U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Commission File No. 000-24996

INTERNET COMMERCE CORPORATION

6801 Governors Lake Parkway, Suite 110
Norcross, Georgia 30071
(Address of principal executive offices, including zip code)

(678) 533-8000

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

     As of March 10, 2005 the registrant had outstanding 19,294,454 shares of Class A Common Stock.

INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

See notes to consolidated financial statements.

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

See notes to consolidated financial statements.

Condensed Consolidated Statements of Cash Flows (unaudited)

See notes to consolidated financial statements.

Notes to consolidated financial statements (unaudited)

The accompanying unaudited consolidated financial statements of Internet Commerce Corporation (the “Company” or “ICC”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. In the opinion of management, such statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s financial position, results of operations and cash flows at the dates and for the periods indicated. Pursuant to the requirements of the Securities and Exchange Commission (the “SEC”) applicable to Quarterly Reports on Form 10-Q, the accompanying financial statements do not include all the disclosures required by GAAP for annual financial statements. While the Company believes that the disclosures presented are adequate to make the information not misleading, these unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2004. Operating results for the three and six-month periods ended January 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2005.

1.

ORGANIZATION AND NATURE OF BUSINESS

The Company’s main source of revenue is derived from subscriptions to its value added network (“VAN”) sold under the brand name ICC.NET™. These services include transaction, mailbox and fax transmission activities for which fees are charged. Revenue is also derived from fixed fee data mapping and professional internet services. In addition, the Company operates a Service Bureau with revenue derived from electronic data interchange (“EDI”) services including data translation services, purchase order and invoice processing from EDI-to-print and print-to-EDI, Universal Product Code (“UPC”) number generation, UPC catalog maintenance and UPC label printing. The Company also sells EDI software and software maintenance, the revenue of which is immaterial in the periods presented.

2.

RECENT EVENTS

In the second quarter of fiscal 2005, the Company commenced the relocation of its corporate headquarters from New York, New York to Norcross, Georgia. The Company incurred one time moving expenses of approximately $60,000, which were recognized as incurred. The Company continues to operate facilities and offices located in East Setauket, NY; Cary, NC and Carrollton, GA.

On June 22, 2004, the Company acquired Electronic Commerce Systems, Inc. (“ECS”). ECS offers ongoing EDI compliance solutions to small and midsized suppliers including Internet-based services, software, and service bureau services. The operating results of ECS are included in the Service Bureau segment.

Until January 2004, the Company provided a range of EDI and electronic commerce consulting services and EDI education and training seminars throughout the United States. The Company discontinued its EDI education and training seminars in February 2004. Revenues from our EDI education and training seminars were immaterial in the period presented.

3.	Significant Accounting Policies and Procedures

Deferred revenue:

Deferred revenue is comprised of deferrals for subscription fees, professional services, license fees, and maintenance associated with contracts for which amounts have been received in advance of services to be performed.

Stock-based Compensation:

In January 2004, the Company adopted the fair value provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). SFAS 123 established a fair-value-based method of accounting for stock-based compensation plans. The fair value of stock options and stock-based compensation plans is determined on the date of grant using the Black-Scholes option-pricing model and is being expensed over the vesting period of the related stock options and stock-based compensation plans. Pursuant to the transition provisions of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS 148), the Company has elected the prospective method and will apply the fair value method of accounting to all equity instruments issued to employees on or after August 1, 2003. The fair value method is not applied to stock option awards granted in fiscal years prior to 2004. Such awards will continue to be accounted for under the intrinsic value method pursuant to Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB25”), except to the extent that prior years’ awards are modified subsequent to August 1, 2003. Therefore, the cost related to stock-based employee compensation included in the determination of the net loss for 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since their date of grant. The following table illustrates the effect on net loss and net loss per common share if the fair value based method had been applied to all outstanding and unvested awards in each period.

The following table illustrates the effect on net earnings and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to all stock-based compensation in each period:

Recent Accounting Pronouncements:

On December 6, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS 123. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash Flows. The approach to accounting for share-based payments in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires that all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and no longer allows pro forma disclosure as an alternative to financial

Significant Accounting Policies and Procedures (continued)

statement recognition. The Company has used financial statement recognition since its adaptation of Statement 123.

In November 2002, the Emerging Issues Task Force of the FASB (“EITF”) reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. The EITF was effective for revenue arrangements entered into in fiscal years and interim periods beginning after June 15, 2003. The adoption of this consensus, effective August 1, 2003, did not have a significant impact on the Company’s consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. For financial instruments created before the issuance date of this Statement and still existing at the beginning of the interim period of adoption, transition shall be achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by this Statement. The adoption of this Statement, effective August 1, 2003, did not have a material impact on the Company’s consolidated financial position or results of operations.

4.

Pro Forma Disclosures Related To Recent Acquisitions

In June 2004, the Company completed the acquisition of Electronic Commerce Systems, Inc. (“ECS”). In accordance with the terms of the Agreement and Plan of Merger, dated May 25, 2004 (the “Merger Agreement”), ICC Acquisition Corporation, Inc., a wholly-owned subsidiary of ICC, merged with and into ECS and ECS became a wholly-owned subsidiary of ICC. ICC issued a total of 1,941,409 shares of its class A common stock, valued at $2,465,589, in connection with the acquisition, of which 345,183 shares were issued in exchange for approximately $471,000 of outstanding debt ECS owed to certain of its shareholders and in payment of ECS’s legal fees. In determining the purchase price of the acquisition, the shares of ICC class A common stock issued were valued at $1.28 per share, the average market price of ICC’s class A common stock over the 2-day period before and after the terms of the acquisition were agreed to and announced.

The following unaudited pro forma summary financial information presents the consolidated results of operations of the Company as if the acquisition of ECS had occurred on August 1, 2003. The pro forma results are shown for illustrative purposes only and do not purport to be indicative of the results of the Company that would have been reported had the acquisition of ECS occurred on August 1 or indicative of results that may occur in the future.

5.

Business Segment Information

The Company’s two operating segments are:

	•	ICC.NET™ — The Company’s global Internet-based value added network, or VAN, uses the Internet and proprietary technology to deliver customers’ supply chain documents and data files to members of their trading communities, many of which may have incompatible systems, by translating the documents and data files into any format required by the receiver, and the development and operation of comprehensive business-to-business e-commerce solutions
	•	Service Bureau — The Service Bureau manages and translates the data of small and mid-sized companies that exchange EDI data with large companies and provides various EDI and UPC services. The Service Bureau also licenses EDI software. Effective in June 2004, the Company combined the activities of ECS in the Service Bureau segment.

The tables below summarizes information about operations and long-lived assets as of and for the three and six -month periods ended January 31, 2005 and 2004.

5.	Business Segment Information (continued)