________________________________________________________________________________
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 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 NUMBER 0-27865
ICEWEB INCORPORATED
DELAWARE 13-2640971
(STATE OF INCORPORATION) (I.R.S. ID)
205 VAN BUREN STREET, SUITE 420, HERNDON, VA 20170
(703) 964-8000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 465,190,240 issued and
outstanding at January 31, 2005.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
________________________________________________________________________________
ICEWEB INCORPORATED
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 2004
INDEX
PART I Financial Information
Item 1. Financial Statements .................................................4
Unaudited Consolidated Balance Sheet at December 31, 2004 ............4
Unaudited Consolidated Statements of Operations for the
three months ended December 31, 2004 and December 31, 2003 ...........5
Unaudited Consolidated Statements of Cash Flows for the
three months ended December 31, 2004 and December 31, 2003 ...........6
Notes to Unaudited Consolidated Financial Statements .................7
Item 2. Management's Discussion and Analysis or Plan of Operation ............9
Item 3. Controls and Procedures .............................................11
OTHER INFORMATION ...................................................12
PART II Signatures ..........................................................13
Page 2
FORWARD-LOOKING STATEMENTS
This Quarterly Report and related documents include "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements expressed or implied by
such forward looking statements not to occur or be realized. Such forward
looking statements generally are based upon the Company's best estimates of
future results, performance or achievement, based upon current conditions and
the most recent results of operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue," or similar terms,
variations of those terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as: our high level of
indebtedness and ability to satisfy the same, our history of unprofitable
operations, the continued availability of financing in the amounts, at the times
and on the terms required, to support our future business and capital projects,
the extent to which we are successful in developing, acquiring, licensing or
securing patents for proprietary products, changes in economic conditions
specific to any one or more of our markets, changes in general economic
conditions, our ability to produce and install product that conforms to contract
specifications and in a time frame that meets the contract requirements, and the
other factors and information disclosed and discussed in other sections of this
report. Investors and shareholders should carefully consider such risks,
uncertainties and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could cause actual
results to differ materially from those provided in the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Page 3
PART I
ITEM 1. Financial Statements
IceWEB, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 2004
(Unaudited)
Current assets:
Cash $ 118,470
Accounts receivable, net 954,849
Prepaid expense 23,181
-----------
Total current assets 1,096,500
Property and equipment, net 78,727
Goodwill 1,812,999
Deposits 16,170
Deferred financing costs 195,000
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Total assets $ 3,199,396
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable 1,309,154
Accrued expenses 340,860
Notes payable - related parties 186,361
Line of credit 461,269
Deferred revenue 19,515
-----------
Total Current liabilities 2,317,159
Note payable - long term 150,000
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Total liabilities 2,467,159
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Stockholders' equity:
Preferred stock (par value $.001; 1,000,000 shares authorized
no shares outstanding) -
Common stock (par value $.001 100,000,000 shares authorized
445,199,240 issued, and 432,199,240 outstanding) 445,199
Treasury Stock, at cost, (13,000,000 shares) (13,000)
Subscription receivable (20,000)
Additional paid in capital 4,355,604
Accumulated deficit (4,035,566)
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Total stockholders' equity 732,237
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,199,396
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See accompanying notes to unaudited consolidated financial statements
Page 4
IceWEB, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
December 31, December 31,
-----------------------------
2004 2003
(Unaudited) (Unaudited)
-----------------------------
Revenue $ 1,432,883 $ 1,525,358
Cost of Sales 1,068,200 1,002,782
------------------------------------------------------------------------------
Gross Profit 364,683 522,576
Operating Expenses:
Marketing & Selling 12,703 36,860
Research & Development 193,727 56,000
General and Administrative 534,347 388,809
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Total Operating Expense 740,777 481,669
Operating (Loss)/Income (376,094) 40,907
Other Income/Expense 9,769 -
Interest Expense (20,301) (10,976)
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Net (Loss)Income $ (386,626) $ 29,931
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Basic & Diluted Loss per common share $ (0.00) $ 0.00
------------------------------------------------------------------------------
Weighted average common shares outstanding 443,399,240 381,900,000
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See accompanying notes to unaudited consolidated financial statements
Page 5
IceWEB, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
December 31, December 31,
-----------------------------
2004 2003
(Unaudited) (Unaudited)
-----------------------------
------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES $(112,671) $(121,480)
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,838) (66,679)
------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,838) (66,679)
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments from related parties 8,198 79,538
Payment of subscription receivable 32,000 70,000
Proceeds from the exercise of common
stock options 21,000 -
------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,198 149,538
------------------------------------------------------------------------------
NET DECREASE IN CASH (60,311) (38,621)
CASH - beginning of period 178,781 104,314
------------------------------------------------------------------------------
CASH - end of period $ 118,470 $ 65,693
------------------------------------------------------------------------------
See accompanying notes to the unaudited consolidated financial statements
Page 6
ICEWEB, INC and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
December 31, 2004
Note 1 - Basis of Presentation
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustment) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual Report for the year ended
September 30, 2004, which is included in the Company's Form 10-KSB for the year
ended September 30, 2004. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Note 2 - Related Parties
The Company has a note payable to John R. Signorello, the Chairman and CEO, for
$109,177 plus accrued interest of approximately $ 33,000. This note bears
interest at a rate of 12.5% per annum and is due on-demand. Other
Stockholders/Employees have loans totaling $227,186 plus accrued interest of
approximately $41,000. Of this amount, $150,000 bears interest at a rate of
12.5% per annum. The Company has issued the noteholder 10 million shares of
common stock in exchange, the individual has extended the maturity date of the
note by 10 years. The cost associated with these shares has been accounted for
as deferred finance charges, and are being amortized over the life of the
deferral period. The shares were valued at $200,000 the fair value at the date
of issuance. Also included in this amount is $77,000 due to employees payable on
demand.
Note 3 - Stockholder's Equity
The Company is authorized to issue 10,000,000 shares of Preferred Stock, par
value $.001, with such designations, rights and preferences as may be determined
from time to time by the Board of Directors. There are currently zero shares of
Preferred Stock issued and outstanding.
During the period 800,000 common stock options were exercised by employees. The
average exercise price of the options was .026. The Company realized proceeds of
$21,000 from the exercise of the options.
Note 4 - Stock Options
Stock option activity during the period is indicated as follows:
Page 7
OPTIONS AVAILABLE EXERCISE
FOR GRANT OPTIONS PRICE
----------------- --------- ---------
Balance, September 30, 2004 40,856,040 47,063,960 .01 - .04
Granted 0
Exercised (800,000) .01 - .04
Forfeited 0
-------------------------------------------------------------------------------
Balance, December 31, 2004 40,856,040 46,263,960 .01 - .04
===============================================================================
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123") and SFAS No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS
148") requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS 123 specifies certain valuation techniques
that produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Company's Statement
of Operations, because Accounting Principles Board Opinion 25, "Accounting for
Stock issued to Employees" specifies that no compensation charge arises when the
price of the employees' stock options equal the market value of the underlying
stock at the grant date, as in the case of options granted to the Company's
employees.
Pro forma results are as follows for the three months ended December 31, 2004:
Actual net loss (386,626)
SFAS 123 Compensation Cost 4,620
--------
Pro forma net loss (391,246)
--------
Pro forma basic and diluted net loss per share (0.00)
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The following weighted
average assumptions were used:
Risk free interest rate 4%
Expected dividends 0
Volatility factor 52%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's options.
Note 5 - Accounts Receivable
Accounts receivable consist of normal trade receivables. The Company assesses
the collectibility of its accounts receivable regularly. Based on the most
recent assessment, we recorded bad debt expense of $0 for the period ending
December 31, 2004.
Note 6 - Subsequent Events
On January 4th the Company issued a Private Placement Memorandum. The Company
has received $500,000. The pricing of the placement is .025 cents per unit. The
units consist of one common share at par value .001 and two warrants priced at
.05 and .10 respectively expiring in 2009 and 2010 respectively.
Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS or PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
OVERVIEW
We are a diversified technology Company headquartered in Herndon, VA, Since our
formation in 2001, our business plan has evolved as our revenues have grown. Our
products and services offering include skilled technical consulting services, a
full catalog of third party hardware and software and a branded suite of online
training, content management (CMS), collaboration, portal and integration
products.
Our future growth and the continued support of a comprehensive product line is
dependent upon a significant growth in revenues from software licenses and the
availability of additional working capital to fund the next version of software.
While we continue to explore acquisition opportunities, our short-term focus is
development and launch of the new version of IceWEB software know as "Smart
Enterprise Suite 3.0." This version of the IceWEB product line will include new
features, including wireless and PDA connectivity, more robust reporting tools
and a tightly integrated technology platform. The product will be offered as an
application service over the internet. It will include functionality that allows
the customer to click and choose what service is needed and the length of which
time the software is to be used. Over the last two quarters we have ported our
platform to dot net nuke, an open systems architecture.
Our client base continues to broaden. The Company is signing new customers on a
daily basis. The Company uses it's website as the predominant marketing tool.
RESULTS OF OPERATIONS
Revenues
We generate revenues from software, application development and network
management services and integrated technology, infrastructure solutions and
third party hardware sales. For the three months ended December 31, 2004, we
generated revenues of $1,432,883 compared to $1,525,358 in the comparative
period in 2003, a decrease of approximately 6%. The primary reason for the
decrease in revenue is that the Company continues to incur cash flow deficits.
The cash flow issues have inhibited the Company's relationship with it's
suppliers and hindered it's ability to generate additional revenue.
Cost of Sales
For the three months ended December 31, 2004, cost of sales was $1,068,200, or
approximately 75% of revenues, compared to $1,002,782 or approximately 66% of
revenues, for the three months ended December 31, 2003. The Company attributes
the increase in the cost of sales to increase costs associated with programmers
and other technical human resources.
Total Operating Expenses
Our total operating expenses increased approximately 53% for the three months
ended December 31, 2004 as compared to the same period in fiscal 2003. These
increases include: approximately $194,000 in research and development costs.
Marketing and Selling - our marketing and selling expense consists of personnel
costs, including commissions, public relations, advertising, marketing programs,
lead generation, travel and trade shows. For the three months ended December
31, 2004, marketing and selling costs were $12,703 as compared to $36,860 for
comparative period in 2003, a decrease of $24,157 or approximately 65%. These
increases were the result of additional marketing personnel, trade show events,
online web marketing, advertising and print advertising during fiscal 2004.
Page 9
Research and development - our research and development expense consists
primarily of personnel costs related to the development of the software
products. For the three months ended December 31, 2004, research and
development expenses were 193,727 as compared to $56,000 in the comparative
period in 2003. The research and development expenses in fiscal 2004 are related
to efforts to further develop and enhance certain software products acquired by
us during this fiscal year General and administrative expense - our general and
administrative expense consists primarily of personnel costs, rent, legal,
accounting, human resources, telecommunications, office supplies and corporate
governance and compliance. For the three months ended December 31, 2004,
general and administrative expenses were $534,347 as compared to $388,809 for
the comparative period in 2003, an increase of $145,538 or approximately 37%.
These increased general and administrative expenses reflect increases in
personnel costs and other fixed expenses resulting from acquisitions made by us
during fiscal 2004. We expect general and administrative expenses to stabilize
and potentially decrease as a percentage of sales due to the process
efficiencies we have been developing. At this time, we do not anticipate any
significant changes in the number of employees through hiring or firing
practices; however, any additional acquisitions could result in increased
general and administrative expenses.
Other Income/Expense
For the three months ended December 31, 2004, The Company recognized other
income of $9,769 which represents rental revenue generated from a sublet of
office space.
Interest Expense
Interest expense consists primarily of the amounts accrued on the notes payable
to John R. Signorello and an unaffiliated third party as described in Note 2 of
the notes to unaudited consolidated Financial Statements appearing elsewhere
herein. For the three months ended December 31, 2004 interest expense was
$20,301 as compared to $10,976 the comparative period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, we had a cash balance of $118,470 and a working capital
deficit of $1,220,659. The report of our independent auditors on our financial
statements for the year ended September 30, 2004 contains an explanatory
paragraph regarding our ability to continue as a going concern. Net cash used in
operations was ($112,671) for the three months ended December 31, 2004, as
compared to net cash used in operations of ($121,480) for the three months ended
December 31, 2003. For the three months ended December 31, 2004, we used
cash to fund our net loss of ($386,626) offset by non-cash items such as
depreciation expense of $16,362.
Net cash used in investing activities for the three months ended December 31,
2004 was $8,838 as compared to $66,679 for the comparative period in 2003. Net
cash provided by financing activities for the three months ended December 31,
2004 was $61,198 as compared to $149,538 for the comparative period in 2003.
Our operations continue to use more cash than they currently generate. We have
expended funds not only for our continuing operations but to fund research and
development costs associated with our software. Because of the continued need
for substantial amounts of working capital to fund the growth of the business
and to pay our operating expenses, we expect to continue to experience negative
operating and investing cash flows for the foreseeable future. While we
presently expect an increase in software sales during the balance of fiscal 2004
and into fiscal 2005, would have a positive effect on the operating cash flow,
as a result of the current uncertainty of the software revenues it is likely
that our existing working capital will not be sufficient to fund the continued
implementation of our plan of operation during the next 12 months and to meet
Page 10
our capital commitments and general operating expenses. We are unable to predict
at this time the exact amount of additional working capital we will require,
however, in order to provide any additional working capital which we may
require, we will in all likelihood be required to raise additional capital
through the sale of equity or debt securities. Subsequent to this document we
have raised $500,000 through the sale of equity. We will still need to raise a
minimum of $1,000,000 to sustain our current growth rate and operations.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the U.S. Securities
and Exchange Commission encourages all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our consolidated financial statements include a summary of the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. Management believes the following critical
accounting policies affect the significant judgments and estimates used in the
preparation of the financial statements.
Revenue Recognition - revenues are recognized at the time of shipment of the
respective products and/or services. Our Company includes shipping and handling
fees billed to customers as revenues. Costs of sales include outbound freight.
Licenses and software are billed as services are rendered on a biweekly
schedule.
Use of Estimates - Management's discussion and analysis of financial condition
and results of operations is based upon our unaudited consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management evaluates these estimates, including those related to allowances for
doubtful accounts receivable and the carrying value of inventories and
long-lived assets. Management bases these estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgments about the
carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
Within the 90 days prior to the filing date of this report we carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation
was done under the supervision and with the participation of our Chief Executive
Officer. Based upon that evaluation, he concluded that our disclosure controls
and procedures are effective in gathering, analyzing and disclosing information
needed to satisfy our disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in our internal controls or in other factors
that could significantly affect those controls since the most recent evaluation
of such controls.
Page 11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 2. Changes in Securities and small business issuer purchases of equity
securities
None
Item 3. Defaults upon Senior Securities
The Company is currently out of compliance with the Tangible Net Worth
covenant as stated in our Loan Agreement with Comerica.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Comerica Bank Loan and Security Agreement
Exhibit 31.1 Certification of Chief Executive Officer pursuant to
Section 302
Exhibit 31.2 Certification of Principal Financial Officer pursuant
to Section 302
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
Section 906
b) Reports on Form 8-K
8K filed on 10/08/04 pursuant to items 8.01 and 9.01
8K filed on 10/18/04 pursuant to items 8.01 and 9.01
8K/A filed on 10/29/2004 pursuant to item 9.01
Page 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ICEWEB Inc.
Dated: February 18, 2005 By: /s/ John R. Signorello
----------------- --------------------------
John R. Signorello,
Chairman and CEO
Page 13