total comprehensive income/(loss)           $(1,253,904)    $ 25,696        $ (1,840,023)          $374,765
                                            ===========     ========        ============           ========
</TABLE>

3. STOCK BASED COMPENSATION

The Company accounts for stock-based awards issued to employees under the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").

Had compensation costs for stock-based awards issued to employees been
determined consistent with SFAS No.123, the Company's net income/(loss) and net
income/( loss) per share would have been reported as follows:

                                       6

<PAGE>

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                             JUNE 30,                           JUNE 30,
                                                    ---------------------------       ---------------------------
                                                        2004            2003              2004           2003
                                                    ------------     ----------       ------------     ----------
<S>                                                 <C>              <C>              <C>              <C>
Net income/(loss) as reported                       $(1,139,504)     $ (14,765)       $(1,743,145)     $ 289,925

Deduct: Total stock-based employee                      (89,855)      (139,822)           (89,855)      (258,882)
compensation expense determined under fair
value based method for all awards
                                                    -----------      ---------        -----------      ---------
Pro forma net income/(loss)                         $(1,229,359)     $(154,587)       $(1,833,000)     $  31,043
                                                    ===========      =========        ===========      =========
Net income/ (loss) per share: basic &
diluted- as reported                                $     (0.10)     $    0.00        $     (0.15)     $    0.03
                                                    ===========      =========        ===========      =========
Pro forma basic & diluted income/(loss) per share   $     (0.10)     $   (0.02)       $     (0.16)     $    0.00
                                                    ===========      =========        ===========      =========
</TABLE>

4. SHAREHOLDERS' EQUITY

In 1995 and 1996, the Company issued non-recourse loans to a former Australian
director for the purpose of purchasing approximately 276,000 shares of the
Company's stock. The Company's recourse for repayment of the loans is limited to
after-tax dividends and proceeds from the disposal of the shares. In 1999,
$75,000 AUD of the loan was repaid related to the sale of 25,000 shares. In the
fourth quarter of 2003, approximately $60,750 AUD was repaid related to the sale
of 20,250 shares. The amount of the loan outstanding is re-valued at each
respective balance sheet date if the Company's period ending fair market price
per share is below the price per share at which the loan was made. The
offsetting entry is made to additional paid in capital.

5. NASDAQ LISTING

On May 7, 2004 the Company received notice from the Nasdaq stock market that its
daily minimum bid price had fallen, and remained, below $1.00 for 30 consecutive
business days. As a result, the Company is out of compliance with Nasdaq's $1.00
minimum bid price for continued inclusion. In accordance with Section 4310 of
the Nasdaq Marketplace Rules, the Company has 180 calendar days from its May 7,
2004 notification date to achieve compliance.

The Company will seek to regain compliance within the 180 day period and is
evaluating alternative ways to achieve it, including the possibility of
completing a reverse stock split.

                                       7

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Catuity is a provider of Point of Sale (POS) software and services to the
retail, financial and transaction processing industries.

Catuity has two major software applications developed to help the administration
of customer loyalty programs. Our systems function in both in-store as well as
internet (e-commerce) environments and work with all methods of consumer payment
- existing magnetic stripe credit or debit cards, chip cards, RFID, gift cards,
private label payment cards, checks and cash. Loyalty programs that are based on
points, frequency, discounts or coupons can be managed by a merchant
electronically and can track total spend, frequency of visits and individual
product based SKU purchase data.

Catuity's loyalty software is differentiated from other loyalty software
applications by enabling customers to redeem valuable rewards, discounts, points
and other incentive programs at the point of sale. To date, competitive
technology has enabled merchants to collect data in real time and transfer that
data to various databases for analytical program management. Catuity's real time
technology goes the next step and allows merchants to provide rewards based on
this purchase data while the customer is physically at the store or purchasing
something from the store's website.

Catuity's software products can be installed in a retailer's POS environment or
can be hosted by a third party processor. Both are licensed to customers. Custom
built derivatives of these products can also be developed on a contract basis.

As previously disclosed in press releases, Form 8-K and 10-K filings, and in its
2003 annual report, on February 29, 2004, Target Corporation advised Catuity
that it intended to phase out the use of smart chip technology over the next
twelve months. As a result, the Company disclosed that it did not expect to
record additional license revenue from the smart Visa Rewards platform. We also
anticipated that software development and support services related to the smart
Visa Rewards platform for these two customers would decline for the remainder of
2004 and beyond. The Company's second quarter 2004 financial results were
negatively impacted as had been anticipated. Software development revenue in the
second quarter declined by approximately $950,000 from the second quarter of
2003, primarily because there was no Visa or Target smart card development work
in the quarter this year. License revenue in the quarter was down approximately
$575,000 from the second quarter last year because no license revenue was
recognized from Visa or Target in the quarter this year. Expenses were reduced
in the second quarter by approximately $400,000 from second quarter 2003
primarily due to less expense associated with the severance of the Company's
former chairman and cost reductions implemented by management.

In May of 2004, Catuity outlined a specific plan to broaden the Company's
products and services around retailer needs at the point of sale and to
restructure its business operations. The Company's strategy represents a shift
in its focus from simply licensing its loyalty software to becoming a point of
sale provider of services and solutions (including loyalty) that retailers,
processors, and other merchant service providers currently budget for and need.
To-date the Company has executed a number of key steps in furtherance of these
plans.

In June 2004, the Company hired two key executives from Vitesse Worldwide, Inc
and acquired the rights to their methodologies for completing POS conversion
work. This has helped to provide the foundation for its expanded POS services
business strategy. As a result, Catuity is now in various stages of discussions
with new potential clients for POS service projects. The Company has also
restructured its sales organization to reflect its new focus. Ron Elmore, an
enterprise software industry veteran and consultant to the Company, is
restructuring the sales process and identifying sales opportunities that have
the potential to produce revenue in 2005. Scott Aicher, the new vice- president
of sales, will oversee the Company's focus on key vertical markets including
petroleum, convenience stores, small and medium size chain stores, pharmacy
chains and small to mid-sized retail stores.

                                       8

<PAGE>

The Company has engaged in discussions with a number of companies regarding the
sale of, or regional licenses for, the Company's Cat X software and related
patents This version of software, which was principally designed as an
application for smart cards, is likely to be of most interest to companies in
markets that are heavily involved with EMV migration, such as Asia Pacific, the
Middle East and European regions where smart cards are more widely accepted than
in North America.

One key aspect of Catuity's announced strategy for growth was to actively pursue
potential merger candidates that would be cash-flow positive to the company in
2005. The Company, in conjunction with its M & A advisor, is continuing to
actively screen and talk with possible merger candidates that meet the Company's
specific criteria.

In mid-July, the Company completed the first release of its new generation of
loyalty software - the Catuity Advanced Loyalty System (CALS). The system, which
is designed modularly and written in Java to be database and operating system
agnostic, provides loyalty points and points redemption at the point of sale,
for either the total amount spent by the consumer, or by specific products
purchased at the Stock Keeping Unit level (SKU's). Catuity plans to release
three additional upgrades to this software between August and October that will
each add more features such as gift cards, frequency (by total amount spent or
specific product), coupons, and discounts as well as some basic reporting and
settlement features.

As indicated to shareholders at the Annual Meeting held on May 13, 2004 in
Sydney Australia, during the second quarter, management and the board of
directors addressed the four questions or concerns that had been raised by
shareholders regarding certain of the Company's policies and by-laws. For
complete information on the issues raised and how each has been addressed,
please see Part II. Item 5 of this Form 10-Q.

OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30,
2003

REVENUE

Total revenues for the three month period ended June 30 ("second quarter")
decreased $1,531,000, to $135,000 in 2004 compared to $1,666,000 in 2003. The
second quarter 2004 revenue decrease was primarily due to fewer billable
development projects, resulting in lower software development revenue for the
period and the recognition of $574,000 of license revenue in the 2nd quarter of
2003 from our software installation at Target Corporation.

Total revenues for the six month period ended June 30 decreased $2,527,000, to
$614,000 in 2004 compared to $3,141,000 in 2003. The 2004 decline in license
revenues accounted for the majority of the decline in total revenues in 2004
compared to 2003. There was no license revenue recognized for Visa or Target
during the first six months of 2004, whereas in the corresponding 2003 period
$574,000 and $1,072,000 in license fees were recognized for Target and Visa
respectively. Software development revenue decreased $977,000 in 2004 due to
fewer billable development projects compared to the same period in 2003. Service
revenue increased $86,000 due to increased customer support and maintenance
services in 2004 compared to the same period in 2003.

COST OF SOFTWARE DEVELOPMENT REVENUE

Cost of software development revenue primarily consists of salaries, employee
benefits, related expenses and office overhead for the portion of time spent by
our technical staff located in Sydney, Australia and our project managers and
business analysts located in Arlington, Virginia, who also work on software
development activities. Cost of software development decreased $462,000, in the
second quarter of 2004 compared to the second quarter of 2003. Expenses for the
six months ended June 30, 2004, decreased $620,000, compared with the
corresponding 2003 period. The decrease in cost for both the three- and
six-month periods was due to a reduction in customer-related software
development activities corresponding with the decrease in software development
revenue.

                                       9

<PAGE>

COST OF SERVICE REVENUE

Cost of service revenue primarily consists of salaries, employee benefits,
related expenses and office overhead for the customer implementation and support
staff in Arlington Virginia, for the portion of their time spent on service
related activities. Cost of service decreased $63,000, or 49%, in the second
quarter of 2004 compared to the second quarter of 2003. The decrease in expenses
for the three-month period was primarily due to lower staffing and overhead
costs. Expenses for the six months ended June 30, 2004, were consistent with
costs incurred during the corresponding 2003 period.

SALES AND MARKETING

Sales and marketing expenses consist primarily of salaries, employee benefits,
travel, marketing, public relations and related overhead costs of the sales and
marketing department. Sales and marketing expenses decreased $67,000, or 21%, in
the second quarter of 2004 compared to the second quarter of 2003. Expenses for
the six months ended June 30, 2004, decreased $169,000, or 26%, compared with
the corresponding 2003 period. The decrease in cost for both the three- and
six-month periods was principally due to reductions in staff size and lower
overhead allocations.

RESEARCH AND DEVELOPMENT

Research and Development expenses consist primarily of salaries, employee
benefits and overhead cost, incurred primarily by the technical staff in Sydney
Australia, for the portion of their time spent on furthering the development of
Catuity's software products. Research and development expenses increased
$488,000, in the second quarter of 2004 compared to the second quarter of 2003.
Expenses for six months ended June 30, 2004, increased $607,000 compared with
the corresponding 2003 period. The increase in cost for both the three- and
six-month periods was related to the technical team's focus on the development
of the Company's new loyalty software suite. The first two releases of the
Company's Advanced Loyalty System were completed in mid-July 2004. The remaining
releases are expected to be completed in the fourth quarter of 2004.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of salaries, employee
benefits, related overhead costs and professional services fees. General and
administrative expenses decreased $329,000, or 41%, in the second quarter of
2004 over the second quarter of 2003. Expenses for the six months ended June 30,
2004, decreased $324,000, or 28%, compared with the corresponding 2003 period.
Costs were primarily higher in 2003 compared to 2004, for both the three- and
six-month periods, due to a 2nd quarter 2003 severance pay accrual for the
Company's former Chairman, per contractual obligations.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004, the Company had approximately $4,082,000 in cash and cash
equivalents, a decrease of $1,687,000 from December 31, 2003. Net cash used in
operating activities was $1,603,000 for the six-month period ended June 30, 2004
compared with $1,774,000 for the six-month period ended June 30, 2003. The cash
used in the first six months of 2003 was higher, despite the period being
profitable, primarily due to the significant reduction in deferred revenue.

Cash provided by investing activities was $4,000 for the six-month period ended
June 30, 2004 compared with cash used of $162,000 for the six-month period ended
June 30, 2003. The approximately $166,000 decrease was due to a decline in
capital purchases during the six month period ended June 30, 2004 compared to
the same period in 2003.

Cash provided by financing activities was $9,000 for the six-month period ended
June 30, 2004 and related to shares of common stock purchased by an executive at
fair market value under the Company's Executive Director Stock Purchase Plan.
Cash obtained from financing activities was $245,000 for the six-month period
ended June 30, 2003 and primarily related to cash received from the private
placement of 90,000 shares of common stock to Duncan P.F. Mount, the Company's
Chairman, and shares of common stock purchased by executives at fair market
value under the Executive Director Stock Purchase Plan, and the Executive Stock
Purchase Plan.

                                       10

<PAGE>

The foreign currency effect on cash was a negative $97,000 during the six-month
period ended June 30, 2004 primarily due to the relative weakening of the
Australian dollar against the U.S. dollar and during the period.

The Company believes that its existing capital resources are adequate to meet
its cash requirements for the next twelve months.

FORWARD LOOKING INFORMATION

The Management Discussion and Analysis of Financial Condition and Results of
Operations includes "forward-looking" statements within the meaning of the
Private Securities Litigation Act of 1995. This Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as
forward-looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the expected
results. All statements other than statements of historical fact made in this
Form 10-Q are forward looking. In some cases, they can be identified by
terminology such as "may," "will," "should," "expect," " plan," "anticipate,"
"believe," "estimate," "predict," "potential," or "continue," the negative of
such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should consider various factors that may cause our actual
results to differ materially from any forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes liability for the accuracy and completeness of the forward-looking
statements. Various factors may cause actual performance to differ from any of
the forward-looking statements contained in the Management Discussion and
Analysis of Financial Condition and Results of Operations. These include, but
are not limited to; changes in currency exchange rates from period to period,
inflation rates in the United States and Australia, recession, and other
external economic factors over which the Company has no control; the timing and
speed with which our major customers and prospects execute their plans for the
use of our loyalty software; the demand for, timing and market acceptance of
smart cards by card issuing banks and major retailers; continued development of
the Company's software products; competitive product and pricing pressures; use
of internally developed software applications; patent and other litigation
risks; the risk of key staff leaving the Company; the risk that major customers
of the Company's products reduce their requirements or terminate their
arrangements with the Company; as well as other risks and uncertainties,
including but not limited to those detailed from time to time in the Company's
Securities and Exchange Commission filings. These forward-looking statements are
made only as of the date hereof, and the Company undertakes no obligation to
update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to foreign currency exchange rate risk inherent in our expenses,
assets and liabilities that are denominated in the Australian dollar. To date,
we have not utilized any foreign currency hedging or other derivative
instruments to reduce exchange rate risk. We do not expect to employ these or
other strategies to hedge the risk in the foreseeable future.

As of June 30, 2004 and December 31, 2003 the Company's net current assets
(defined as current assets less current liabilities) subject to foreign currency
risk were $955,000 and $1,940,000. The potential decrease/(increase) in net
assets from a hypothetical 10% adverse change in quoted foreign currency
exchange rates would be approximately $95,500 and $194,000.

We are also exposed to interest rate risk on deposits of cash, which are
affected by changes in the general level of interest rates in the United States
and Australia. Since we generally invest in very short-term interest bearing
deposits, we do not believe we are subject to any material market risk exposure.

                                       11

<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-15 of the Securities and
Exchange Act of 1934. The Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company in
its periodic SEC filings is recorded, processed and reported within the time
periods specified in the SEC's rules and forms. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
Except as otherwise discussed herein, subsequent to the date of evaluation,
there have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls.

                                       12

<PAGE>

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On May 13, 2004, Catuity held its annual meeting at which time the shareholders
elected D.P.F. Mount, M.V. Howe, A.S. Dawson and A.L. Gilman as Directors of the
Company for the next twelve months.

The tabulation of the voting on each of the resolutions put before the
shareholders is as follows:

<TABLE>
<CAPTION>
                                VOTES       VOTES
    RESOLUTION                   FOR       AGAINST          ABSTAIN      BROKER NON-VOTES             TOTAL
----------------------        ---------    -------          -------      ----------------           ----------
<S>                           <C>          <C>              <C>          <C>                        <C>
1.  Elect D.P.F. Mount        4,020,023    513,611           15,884         6,881,544               11,431,062
    Director

2.  Elect M.V. Howe           3,965,924    531,880           52,384         6,880,874               11,431,062
    Director

3.  Elect A.S. Dawson         3,970,483    540,327           39,508         6,880,744               11,431,062
    Director

4.  Elect A.L. Gilman         4,012,374    516,930           20,884         6,880,874               11,431,062
    Director
</TABLE>

ITEM 5. OTHER INFORMATION

As indicated to shareholders at the Annual Meeting held on May 13, 2004 in
Sydney Australia, during the second quarter, management and the board of
directors addressed the matters that had been raised by shareholders regarding
certain of the Company's policies and by-laws. Each of the concerns raised by
one or more shareholders is included in the paragraphs below, along with the
action taken, and a brief discussion of the reasons for the action taken.

Since its inception, Catuity's directors have been elected annually on the basis
that the directors who received the most votes, given the number of board seats
to be filled, would be elected or re-elected to the board. Although it has never
happened, this meant that, when the number of directors standing for election or
re-election is the same as the number of board seats available, a director could
be elected even though he/she received fewer "FOR" votes than "AGAINST" or
"WITHOLD" votes. This allows for a director to be elected by a plurality of the
votes cast and is a nearly universal practice in the United States. With advice
from its legal counsel, the board passed the following resolution to address
this shareholder concern:

      "Catuity shall adopt the policy that a candidate for Director may be
      elected by a plurality of shareholder votes cast but, in the event a
      candidate receives fewer "FOR" votes than a majority of the shareholder
      votes cast, the candidate may serve as a Director only until a replacement
      Director is found and must resign as a

                                       13

<PAGE>

      Director at the time the independent Directors approve a replacement
      candidate. In no event may a Director, who received fewer "FOR" votes than
      a majority of the shareholder votes cast and who has not been replaced by
      the independent Directors prior to the next Annual General Meeting, stand
      for re-election."

Concern was raised that Catuity's by-laws required a majority of its
shareholders to express their desire in writing to be able to call a meeting of
shareholders, that a majority was too difficult an impediment, and that it
should be lowered. The Company undertook an effort to understand the percentage
of shareholders required by other U.S. companies in this regard. It found that
the most common percentage of shareholders required, in writing, to request a
shareholder meeting was in the 20% - 25% range. As a result, the board passed
the following resolution to amend its by-laws:

      Subject to ASX review, and effective September 1, 2004, Article I, Section
      3 of Catuity's By-laws shall be amended to read as follows; "Special
      meetings of the stockholders, for any purpose or purposes, unless
      otherwise prescribed by law or by Certificate of Incorporation, may be
      called by the Board of Directors, the Chairman of the Board or the
      President, and shall be called by the President or the Secretary at the
      request in writing of stockholders owning a twenty percent (20%) interest
      of the entire capital stock of the Corporation issued and outstanding and
      entitled to vote. Such request shall be sent to the President and the
      Secretary and shall state the purpose or purposes of the proposed
      meeting." (changed language in italics and underscored. Catuity's amended
      by-laws are included as Exhibit 3(g) to this Form 10-Q.)

A concern was raised that the date used to determine the shareholders eligible
to vote on matters to be brought at a shareholder meeting (the "Record Date"),
was too far in advance of the meeting date. Concern was expressed that this
could allow shareholders to vote who had subsequently sold their shares and that
shareholders who had purchased shares since the Record Date would not be
entitled to vote. In the United States a fixed Record Date is used and Delaware
Corporate Law requires the Record Date to be 10 - 60 days preceding the meeting
date. Given the need to mail proxy materials to shareholders 30 days prior to
the meeting date and to allow the U.S. and Australian share registries 7 days to
prepare mailing information for existing shareholders as of the Record Date, the
board resolved that:

      "Due to requirements under Delaware Corporate Law that Catuity must
      establish it's record date to be between 10-60 days prior to the date of a
      shareholder meeting, and the requirement that proxy materials must be
      mailed to shareholders no less than 30 days prior to the meeting date,
      Catuity shall adopt a policy such that it will establish it's record date
      to be the fewest number of days prior to the shareholder meeting needed to
      prepare and distribute proxy materials to shareholders."

In addition to the above, the board reviewed the lead time the Company had been
using for shareholders to submit a written proposal to the board for inclusion
in the next Annual Meeting of Shareholders. Since its inception the Company had
specified, in accordance with the Securities Exchange Act of 1934, that in order
for a shareholder proposal to be included in the proxy materials for the next
Annual Meeting, the proposal must be submitted, in writing, at least 120 days
prior to the mail date of the proxy statement for the previous Annual Meeting.
Generally this required shareholders to submit a written proposal by
approximately the 15th or 20th of December each year to be included in the proxy
for the next annual meeting (generally held in May). The Board concluded the
lead time should be reduced and passed the following resolution:

      "Catuity shall adopt a policy that shareholder requests for proposals to
      be included in proxy materials, properly received in writing by February
      15, shall be included in the proxy materials for the next Annual
      Shareholder Meeting."

Management and the board believe the above changes respond to all of the
questions and concerns raised by shareholders in May 2004. Shareholders may
submit questions or suggestions for additional changes to policies or by-laws in
writing to:
                                Catuity Inc.
                              Attention: Secretary
                            2711 E. Jefferson Avenue
                             Detroit, Michigan 48207

                                       14

<PAGE>


ITEM 6. EXHIBITS AND REPORT ON FORM 8-K

      (a)    Exhibit          Description

             EX-3(g)          By-laws of Catuity Inc. (formerly Novatech Inc.)
                              as amended effective September 1, 2004

             EX-10(b-1)       Amendment to Michael V. Howe Employment Agreement
                              dated December 5, 1999 with Catuity Inc.

             EX-10(d-1)       Amendment to John H. Lowry Employment Agreement
                              with Catuity Inc. dated April 18, 2000

             EX-31.1          Certification by Michael V. Howe, President and
                              Chief Executive Officer pursuant to Section 302 of
                              the Sarbanes-Oxley Act of 2002

             EX-31.2          Certification by John H. Lowry, Chief Financial
                              Officer pursuant to Section 302 of the
                              Sarbanes-Oxley Act of 2002

             EX-32            Certifications pursuant to pursuant to
                              Section 906 of the Sarbanes-Oxley Act of 2002

      (b)    Reports on Form 8-K

            The following reports were filed on Form 8-K during the three month
period ended June 30, 2004:

<TABLE>
<CAPTION>
           Item Reported                 Financial Statements Filed?      Filing Date
           -------------                 ---------------------------      -----------
<S>                                      <C>                              <C>
Catuity Launches New IT Services                     No                     6-18-04

Notice from Nasdaq re Minimum                        No                     5-11-04
Bid Price

Catuity Signs Cooperative Marketing                  No                      5-5-04
Agreement with EDS

Catuity Provides Guidance for First                  No                      4-5-04
Quarter 2004 and Remainder of Year
</TABLE>

                                       15

<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.

                                 By: /s/ Michael V. Howe
                                     ----------------------------------------
                                     Michael V. Howe
                                     President and Chief Executive Officer

                                 By: /s/ John H. Lowry
                                     ----------------------------------------
                                     John H. Lowry
                                     Chief Financial Officer

Date: August 9, 2004

                                       16

<PAGE>

                               10-Q EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                             DESCRIPTION
----------                              -----------
<S>               <C>
EX-3(g)           By-laws of Catuity Inc. (formerly Novatech Inc.) as amended
                  effective September 1, 2004

EX-10(b-1)        Amendment to Michael V. Howe Employment Agreement dated
                  December 5, 1999 with Catuity Inc.

EX-10(d-1)        Amendment to John H. Lowry Employment Agreement with Catuity
                  Inc. dated April 18, 2000

EX-31.1           Certification by Michael V. Howe, President and Chief
                  Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002

EX-31.2           Certification by John H. Lowry, Chief Financial Officer
                  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

EX-32             Certifications pursuant to pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
</TABLE>

                                       17