Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
period ended June 30, 2009
|
o
|
TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
|
For the
transition period from _________ to _________
Commission
file number: 0-27865
ICEWEB,
INC.
(Exact
name of small business issuer as specified in its charter)
|
Delaware
|
13-2640971
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
22900
Shaw Road, Suite 111
Sterling, VA
20166
(Address
of principal executive offices)
(571)
287-2388
(Issuer’s
telephone number)
205
Van Buren Street, Suite 150
Herndon,
VA 20170
(Former
name, former address, and former fiscal year, if changed since last
report)
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 o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
|
o
|
|
Accelerated filer
|
|
o
|
|
Non-accelerated
filer
|
|
o (Do not check if a
smaller reporting company)
|
|
Smaller reporting company
|
|
x
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: At August 13, 2009, there were 53,769,617
outstanding shares of common stock, $.001 par value per share.
Transitional Small Business Disclosure
Format (Check one): Yes o No x
CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION
This
quarterly report contains forward-looking statements. These forward-looking
statements are subject to risks and uncertainties and other factors that may
cause our actual results, performance or achievements to be materially different
from the results, performance or achievements expressed or implied by the
forward-looking statements. You should not unduly rely on these statements.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. They use words such as “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “project,”
“contemplate,” “would,” “should,” “could,” or “may.” With respect to any
forward-looking statement that includes a statement of its underlying
assumptions or bases, we believe such assumptions or bases to be reasonable and
have formed them in good faith, assumed facts or bases almost always vary from
actual results, and the differences between assumed facts or bases and actual
results can be material depending on the circumstances. When, in any
forward-looking statement, we express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the stated
expectation or belief will result or be achieved or accomplished. All subsequent
written and oral forward-looking statements attributable to us, or anyone acting
on our behalf, are expressly qualified in their entirety by the cautionary
statements.
OTHER
PERTINENT INFORMATION
When used
in this quarterly report, the terms “IceWEB”, the “Company”, “we”, “our,” and
“us” refers to IceWEB, Inc., a Delaware corporation, and our subsidiaries. The
information which appears on our web site at www.iceweb.com is not part of this
quarterly report.
ICEWEB,
INC. AND SUBSIDIARIES
FORM
10-Q
QUARTERLY
PERIOD ENDED JUNE 30, 2009
INDEX
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Page
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PART
I - FINANCIAL INFORMATION
|
|
|
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|
|
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Item
1 - Consolidated Financial Statements
|
4
|
|
|
|
|
|
|
Consolidated
Balance Sheet (unaudited) at June 30, 2009 and September 30,
2008
|
4
|
|
|
|
|
|
|
Consolidated
Statements of Operations (unaudited) For
the three and nine months ended June 30, 2009 and 2008
|
5
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows (unaudited) For
the nine months ended June 30, 2009 and 2008
|
6
|
|
|
|
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
7-19
|
|
|
|
|
|
|
Item
2 - Management’s Discussion and Analysis or Plan of
Operation
|
20-31
|
|
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Item
3 - Quantitative and Qualitative Disclosures About Market
Risk
|
31
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|
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Item
4 - Controls and Procedures
|
31
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PART
II - OTHER INFORMATION
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|
|
|
|
|
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Item
1 - Legal Proceedings
|
32
|
|
|
|
|
|
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Item
1A - Risk Factors
|
32
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|
|
|
Item
2 - Unregistered Sales of Equity Securities and Use of
Proceeds
|
32
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Item
3 - Default upon Senior Securities
|
32
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|
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Item
4 - Submission of Matters to a Vote of Security Holders
|
32
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Item
5 - Other Information
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32
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Item
6 - Exhibits
|
32
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|
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Signatures
|
33
|
PART
I - FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements
ICEWEB,
Inc.
Consolidated
Balance Sheet
June
30, 2009
(Unaudited)
|
CURRENT
ASSETS:
|
|
June
30, 2009
|
|
|
September 30, 2008
(1)
|
|
|
Cash
|
|
$ |
25,339 |
|
|
$ |
4,780 |
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$9,000
|
|
|
859,623 |
|
|
|
3,094,110 |
|
|
Inventory,
net
|
|
|
107,204 |
|
|
|
400,312 |
|
|
Other
current assets
|
|
|
28,704 |
|
|
|
21,572 |
|
|
Prepaid
expenses
|
|
|
43,106 |
|
|
|
55,155 |
|
|
|
|
|
1,063,976 |
|
|
|
3,575,929 |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of
$1,505,014
|
|
|
993,079 |
|
|
|
1,169,369 |
|
|
Deposits
|
|
|
74,571 |
|
|
|
61,418 |
|
|
Intangible
assets, net of accumulated amortization of $303,862
|
|
|
850,816 |
|
|
|
1,132,612 |
|
|
Total
Assets
|
|
$ |
2,982,442 |
|
|
$ |
5,939,328 |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
1,277,169 |
|
|
$ |
7,762,872 |
|
|
Notes
payable
|
|
|
1,773,445 |
|
|
|
1,372,565 |
|
|
Deferred
revenue
|
|
|
11,101 |
|
|
|
13,164 |
|
|
|
|
|
3,061,715 |
|
|
|
9,148,601 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
|
Notes
Payable
|
|
|
1,252,085 |
|
|
|
956,520 |
|
|
Total
Liabilities
|
|
|
4,313,800 |
|
|
|
10,105,121 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
Preferred
stock ($.001 par value; 10,000,000 shares authorized) Series A convertible
preferred stock ($.001 par value; 0 shares issued and
outstanding)
|
|
|
— |
|
|
|
— |
|
|
Series
B convertible preferred stock ($.001 par value; 1,253,334 shares issued
and outstanding)
|
|
|
1,253 |
|
|
|
1,253 |
|
|
Common
stock ($.001 par value; 1,000,000,000 shares authorized; 49,767,950 shares
issued and 49,605,250 shares outstanding at June 30, 2009 and 24,688,088
shares issued and 24,425,588 outstanding at September 30,
2008)
|
|
|
49,770 |
|
|
|
24,690 |
|
|
Additional
paid in capital
|
|
|
17,648,572 |
|
|
|
15,953,221 |
|
|
Accumulated
deficit
|
|
|
(19,017,953
|
) |
|
|
(20,131,957
|
) |
|
Treasury
stock, at cost, (162,500 shares)
|
|
|
(13,000
|
) |
|
|
(13,000
|
) |
|
Total
stockholders’ deficit
|
|
|
(1,331,358
|
) |
|
|
(4,165,793
|
) |
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and stockholders’ deficit
|
|
$ |
2,982,442 |
|
|
$ |
5,939,328 |
|
(1)
Derived from audited financial statements
See
accompanying notes to unaudited consolidated financial statements
ICEWEB,
Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
|
Three
Months Ended
June
30
|
|
|
Nine
Months Ended
June
30
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
826,182 |
|
|
$ |
5,981,083 |
|
|
$ |
3,936,472 |
|
|
$ |
14,095,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
404,641 |
|
|
|
5,249,906 |
|
|
|
2,478,707 |
|
|
|
12,127,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
421,541 |
|
|
|
731,177 |
|
|
|
1,457,765 |
|
|
|
1,968,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
18,266 |
|
|
|
50,208 |
|
|
|
48,778 |
|
|
|
138,927 |
|
|
Depreciation
and amortization
|
|
|
85,793 |
|
|
|
259,933 |
|
|
|
432,839 |
|
|
|
412,297 |
|
|
Research
and development
|
|
|
94,020 |
|
|
|
121,906 |
|
|
|
250,450 |
|
|
|
207,636 |
|
|
General
and administrative
|
|
|
1,027,484 |
|
|
|
2,369,286 |
|
|
|
2,554,898 |
|
|
|
5,187,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
1,225,563 |
|
|
|
2,801,333 |
|
|
|
3,286,965 |
|
|
|
5,946,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(804,022
|
) |
|
|
(2,070,156 |
) |
|
|
(1,829,200
|
) |
|
|
(3,978,257
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from sale of subsidiary
|
|
|
— |
|
|
|
— |
|
|
|
3,452,236 |
|
|
|
— |
|
|
Interest
income
|
|
|
— |
|
|
|
682 |
|
|
|
1,142 |
|
|
|
3,266 |
|
|
Interest
expense
|
|
|
(144,884
|
) |
|
|
(196,450
|
) |
|
|
(510,178
|
) |
|
|
(481,457
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expenses)
|
|
|
(144,884
|
) |
|
|
(195,768
|
) |
|
|
2,943,200 |
|
|
|
(478,191
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(948,906 |
) |
|
$ |
(2,265,924 |
) |
|
$ |
1,114,000 |
|
|
$ |
(4,456,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per common share
|
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.03 |
|
|
$ |
(0.28 |
) |
|
Diluted
income (loss) per common share
|
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.03 |
|
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding-basic
|
|
|
38,794,632 |
|
|
|
19,172,959 |
|
|
|
35,431,837 |
|
|
|
16,162,168 |
|
|
Weighted
average common shares outstanding-diluted
|
|
|
38,794,632 |
|
|
|
19,172,959 |
|
|
|
37,637,725 |
|
|
|
16,162,168 |
|
See
accompanying notes to unaudited consolidated financial statements
ICEWEB,
Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
Nine
Months Ended
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED (USED) IN OPERATING ACTIVITIES
|
|
$ |
(1,408,644 |
) |
|
$ |
(385,319 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(28,318
|
) |
|
|
(65,923
|
) |
|
Cash
used in acquisitions, net
|
|
|
— |
|
|
|
(1,311,318
|
) |
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(28,318
|
) |
|
|
(1,377,241
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Repayment
of equipment financing
|
|
|
(45,114
|
) |
|
|
(60,068
|
) |
|
Repayment
of notes payable - related party
|
|
|
— |
|
|
|
(115,767
|
) |
|
Proceeds
from notes payable
|
|
|
7,060,871 |
|
|
|
7,092,685 |
|
|
Payments
on notes payable
|
|
|
(6,122,036 |
) |
|
|
(6,476,876
|
) |
|
Common
stock issued for services rendered
|
|
|
12,500 |
|
|
|
— |
|
|
Proceeds
from exercise of common stock options
|
|
|
454,300 |
|
|
|
198,450 |
|
|
Proceeds
from sale of common stock
|
|
|
97,000 |
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,457,521 |
|
|
|
718,424 |
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
|
|
|
20,559 |
|
|
|
(1,044,136
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
- beginning of year
|
|
|
4,780 |
|
|
|
1,092,470 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
- end of period
|
|
$ |
25,339 |
|
|
$ |
48,334 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
365,294 |
|
|
$ |
463,245 |
|
|
Income
taxes
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
transactions affecting investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Conversion
of shares of preferred stock to shares of common stock
|
|
|
— |
|
|
|
1,037,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
details:
|
|
|
|
|
|
|
|
|
|
Liabilities
assumed
|
|
$ |
— |
|
|
$ |
614,668 |
|
|
Common
stock issued
|
|
$ |
— |
|
|
$ |
276,8456 |
|
|
Direct
costs
|
|
|
— |
|
|
|
740,000 |
|
|
Fair
value of assets acquired
|
|
$ |
— |
|
|
$ |
3,904,245 |
|
|
Cash
paid
|
|
$ |
— |
|
|
$ |
2,412,731 |
|
See
accompanying notes to unaudited consolidated financial statements
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
1 - NATURE OF BUSINESS
IceWEB, Inc. was originally
founded to serve the commercial and federal markets with network security
products and proprietary on-line software solutions. In 2008, the Company
narrowed its focus and expanded its capabilities by acquiring INLINE
Corporation, a data storage company specializing in custom designed,
short-production run storage solutions for the Geospatial Information Systems
(GIS) market.
In fiscal
year 2009, through the third quarter ended June 30, 2009 the Company had three
lines of business: Storage & GIS products, IT solutions and Online
Services.
In March,
2009, the Company sold IceWEB Virginia, Inc., its IT solutions business, to an
unrelated third party. As a result, the Company is now focused exclusively on
Storage and GIS products, and Online Services. The Company plans to focus and
grow its revenues and profits in the Storage and Online Services
market.
Storage and GIS Products.
These products simplify how enterprises retain, access, manage and protect their
data. Demand for data storage is ever-growing and ubiquitous as data files in
all market sectors have become larger and richer with video and multimedia
content. This growth is particularly strong in the already billion dollar GIS
market that is projected to grow ten-fold over the next decade. Therefore,
IceWEB’s strategic direction is to grow its share and profits in this market
based upon its own proprietary designs and its strategic relationships with its
GIS software OEMs such as ESRI, the world-wide leader in GIS application
software.
IceWEB
and ESRI have collaborated to create ultra-high performance INLINE/ESRI GIS
systems that allow customers to analyze data in ways never before possible.
IceWEB designs, manufactures and, in concert with its OEM partners, markets
these systems to organizations all over the world.
In
addition to the Company’s line of hardware/software storage products, customers
can choose from a broad range of warranty and service programs. INLINE products
range from storage servers, to NAS (Network Attached Storage) and SAN (Storage
Area Network) solutions. OEM/Custom products are focused on the GIS
markets.
|
Core
Products
|
|
Models
|
|
GIS
|
|
Servers
|
|
Enterprise
& Workgroup
|
|
GIS
Server,
GIS
Workgroup Server
GIS
MLP
|
|
SAN
|
|
Fibre
Channel and IP
|
|
|
|
NAS
|
|
Engines
– Gateways into storage subsystems.
|
|
GIS
Data Appliance
MLP
Data Appliance
|
|
|
|
Appliances
– Fully bundled NAS with storage
|
|
GIS
Appliance
GIS
Database
|
|
GIS products utilize the
latest storage server, SAN and NAS
technology
|
Online Services. In December
2005, IceWEB launched IceMAIL TM a
packaged software service that provides network –hosted groupware, email,
calendaring and collaboration functionality. Customers are organizations wishing
to use Microsoft Exchange and Outlook without having to procure, maintain and
manage their own equipment and software. Online services were subsequently
expanded to include IcePORTAL TM which
provides customers with a complete Intranet portal and IceSECURE TM a
hosted email encryption service. These products continue to provide predictable
monthly revenues for the Company; however the Company has no plans to make new
investments in this business in 2009.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE 2 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Our
interim consolidated financial statements included herein have been prepared by
us, without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”). Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles in the United States (“GAAP”) have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the interim consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the statement of the results for the interim periods
presented. These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto, as well as the accompanying Management’s Discussion and Analysis of
Financial Condition and Results of Operations for the year ended September 30,
2008 included in our Annual Report on Form 10-KSB. Interim financial results are
not necessarily indicative of the results that may be expected for a full
year.
Reclassifications
Certain
reclassifications have been made to previously reported amounts to conform to
fiscal 2009 amounts.
Going
Concern
The
Company’s auditors stated in their report on the consolidated financial
statements of the Company for the years ended September 30, 2008 and 2007 that
the Company is dependent on outside financing and has had losses since inception
that raise doubt about its ability to continue as a going concern. For the nine
months ended June 30, 2009, the Company had net income of $1,114,000 which
included noncash expenses of $1,333,303, and noncash income from the gain on
sale of its subsidiary of $3,452,236. Cash used in operations totaled
$1,408,644. The consolidated financial statements do not include any adjustments
related to the recovery and classification of recorded assets, or the amounts
and classification of liabilities that might be necessary in the event the
Company cannot continue in existence.
Management
has established plans intended to increase the sales of the Company’s products
and services. Management intends to seek new capital from new equity securities
offerings to provide funds needed to increase liquidity, fund growth, and
implement its business plan. However, no assurances can be given that the
Company will be able to raise any additional funds.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates in 2009 and
2008 include the allowance for doubtful accounts, the valuation of stock-based
compensation, the useful life of intangible assets and property and equipment,
and the valuation of goodwill.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE 2 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Accounts
Receivable
Accounts
receivable consists of normal trade receivables. The Company recorded a bad debt
allowance of $9,000 as of June 30, 2009. Management performs ongoing evaluations
of its accounts receivable. Management believes that all remaining receivables
are fully collectable. Bad debt expense amounted to $0 and $0 for the nine
months ended June 30, 2009 and 2008, respectively.
Intangible
Assets
Intangible
assets, net consists of the cost of acquired customer relationships and the
value of Federal contracts that the Company acquired in the acquisition of
Inline Corporation. The Company capitalizes and amortizes the cost of acquired
intangible assets over their estimated useful lives on a straight-line basis.
The estimated useful lives of the Company’s acquired customer relationships and
Federal government contracts are three to five years.
Property
and Equipment
Property
and equipment is stated at cost, net of accumulated depreciation. Depreciation
is provided by using the straight-line method over the estimated useful lives of
the related assets.
Long-lived
Assets
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company
reviews the carrying value of intangibles and other long-lived assets for
impairment at least annually or whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets is measured by comparison of its carrying
amount to the undiscounted cash flows that the asset or asset group is expected
to generate. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
property, if any, exceeds its fair market value.
Revenue
Recognition
The
Company follows the guidance of the Securities and Exchange Commission’s Staff
Accounting Bulletin 104 for revenue recognition. In general, the Company records
revenue when persuasive evidence of an arrangement exists, services have been
rendered or product delivery has occurred, the sales price to the customer is
fixed or determinable, and collectability is reasonably assured. The following
policies reflect specific criteria for the various revenue streams of the
Company:
Revenues
from sales of products are generally recognized when products are shipped unless
the Company has obligations remaining under sales or licensing agreements, in
which case revenue is either deferred until all obligations are satisfied or
recognized ratably over the term of the contract.
Revenue
from services is recorded as it is earned. Commissions earned on third party
sales are recorded in the month in which contracts are awarded. Customers are
generally billed every two weeks based on the units of production for the
project. Each project has an estimated total which is based on the estimated
units of production and agreed upon billing rates. Amounts billed in advance of
services being provided are recorded as deferred revenues and recognized in the
consolidated statement of operations as services are provided.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Earnings
per Share
The
Company computes earnings per share in accordance with Statement of Accounting
Standards No. 128, “Earnings per Share (“SFAS No. 128”). Under the provisions of
SFAS No. 128, basic earnings per share is computed by dividing the net income
(loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares consist of the common shares issuable upon
the exercise of stock options and warrants (using the treasury stock method) and
upon the conversion of convertible preferred stock (using the if-converted
method). Potentially dilutive common shares are excluded from the calculation if
their effect is anti-dilutive. At June 30, 2009, there were Series B convertible
preferred stock, options and warrants to purchase 2,393,066 shares of common
stock which could potentially dilute future earnings per share.
Stock-Based
Compensation
Prior to
January 1, 2005, the Company accounted for stock options issued under the Plan
under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, as permitted by FASB Statement
No. 123, Accounting for
Stock-Based Compensation (“SFAS
No. 123”).
Effective
January 1, 2005 we adopted the fair value recognition provisions of FASB
Statement No. 123 (revised 2004), “Share-Based Payment”,(“SFAS
123(R)”) which requires the measurement and recognition of compensation expense
for all stock-based payment awards made to employees and directors, including
employee stock options, based on estimated fair values. We had previously
applied Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees,” (“APB 25”) and related Interpretations and provided the
required pro forma disclosures of Statement of Financial Accounting Standards
No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) which was
superseded by SFAS 123(R). The Company has also applied the provisions of Staff
Accounting Bulletin No. 107 (“SAB 107”) in the adoption of SFAS
123(R).
We
elected to adopt the modified prospective application transition method as
provided by SFAS 123(R). In accordance with the modified prospective transition
method, consolidated financial statements for prior periods have not been
restated to reflect, and do not include, the impact of SFAS 123(R). Under that
transition method, compensation cost recognized in the three months ended
December 31, 2008 includes: (a) compensation cost for all share-based payments
granted prior to, but not yet vested as of December 31, 2008, based on the grant
date fair value estimated in accordance with the original provisions of
Statement 123, and (b) compensation cost for all share-based payments granted
subsequent to October 1, 2005, based on the grant-date fair value estimated in
accordance with the provisions of Statement 123(R).
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
3 - PROPERTY AND EQUIPMENT
At June
30, 2009 and September 30, 2008, property and equipment consisted of the
following:
|
|
Estimated
Life
|
|
June
30,
2009
|
|
September
30,
2008
|
|
|
Office
equipment
|
5
years
|
|
$
|
639,420
|
|
|
$
|
628,080
|
|
|
Computer
software
|
3
years
|
|
|
599,229
|
|
|
|
713,876
|
|
|
Vehicles
|
3
years
|
|
|
17,330
|
|
|
|
17,330
|
|
|
Furniture
and fixtures
|
5
years
|
|
|
261,385
|
|
|
|
261,385
|
|
|
Leasehold
improvements
|
5
years
|
|
|
1,005,750
|
|
|
|
999,050
|
|
|
|
|
|
|
2,523,114
|
|
|
|
2,619,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
|
(1,530,035
|
)
|
|
|
(1,450,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
993,079
|
|
|
$
|
1,169,369
|
|
Depreciation
expense for the nine months ended June 30, 2009 and 2008 was $204,608 and
$206,882 respectively.
NOTE
4 - INVENTORY
Inventory
consisted of the following:
|
|
June
30,
2009
|
|
September
30,
2008
|
|
|
Raw
materials
|
$
|
117,093
|
|
$
|
351,579
|
|
|
Work
in progress
|
|
21,955
|
|
|
65,921
|
|
|
Finished
goods
|
|
7,318
|
|
|
21,974
|
|
|
|
|
146,366
|
|
|
439,474
|
|
|
|
|
|
|
|
|
|
|
Less:
reserve for obsolescence
|
|
(39,162
|
)
|
|
(39,162
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
107,204
|
|
$
|
400,312
|
|
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
5 - ACQUISITION AND DISPOSITIONS
On
December 22, 2007, we acquired 100% of the outstanding stock of Inline for
$2,412,731 in cash, plus 503,356 shares of IceWEB common stock valued at
$276,846, the fair market value on the date of acquisition. The acquisition was
accounted for using the purchase method of accounting. The results of operations
are included in the financial statements of operations from the date of
acquisition. Inline is a leading provider of intelligent enterprise data storage
solutions and services for the geospatial intelligence marketplace. Inline’s
proprietary products include reliable, high performance Storage Area Network
Solutions, Network Attached Storage, and Direct Attached Storage and the rapidly
expanding OEM Storage Centric Appliances. Today, Inline has developed its fifth
generation of advanced data storage solutions, marketed under the brands TruEnterprise and FileStorm . All Inline
systems function in a heterogeneous operating system environment, including
Windows, UNIX and Linux. The purchase of Inline Corporation included the
acquisition of assets of $3,904,245, and liabilities of $614,668. The aggregate
purchase price consisted of the following:
|
Cash
payment to seller
|
|
$ |
2,412,731 |
|
|
Fair
value of common stock issued to seller
|
|
|
276,846 |
|
|
Estimated
direct transaction fees and expenses
|
|
|
600,000 |
|
|
|
|
$ |
3,289,577 |
|
The
following table summarizes the estimated fair values of Inline’s assets acquired
and liabilities assumed at the date of the acquisition:
|
Cash
|
|
$ |
487,603 |
|
|
Accounts
Receivable
|
|
|
866,455 |
|
|
Lease
Deposits
|
|
|
20,500 |
|
|
Inventory,
net
|
|
|
394,863 |
|
|
Property
and equipment, net
|
|
|
919,374 |
|
|
Intangible
assets
|
|
|
1,215,450 |
|
|
Accounts
payable and accrued expenses
|
|
|
(614,668
|
) |
|
|
|
$ |
3,289,577 |
|
Intangible
assets acquired from Inline were assigned the following values: value
of manufacturing GSA schedule with an assigned valued of $750,000 amortized
straight line over five years; value of customer relationships with an assigned
value of $465,450 amortized straight line over five years. Intangible assets
acquired from Inline had the following unamortized values at June 30, 2009:
value of manufacturing GSA schedule of $525,000; value of customer relationships
of $325,815.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
5 - ACQUISITION AND DISPOSITIONS (continued)
On March
30, 2009, the Company completed the sale of IceWEB Virginia, Inc., a wholly
owned subsidiary, to ABC Networks, Inc., (“ABC”) a privately held U.S. company.
Pursuant to the terms of the transaction, ABC acquired 100% of the outstanding
common stock of IceWEB, Virginia, Inc.
The
aggregate sales price consisted of the following:
|
Common
stock issued to purchaser
|
|
$ |
80,000 |
|
|
Net
book value of disposed subsidiary
|
|
|
(3,532,236
|
) |
|
|
|
$ |
(3,452,236 |
) |
The
following table summarizes the estimated fair values of IceWeb Virginia’s assets
and liabilities disposed of at the date of the sale:
|
Intangible
assets, net
|
|
$ |
(53,565 |
) |
|
IceWEB,
Inc. common stock
|
|
|
(80,000
|
) |
|
Accounts
payable and accrued liabilities
|
|
|
3,585,801 |
|
|
Estimated
gain on the sale
|
|
$ |
3,452,236 |
|
The
following table summarizes the required disclosures for IceWEB, as if the
disposition of IceWEB Virginia, Inc. had occurred at October 1,
2007.
|
|
|
For
the Nine Months Ended June 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Revenues,
net
|
|
$ |
2,094,965 |
|
|
$ |
809,558 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, excluding gain from sale in 2009
|
|
|
(1,721,188 |
) |
|
|
(2,843,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
income ( loss) per common share – basic and diluted
|
|
$ |
(0.05 |
) |
|
$ |
(0.18 |
) |
The above
unaudited pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of results of operations that actually would
have resulted had the acquisition occurred at October 1, 2006, nor is it
necessarily indicative of future operating results.
NOTE
6 - NOTES PAYABLE
Sand Hill Finance,
LLC
On
December 19, 2005, the Company entered into a Financing Agreement with Sand Hill
Finance, LLC pursuant to which, together with related amendments, the Company
may borrow up to 80% on the Company’s accounts receivable balances up to a
maximum of $1,800,000. In conjunction with the acquisition of Inline Corporation
in December, 2007, the lending limit on the credit facility was increased to
$2,750,000. In addition, the Company and Sand Hill Finance, LLC entered into a
36 month term note agreement in the amount of $1,000,000, due November 30, 2011.
Amounts borrowed under the Financing Agreement are secured by a first security
interest in substantially all of the Company’s assets. At June 30, 2009, the
principal amount due under the Financing Agreement amounted to
$1,726,751.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
6 - NOTES PAYABLE (continued)
In
November, 2008, in connection with the term note the Company executed a
convertible debenture agreement with Sand Hill Finance, LLC in the amount of
$1,170,767. The debenture bears interest at 18% and will allow Sand Hill
Finance, LLC to convert the outstanding obligation into shares of IceWEB common
stock at a fixed floor conversion price of $0.30 per share. The principal amount
due under the convertible debenture amounted to $1,252,085 at June 30,
2009.
Interest
on the accounts receivable-based borrowings is payable at a rate of 2% per month
on the average loan balance outstanding during the year, equal to an annual
interest of approximately 24% per year. The Company also agreed to pay an
upfront commitment fee of 1% of the credit line upon signing the Financing
Agreement, half of which was due and paid upon signing (amounting to $9,000) and
half of which is due on the first anniversary of the Financing Agreement. In
addition, the Company is obligated to pay a commitment fee of 1% of the credit
limit annually, such amounts are payable on the anniversary of the
agreement.
In
connection with the Financing Agreement, the Company issued Sand Hill Finance,
LLC, a seven-year common stock purchase warrant to purchase 25,000 shares of our
common stock at an exercise price of $1.00 per share. The exercise price was
subsequently reduced to $0.50 per share pursuant to Warrant Amendment Agreement
which was executed in conjunction with the convertible debenture. The warrant
contains a cashless exercise provision which means that at the option of the
holder, the warrant is convertible into a number of shares of our common stock
as determined by dividing the aggregate fair market value of the Company’s
common stock minus the aggregate exercise price of the warrant by the fair
market value of one share of common stock. The number of shares issuable upon
the exercise of the warrant and the exercise price are subject to adjustment in
the event of stock dividends, stock splits and reclassifications. The fair value
of the warrant of $16,250 has been recorded as an addition to paid-in capital
and interest expense during the year ended September 30, 2007.
In
connection with the term note, the Company issued Sand Hill Finance, LLC a
seven-year common stock purchase warrant to purchase 120,000 shares of our
common stock at an exercise prices $1.00 per share. The exercise price was
subsequently reduced to $0.50 per share pursuant to Warrant Amendment Agreement
which was executed in conjunction with the convertible debenture. The warrant
contains a cashless exercise provision which means that at the option of the
holder, the warrant is convertible into a number of shares of our common stock
as determined by dividing the aggregate fair market value of the Company’s
common stock minus the aggregate exercise price of the warrant by the fair
market value of one share of common stock. The number of shares issuable upon
the exercise of the warrant and the exercise price are subject to adjustment in
the event of stock dividends, stock splits and reclassifications. The fair value
of the warrant of $13,589 has been recorded as an addition to paid-in capital
and deferred finance costs during the year ended September 30,
2008.
The
Financing Agreement has a term of one year, subject to mutual extension by both
parties. As a result, the balance due to Sand Hill Finance, LLC is classified as
a current liability on the accompanying consolidated balance sheet.
The terms
of the Financing Agreement also restrict the Company from undertaking certain
transactions without the written consent of the creditor including (i) permit or
suffer a change in control involving 20% of its securities, (ii) acquire assets,
except in the ordinary course of business, involving payment of $100,000 or
more, (iii) sell, lease, or transfer any of its property except for sales of
inventory and equipment in the ordinary course of business, (iv) transfer, sell
or license any intellectual property, (v) declare or pay a dividend on stock,
except payable in the form of stock dividends (vi) incur any indebtedness other
than trade credit in the ordinary course of business and (vii) permit any lien
or security interest to attach to any collateral.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
6 - NOTES PAYABLE (continued)
Third
party guarantee - In November 2006, the Company sold its interest in one of its
subsidiaries (Integrated Power Solutions, Inc. or IPS) to a shareholder of the
Company and related party. IPS is a party to the Financing Agreement and can
borrow against receivables transferred to Sand Hill Finance, LLC under the terms
of the Financing Agreement. The Company remains liable for any such amounts
borrowed under the Financing Agreement by IPS which is no longer under the
Company’s control. To date, IPS has not borrowed any funds under the Financing
Agreement.
In
August, 2008, the Company borrowed $187,500 from an accredited investor. The
note bears interest at 16% and had a term of four months, and can be repaid in
either cash or IceWEB common stock. As of December 31, 2008 the Company had
repaid the full amount of the note through the sale of 2,226,101 shares of
Iceweb common stock.
NOTE
7 - EQUIPMENT FINANCING PAYABLE
On July
6, 2006, the Company entered into what is in essence a sale and leaseback
agreement with respect to certain computer and office equipment. The Company
received gross proceeds of $300,000 from the sale of the equipment to a third
party. As part of the same transaction, the Company entered into an agreement to
lease the equipment back from the third party for 36 monthly rent payments of
$10,398 until August 2009. The Company is accounting for this equipment
financing arrangement as a capital lease. In connection with the agreement, the
Company made an initial security deposit of $30,000 and is included in deposits
in the balance sheet at June 30, 2009. The equipment had a net book value of
$37,846 on the date of the transaction. In connection with the financing, the
Company did not record any gain or loss. Imputed interest on this financing is
20% per annum. At June 30, 2009, the amount due under this equipment financing
arrangement amounted to $46,693, which is reflected as a current liability on
the accompanying balance sheet.
NOTE
8 - CONCENTRATION OF CREDIT RISK
Bank
Balances
The
Company maintains its cash bank deposits at various financial institutions
which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At June 30,
2009, the Company had no balances in excess of FDIC insured limits. The Company
has not experienced any losses in such accounts.
NOTE
9 - STOCKHOLDERS’ DEFICIT
During
the nine months ended June 30, 2009 in connection with the payment on a note
payable discussed in Note 6, the Company issued 1,959,601 shares of common
stock. The shares were valued at $152,273, the fair market value in the date of
issuance.
During
the nine months ended June 30, 2009, in connection with the exercise of
8,540,000 stock options, the Company issued 8,540,000 shares of common stock for
cash proceeds of $454,300.
During
the nine months ended June 30, 2009, Sand Hill Finance, LLC converted $45,000 of
their outstanding convertible debenture into 300,000 shares of common
stock.
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
9 - STOCKHOLDERS’ DEFICIT (continued)
During
the nine months ended June 30, 2009 the Company issued 225,000 shares of common
stock to consultants for services rendered which were valued at $12,500, the
fair market value at the time of the issuance.
During
the nine months ended June 30, 2009 the Company issued 10,154,961 shares of
common stock to employees, valued at $365,688. The shares were issued at between
$0.03 and $0.04 per share, the fair market value at the time of issuance, as
compensation in lieu of salary.
During
the nine months ended June 30, 2009, in connection with the sale of IceWEB
Virginia, Inc. the Company issued 1,000,000 shares of common stock to the
purchaser.
On June
3, 2009 we sold 1,400,000 shares of common stock at a per share price of $0.03,
valued at $42,000 to an accredited investor, and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
3, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to an accredited investor, and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
8, 2009 we sold 500,000 shares of common stock at a per share price of $0.03,
valued at $15,000 to an accredited investor, and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
Common
Stock Warrants
A summary
of the status of the Company’s outstanding common stock warrants as of June 30,
2009 and changes during the period ending on that date is as
follows:
|
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Common Stock
Warrants
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
300,000 |
|
|
$ |
1.94 |
|
|
Granted
|
|
|
— |
|
|
|
— |
|
|
Exercised
|
|
|
— |
|
|
|
— |
|
|
Forfeited
|
|
|
— |
|
|
|
— |
|
|
Balance
at end of period
|
|
|
300,000 |
|
|
$ |
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at end of period
|
|
|
300,000 |
|
|
$ |
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of warrants granted or re-priced during the
period
|
|
|
|
|
|
$ |
0.50 |
|
The
following table summarizes information about common stock warrants outstanding
at June 30, 2009:
| |
|
|
Warrants Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Range
of
Exercise
Price
|
|
|
Number
Outstanding
at
June
30,
2009
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
at
June
30,
2009
|
|
|
Weighted
Average
Exercise
Price
|
|
| |
0.50 |
|
|
|
145,000 |
|
5.30
Years
|
|
|
0.50 |
|
|
|
145,000 |
|
|
|
0.50 |
|
| |
0.65 |
|
|
|
75,000 |
|
0.17
Years
|
|
|
0.65 |
|
|
|
75,000 |
|
|
|
0.65 |
|
| |
2.00 |
|
|
|
5,000 |
|
2.06
Years
|
|
|
2.00 |
|
|
|
5,000 |
|
|
|
2.00 |
|
| |
4.00 |
|
|
|
37,500 |
|
0.50
Years
|
|
|
4.00 |
|
|
|
37,500 |
|
|
|
4.00 |
|
| |
8.00 |
|
|
|
37,500 |
|
0.50
Years
|
|
|
8.00 |
|
|
|
37,500 |
|
|
|
8.00 |
|
| |
|
|
|
|
300,000 |
|
|
|
$ |
1.94 |
|
|
|
300,000 |
|
|
$ |
1.94 |
|
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
10 - STOCK OPTION PLAN
In August
2000, the Board of Directors adopted the 2000 Management and Director Equity
Incentive and Compensation Plan (the “Plan”) for directors, officers and
employees that provides for non-qualified and incentive stock options to be
issued enabling holders thereof to purchase common shares of the Company at
exercise prices determined by the Company’s Board of Directors. The Plan was
approved by the Company’s stockholders in August 2001.
The
purpose of the Plan is to advance the Company’s interests and those of its
stockholders by providing a means of attracting and retaining key employees,
directors and consultants. In order to serve this purpose, the Company believes
the Plan encourages and enables key employees, directors and consultants to
participate in its future prosperity and growth by providing them with
incentives and compensation based on its performance, development and financial
success. Participants in the Plan may include the Company’s officers, directors,
other key employees and consultants who have responsibilities affecting our
management, development or financial success.
Awards
may be made under the Plan in the form of Plan options, shares of the Company’s
common stock subject to a vesting schedule based upon certain performance
objectives (“Performance Shares”) and shares subject to a vesting schedule based
on the recipient’s continued employment (“restricted shares”). Plan options may
either be options qualifying as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended or options that do not so qualify. Any
incentive stock option granted under the Plan must provide for an exercise price
of not less than 100% of the fair market value of the underlying shares on the
date of such grant, but the exercise price of any incentive option granted to an
eligible employee owning more than 10% of our common stock must be at least 110%
of such fair market value as determined on the date of the grant. Only persons
who are officers or other key employees are eligible to receive incentive stock
options and performance share grants. Any non-qualified stock option granted
under the Plan must provide for an exercise price of not less than 50% of the
fair market value of the underlying shares on the date of such
grant.
As
amended in April, 2007 and again in February, 2009, the Plan permits the grant
of options and shares for up to 20,000,000 shares of the Company’s common stock.
The Plan terminates 10 years from the date of the Plan’s adoption by the
Company’s stockholders.
The term
of each Plan option and the manner in which it may be exercised is determined by
the Board of Directors, provided that no Plan option may be exercisable more
than three years after the date of its grant and, in the case of an incentive
option granted to an eligible employee owning more than 10% of the Company’s
common stock, no more than five years after the date of the grant. The exercise
price of the stock options may be paid in either cash, or delivery of
unrestricted shares of common stock having a fair market value on the date of
delivery equal to the exercise price, or surrender of shares of common stock
subject to the stock option which has a fair market value equal to the total
exercise price at the time of exercise, or a combination of the foregoing
methods.
The fair
value of stock options granted was estimated at the date of grant using the
Black-Scholes options pricing model. The Company used the following assumptions
for determining the fair value of options granted under the Black-Scholes option
pricing model:
|
|
|
June
30,
|
|
|
|
2009
|
|
2008
|
|
Expected
volatility
|
|
87%
- 149%
|
|
76%
- 107%
|
|
Expected
term
|
|
1 -
5 Years
|
|
3 -
5 Years
|
|
Risk-free
interest rate
|
|
2.34%
- 2.45%
|
|
4.39%
- 4.96%
|
|
Forfeiture
Rate
|
|
0%
- 45%
|
|
0%
- 35%
|
|
Expected
dividend yield
|
|
0%
|
|
0%
|
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
10 - STOCK OPTION PLAN (continued)
The
expected volatility was determined with reference to the historical volatility
of the Company’s stock. The Company uses historical data to estimate option
exercise and employee termination within the valuation model. The expected term
of options granted represents the period of time that options granted are
expected to be outstanding. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury rate in effect at
the time of grant.
For the
nine months ended June 30, 2009 total stock-based compensation charged to
operations for option-based arrangements amounted to $352,025. At June 30, 2009,
there was approximately $816,900 of total unrecognized compensation expense
related to non-vested option-based compensation arrangements under the
Plan.
A summary
of the status of the Company’s outstanding stock options as of June 30, 2009 and
changes during the period ending on that date is as follows:
|
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Stock
options
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
6,583,827 |
|
|
$ |
0.45 |
|
|
Granted
|
|
|
13,420,000 |
|
|
|
0.064 |
|
|
Exercised
|
|
|
(8,540,000
|
) |
|
|
0.053 |
|
|
Forfeited
|
|
|
(849,344
|
) |
|
|
0.275 |
|
|
Balance
at end of period
|
|
|
10,614,483 |
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
8,564,000 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
|
$ |
0.064 |
|
The
following table summarizes information about employee stock options outstanding
at June 30, 2009:
| |
|
|
Options Outstanding
|
|
|
Options
Exercisable
|
|
|
Range
of
Exercise
Price
|
|
|
Number
Outstanding
at
June
30,
2009
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
at
June
30,
2009
|
|
|
Weighted
Average
Exercise
Price
|
|
| $ |
0.001-0.25 |
|
|
|
6,430,000 |
|
0.89
Years
|
|
$ |
0.09 |
|
|
|
5,189,100 |
|
|
$ |
0.07 |
|
| |
0.30-0.48 |
|
|
|
635,000 |
|
2.74
Years
|
|
|
0.46 |
|
|
|
539,400 |
|
|
|
0.46 |
|
| |
0.54-0.60 |
|
|
|
2,531,608 |
|
3.06
Years
|
|
|
0.58 |
|
|
|
1,855,408 |
|
|
|
0.58 |
|
| |
0.61-0.80 |
|
|
|
1,017,500 |
|
2.11
Years
|
|
|
0.71 |
|
|
|
979,717 |
|
|
|
0.71 |
|
| |
1.44-3.80 |
|
|
|
375 |
|
0.29
Years
|
|
|
3.80 |
|
|
|
375 |
|
|
|
3.80 |
|
| |
|
|
|
|
10,614,483 |
|
|
|
$ |
0.29 |
|
|
|
8,564,000 |
|
|
$ |
0.30 |
|
ICEWEB,
INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2009
NOTE
11 - SEGMENT REPORTING
SFAS No.
131, Disclosure about Segments of an Enterprise and Related Information,
establishes standards for the reporting by business enterprises of information
about operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way that management organizes the operating segments with IceWEB for making
operational decisions and assessments of financial performance.
IceWEB’s
chief operating decision-maker is considered to be the chief executive officer
(CEO). The CEO reviews financial information presented on a consolidated basis
for purposes of making operating decisions and assessing financial performance.
The financial information reviewed by the CEO is identical to the information
presented in the accompanying consolidated statements of operations. Therefore,
IceWEB has determined that it operates in a single operating segment,
specifically, the manufacture and sales of IT storage products. For the nine
months ended June 30, 2009 and 2008 all material assets and revenues of IceWEB
were in the United States.
NOTE
12 - SUBSEQUENT EVENTS
For the
period from July 1, 2009 through August 12, 2009, the Company issued 375,000
share of its common stock related to the exercise of 375,000 common stock
options, for proceeds of $15,000.
On July
29, 2009 the Company entered into a Preferred Stock Purchase Agreement (the
“Purchase Agreement”) with Optimus Technology Capital Partners, LLC (the
“Investor”), which provides that, upon the terms and subject to the conditions
set forth therein, the Investor is committed to purchase up to $3,000,000 of our
Series C Preferred Stock. Under the terms of the Purchase Agreement,
from time to time until July 23, 2010 and at our sole discretion, we may present
the Investor with a notice to purchase such Series C Preferred Stock (the
“Notice”). The Investor is obligated to purchase such Series C
Preferred Stock on the tenth trading day after the Notice date, subject to
satisfaction of certain closing conditions. The Investor will not be
obligated to purchase the Series C Preferred Stock (i) in the event the closing
price of our common stock during the nine trading days following delivery of a
Notice falls below 75% of the closing price on the trading day prior to the date
such Notice is delivered to the Investor, or (ii) to the extent such purchase
would result in the Investor and its affiliates beneficially owning more than
9.99% of our common stock.
On the
date of delivery of each Notice under the Purchase Agreement, we will also issue
to the Investor warrants to purchase our common stock at an exercise price equal
to the closing price of our common stock on the trading day prior to the
delivery date of the Notice. The number of shares issuable upon
exercise of the warrant will be equal in value to 135% of the purchase price of
the Series C Preferred Stock to be issued in respect of the related Notice, and
shall have a term of two years, or four years if the exercise price is below the
closing sale price of the common stock on the date of the
Notice. Each warrant will be exercisable on the earlier of (i) the
date on which a registration statement registering for resale the shares of
common stock issuable upon exercise of such warrant becomes effective and (ii)
the date that is six months after the issuance date of such
warrant.
The
Series C Preferred Stock is redeemable after the fifth anniversary of the date
of its issuance and is subject to repurchase by us (i) at any time at our
election, or (ii) following the consummation of certain fundamental transactions
by us, at the option of a majority of the holders of the Series C Preferred
Stock.
Holders
of Series C Preferred Stock will be entitled to receive dividends, which will
accrue in shares of Series C Preferred Stock on an annual basis at a rate equal
to 10% per annum from the issuance date. Accrued dividends will be
payable upon redemption of the Series C Preferred Stock. The Series C
Preferred Stock ranks, with respect to dividend rights and rights upon
liquidation:
|
●
|
senior
to our common stock; and
|
|
●
|
on
parity with our Series B Preferred
Stock.
|
The
Series C Preferred Stock and warrants and the common stock issuable upon
exercise of the warrants will not be or have not been registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration
requirements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following analysis of our consolidated financial condition and results of
operations for the three and nine months ended June 30, 2009 and 2008 should be
read in conjunction with the consolidated financial statements, including
footnotes, appearing elsewhere in this quarterly report.
OVERVIEW
IceWEB,
through our Inline Corporation subsidiary is a leading provider of
high-performance storage products that simplify the way enterprises retain,
access, manage and protect their data. Our products are designed specifically
for mid-sized enterprises that have complex storage needs but cannot justify the
high procurement and ongoing management costs of other storage area network, or
SAN, alternatives. Our products are offered in an integrated, all-inclusive
package that combines resilient disk storage with a comprehensive suite of
intelligent storage management software.
In
addition, we offer small and medium sized businesses (“SMBs”) hosted access to
enterprise-class applications delivered via the Internet for a reasonable
monthly fee. These rapidly growing SaaS offerings include such hosted
applications as Microsoft Exchange Server, Sharepoint, BlackBerry Enterprise
Server, Good Messaging Server, SPAM and Virus protection, and advanced Email
Encryption services. Our current customer base consists of nearly 900
organizations worldwide in both the public and private sectors.
Our
storage product architecture employs innovative, proprietary virtualization
software that severs the traditional tie between stored data and disk drive
hardware. This virtualization software masks the complexity of the underlying
storage configuration and enables our storage arrays to cooperate with one
another to automatically share resources and balance workloads. Our products are
based on the iSCSI network protocol, which utilizes widely-deployed Internet
Protocol, or IP, networks. As a result, our customers can cost-effectively
install, expand and modify their data storage resources.
Beginning
in 2001, we began a series of strategic acquisitions and divestitures which have
resulted in our current business and operations and impacted our financial
statements for fiscal 2008 and 2007, including:
|
|
●
|
in
June 2001, we acquired the assets of Learning Stream, Inc., a provider of
digital content streaming services, which coincided with the transition of
our business model to a focus on e-learning. Learning Stream had developed
custom streaming solutions which we believed were more efficient and
effective than the solutions we had implemented at that time. We
considered the software we acquired to be competitive because it helped
remove the complexity and unnecessary cost from the implementation of the
streaming technology,
|
|
|
|
in
June 2003, we acquired all of the outstanding stock of Interlan
Corporation, a provider of data communications and networking solutions
for business, government, and education. Interlan provided technical
services including presales design and consulting, installation,
troubleshooting, and long term maintenance and support
contracts,
|
|
|
|
in
June 2003, we also acquired all of the outstanding stock of The Seven
Corporation, a provider of network engineering services to commercial and
government customers throughout the United
States,
|
|
|
|
in
October 2003, we acquired the software ownership rights and customers of
Iplicity, Inc. of Virginia. Iplicity had developed a complete content
management software platform based on open source architecture to run in
any operating environment. In this transaction we acquired software
licenses, source code, potential patents and
trademarks,
|
|
|
●
|
in
May 2004 we acquired substantially all of the assets of DevElements, Inc.
of Virginia, a professional IT consultancy firm that designs, develops and
implements web-based productivity solutions for its customers. In this
transaction we acquired software licenses, source code, potential patents
and trademarks, as well as some cash and tangible assets,
and
|
|
|
|
in
March 2006, the Company, through its wholly-owned subsidiary, IceWEB
Online, Inc., completed the acquisition of substantially all of the assets
and some liabilities of PatriotNet,
Inc.
|
In August
2006, after multiple quarters of collapsing revenue and higher than anticipated
losses in fiscal 2006, our Board of Directors and senior management implemented
a strategy of re-focusing the Company on hosted software services and network
security sales. The Company determined, through a detailed analysis of
operations, that the PatriotNet and Integrated Power Solutions activities were
not profitable or in line with the Company’s core focus and competencies. In
addition, the Company believes we can focus our limited sales and marketing
budgets on the remaining core business activities to achieve more
success.
|
|
●
|
On
November 15, 2006, the Company acquired the assets of True North Federal
Solutions Group for $350,000 of which $250,000 was paid in cash and
$100,000 due upon future terms of the agreement. Under the terms of the
agreement, IceWEB acquired the customer database, forecast, contract
renewals, and GSA schedule of True North Federal. The revenue generated to
IceWEB from this division since the acquisition, exceeded the revenue
from the discontinued PatriotNet and IPS
operations.
|
|
|
●
|
On
December 1, 2006, we sold the assets of PatriotNet to Leros Technologies,
a third party, for $150,000 in cash and the assumption of $60,000 in
liabilities. On September 30, 2007 we recorded goodwill impairment of
$180,000 related to this transaction. The PatriotNet services constituted
9.5% of revenue in fiscal 2006.
|
|
|
●
|
On
December 1, 2006, we sold 100% of the capital stock of our wholly-owned
subsidiary, Integrated Power Solutions, Inc. to John Younts, a related
party, for the assumption of approximately $200,000 in liabilities. In
fiscal 2006, revenues for Integrated Power Solutions accounted for
approximately $400,000 or 7% of our total IceWEB
revenues.
|
|
|
●
|
On
December 22, 2007, we acquired 100% of the outstanding stock of Inline
Corporation for $2,412,731 in cash, plus 503,356 shares of IceWEB common
stock valued at $276,846, the fair market value on the date of
acquisition. The acquisition was accounted for using the purchase method
of accounting. The results of operations are included in the financial
statements from the date of acquisition. Inline is a leading provider of
intelligent enterprise data storage solutions and services for the
geospatial intelligence marketplace. Inline’s proprietary products include
reliable, high performance Storage Area Network Solutions, Network
Attached Storage, and Direct Attached Storage and the rapidly expanding
OEM Storage Centric Appliances. Today, Inline has developed its fifth
generation of advanced data storage solutions, marketed under the brands
TruEnterprise and
FileStorm . All
Inline systems function in a heterogeneous operating system environment,
including Windows, UNIX and Linux. The purchase of Inline Corporation
included the acquisition of assets of $2,688,795, and liabilities of
$614,668.
|
|
|
|
On
March 30, 2009, the Company completed the sale of IceWEB Virginia, Inc., a
wholly owned subsidiary, to ABC Networks, Inc., (“ABC”) a privately held
U.S. company. Pursuant to the terms of the transaction, ABC acquired 100%
of the outstanding common stock of IceWEB, Virginia,
Inc.
|
The
aggregate sales price consisted of the following:
|
Common
stock issued to purchaser
|
|
$ |
80,000 |
|
|
Net
book value of disposed subsidiary
|
|
|
(3,532,236
|
) |
|
|
|
$ |
(3,452,236 |
) |
The
following table summarizes the estimated fair values of IceWeb Virginia’s assets
and liabilities disposed of at the date of the sale:
|
Intangible
assets, net
|
|
$ |
(53,565 |
) |
|
IceWEB,
Inc. common stock
|
|
|
(80,000
|
) |
|
Accounts
payable and accrued liabilities
|
|
|
3,585,801 |
|
|
Estimated
gain on the sale
|
|
$ |
3,452,236 |
|
We
generate revenues from the manufacture and sale of data storage appliances and
servers, the sale of software services, application development, network
integrated technology, and third party hardware sales. We believe that the key
factors to our continued growth and profitability include the
following:
|
|
|
Continued
focus on the GIS market and expanding our channels of distribution with
OEM partners
|
|
|
|
Continued
investment in product development and research
efforts
|
|
|
●
|
Raising
approximately $3 million of additional working capital to expand our
marketing, research and development, and restructure our
debt.
|
|
|
|
Hiring
additional qualified, technical employees,
and
|
|
|
|
Improving
our internal financial reporting systems and
processes.
|
CRITICAL
ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us 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 on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
A summary
of significant accounting policies is included in Note 1 to the audited
consolidated financial statements included for the year ended September 30, 2008
and notes thereto contained on Form 10-KSB of the Company as filed with the
Securities and Exchange Commission. Management believes that the application of
these policies on a consistent basis enables us to provide useful and reliable
financial information about the Company’s operating results and financial
condition.
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.
Use of
Estimates - Management’s Discussion and Analysis or Plan 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 consolidated 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, the carrying value of property and equipment and long-lived assets,
and the value of stock-option based compensation. 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.
Accounting
for Stock Based Compensation - Effective October 1, 2005, we adopted
Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment (“SFAS
No. 123R”). SFAS No. 123R establishes the financial accounting and
reporting standards for stock-based compensation plans. As required by SFAS
No. 123R, we recognize the cost resulting from all stock-based payment
transactions including shares issued under our stock option plans in the
financial statements.
Revenue
Recognition - The Company follows the guidance of the Securities and Exchange
Commission’s Staff Accounting Bulletin 104 for revenue recognition. In general,
the Company records revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectability is reasonably assured.
The following policies reflect specific criteria for the various revenues
streams of the Company:
|
|
|
Revenues
from sales of products are generally recognized when products are shipped
unless the Company has obligations remaining under sales or licensing
agreements, in which case revenue is either deferred until all obligations
are satisfied or recognized ratably over the term of the
contract.
|
|
|
●
|
Revenue
from services is recorded as it is earned. Commissions earned on third
party sales are recorded in the month in which contracts are awarded.
Customers are generally billed every two weeks based on the units of
production for the project. Each project has an estimated total which is
based on the estimated units of production and agreed upon billing
rates.
|
|
|
|
Amounts
billed in advance of services being provided are recorded as deferred
revenues and recognized in the consolidated statement of operations as
services are provided.
|
THREE
AND NINE MONTHS ENDED JUNE 30, 2009 COMPARED TO THE THREE AND NINE MONTHS ENDED
JUNE 30, 2008
The
following table provides an overview of certain key factors of our results of
operations for the three and nine months ended June 30, 2009 as compared to the
three and nine months ended June 30, 2008:
| |
|
Three
months ended June 30,
|
|
|
Nine
months ended June 30,
|
|
| |
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
Revenues
|
|
$ |
826,182 |
|
|
|
5,981,083 |
|
|
|
3,936,472 |
|
|
|
14,095,946 |
|
|
Cost
of sales
|
|
|
404,641 |
|
|
|
5,249,906 |
|
|
|
2,478,707 |
|
|
|
12,127,796 |
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
18,266 |
|
|
|
50,208 |
|
|
|
48,778 |
|
|
|
138,927 |
|
|
Depreciation
and amortization
|
|
|
85,793 |
|
|
|
259,933 |
|
|
|
432,839 |
|
|
|
412,297 |
|
|
Research
and development
|
|
|
94,020 |
|
|
|
121,906 |
|
|
|
250,450 |
|
|
|
207,636 |
|
|
General
and administrative
|
|
|
1,027,484 |
|
|
|
2,369,286 |
|
|
|
2,554,898 |
|
|
|
5,187,547 |
|
|
Total
operating expenses
|
|
|
1,225,563 |
|
|
|
2,801,333 |
|
|
|
3,286,965 |
|
|
|
5,946,407 |
|
|
Loss
from operations
|
|
|
(804,022 |
) |
|
|
(2,070,156 |
) |
|
|
(1,829,200 |
) |
|
|
(3,978,257 |
) |
|
Total
other income (expense)
|
|
|
(144,884 |
) |
|
|
(195,768 |
) |
|
|
2,943,200 |
|
|
|
(478,191 |
) |
|
Net
income (loss)
|
|
|
(948,905 |
) |
|
|
(2,265,924 |
) |
|
|
1,114,000 |
|
|
|
(4,456,448 |
) |
Other Key
Indicators:
|
|
|
Three
months ended June
30,
|
|
|
Nine
months ended
June
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Cost
of sales as a percentage of revenues
|
|
|
48.98 |
% |
|
|
87.78 |
% |
|
|
62.97 |
% |
|
|
86.04 |
% |
|
Gross
profit margin
|
|
|
51.02 |
% |
|
|
12.22 |
% |
|
|
37.03 |
% |
|
|
13.96 |
% |
|
General
and administrative expenses as a percentage of revenues
|
|
|
124.37 |
% |
|
|
39.61 |
% |
|
|
64.90 |
% |
|
|
36.80 |
% |
|
Total
operating expenses as a percentage of revenues
|
|
|
148.34 |
% |
|
|
46.84 |
% |
|
|
83.50 |
% |
|
|
42.19 |
% |
Nine
Month Period ended June 30, 2009
Revenues
For
the nine months ended June 30, 2009, we reported revenues of $3,936,472 as
compared to revenues of $14,095,946 for the nine months ended June 30, 2008, a
decrease of $10,159,474 or approximately 72%. The decrease is primarily due to
the Company’s focus on our high margin data storage business unit and the
related decrease in our third party product sales through IceWEB Solutions
Group. Storage revenue accounted for approximately 53% of our revenue. Revenues
from the Solutions Group business accounted for 41% of our revenue and our
online services accounted for 5.5% of our revenue during the nine months ended
June 30, 2009.
Cost
of Sales
Our cost
of sales consists of products purchased for resale, and component parts for the
manufacture of our storage products. For the nine months ended June 30, 2009,
cost of sales was $2,478,707, or approximately 63% of revenues, compared to
$12,127,796, or approximately 86% of revenues, for the nine months ended June
30, 2008. The decrease in costs of sales as a percentage of revenue and the
corresponding increase in our gross profit margin for the nine months ended June
30, 2009 as compared to the nine months ended June 30, 2008 was the result of
improved mix of higher margin storage products during the nine months ended June
30, 2009 as a percentage of total revenue. We anticipate that our gross profit
margins will continue to improve through the balance of fiscal 2009, as IceWEB
storage product revenue will make up a larger percentage of total revenue,
primarily through sales of Inline storage products.
Total
Operating Expenses
Our total
operating expenses decreased approximately 45% to $3,286,965 for the nine months
ended June 30, 2009 as compared to $5,946,407 for the nine months ended June 30,
2008. These changes include:
•
Marketing and
Selling. For the nine months ended June 30, 2009, marketing and selling
costs were $48,778 as compared to $138,927 for the nine months ended June 30,
2008, a decrease of $90,149 or approximately 65%. The decrease was due to a
decrease in IceWEB Online web marketing, advertising and print advertising
during the nine months ended June 30, 2009.
•
Depreciation and
amortization expense. For the nine months ended June 30, 2009,
depreciation and amortization expense amounted to $432,839 as compared to
$412,297 for the nine months ended June 30, 2008, an increase of $20,542 or 5%.
The increase in depreciation and amortization was primarily attributable to the
amortization of leasehold improvements, manufacturing GSA schedule, and other
fixed assets acquired as part of the acquisition of Inline Corporation in
December, 2007.
•
General and administrative
expense. For the nine months ended June 30, 2009, general and
administrative expenses were $2,554,898 as compared to $5,187,547 for the nine
months ended June 30, 2008, a decrease of $2,632,649 or approximately
50.7%. For the nine months ended June 30, 2009 and 2008 general and
administrative expenses consisted of the following:
|
|
|
Fiscal
Q2
|
|
|
Fiscal
Q2
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Occupancy
|
|
|
32,476 |
|
|
|
236,990 |
|
|
Consulting
|
|
|
70,415 |
|
|
|
127,325 |
|
|
Employee
compensation
|
|
|
2,054,779 |
|
|
|
3,360,317 |
|
|
Professional
fees
|
|
|
137,602 |
|
|
|
62,792 |
|
|
Internet/Phone
|
|
|
48,086 |
|
|
|
70,890 |
|
|
Travel/Entertainment
|
|
|
28,214 |
|
|
|
103,436 |
|
|
Investor
Relations
|
|
|
49,278 |
|
|
|
862,177 |
|
|
Other
|
|
|
134,048 |
|
|
|
363,620 |
|
|
|
|
|
2,554,898 |
|
|
|
5,187,547 |
|
|
|
●
|
For
the nine months ended June 30, 2009, Occupancy expense decreased to
$32,476 as compared to $236,990. Occupancy expense is lower due to the
Company’s consolidation of office locations and the relocation to its
manufacturing facility in Dulles, Virginia.
|
|
|
|
For
the nine months ended June 30, 2009, Consulting expense decreased to
$70,415 as compared to $127,325. Consulting expense decreased as a result
of general cost-cutting measures put in place by the
Company.
|
|
|
|
For
the nine months ended June 30, 2009, salaries and related expenses
decreased to $2,054,779 as compared to $3,360,317. Employee
compensation is lower due to lower headcount and the resulting lower
salaries paid. In addition, the deferred compensation expense
related to employee stock options decreased by $271,384 from the prior
year.
|
|
|
●
|
For
the nine months ended June 30, 2009, Professional fees expense increased
to $137,602 as compared to $62,792. Professional fees expense increased as
a result of legal fees incurred related to the Company’s fund-raising
efforts.
|
|
|
●
|
For
the nine months ended June 30, 2009, travel and entertainment expense
decreased to $28,214 as compared to $103,436. Travel and entertainment
expense decreased as a result of lower headcount, limited travel by sales
and marketing, and general cost-cutting measures put in place by the
Company.
|
|
|
|
For
the nine months ended June 30, 2009 Other expense amounted to $134,048 as
compared to $363,620 for the nine months ended June 30, 2008, a decrease
of 229,572. The decrease was primarily due to lower hosting expense of
$45,105, lower web development expense of $38,035, lower credit card fees
of $26,378, lower repairs and maintenance expense of $10,387, and lower
postage and miscellaneous office expenses of $42,638.
|
|
|
|
For
the nine months ended June 30, 2009 Investor relations expense decreased
to $49,278 as compared to $862,177 for the nine months ended June 30,
2008. The decrease is due to a decreased number of road shows and a
general decrease in investor relations activity, as well as one time
investor relations activity that occurred in the prior
year.
|
We
anticipate that general and administrative expenses will continue to remain flat
during the balance of fiscal 2009, with the exception of share-based payments
that the Company may incur from time to time.
LOSS
FROM OPERATIONS
We
reported a loss from operations of $1,829,200 for the nine months ended June 30,
2009 as compared to a loss from operations of $3,978,257 for the nine months
ended June 30, 2008, an improvement of $2,149,057 or approximately
54%.
OTHER
INCOME (EXPENSES)
Gain from sale of
subsidiary. The gain on sale of subsidiary of $3,452,236 resulted from
the sale of IceWEB Virginia, Inc. in March, 2009.
Interest Income.
Interest income for the nine months ended June 30, 2009 amounted to $1,142 and
represented interest earned on interest bearing cash accounts. This compares to
$3,266 in interest income in the comparable period in fiscal 2008.
Interest Expense. For
the nine months ended June 30, 2009, interest expense amounted to $510,178 as
compared to $481,457 for the nine months ended June 30, 2008, an increase of
$28,271 or 5.9%. The increase in interest expense is primarily attributable to
the increase in borrowings. Also, during the nine months ended June 30, 2009, we
amortized deferred financing costs of $21,108, as compared to $2,265 during the
nine months ended June 30, 2008.
NET
INCOME/ LOSS
Our net
income was $1,114,000 for the nine months ended June 30, 2009 compared to a net
loss of $4,456,448 for the nine months ended June 30, 2008.
Three
Month Period ended June 30, 2009
Revenues
For the
three months ended June 30, 2009, we reported revenues of $826,182 as compared
to revenues of $5,981,083 for the three months ended June 30, 2008, a decrease
of $5,154,901 or approximately 86%. The decrease is primarily due to the
Company’s focus on our high margin data storage business unit and the related
decrease in our third party product sales through IceWEB Solutions Group. For
the three months ended June 30, 2008, storage revenue accounted for
approximately 93% of our revenue. Revenues from the Solutions Group business
accounted for 0% of our revenue and our online services accounted for 7% of our
revenue during the three months ended June 30, 2009.
Cost
of Sales
Our cost
of sales consists of products purchased for resale, and component parts for the
manufacture of our storage products. For the three months ended June 30, 2009,
cost of sales was $404,641, or approximately 49% of revenues, compared to
$5,249,906, or approximately 88% of revenues, for the three months ended June
30, 2008. The decrease in costs of sales as a percentage of revenue and the
corresponding increase in our gross profit margin for the three months ended
June 30, 2009 as compared to the three months ended June 30, 2008 was the result
of improved mix of higher margin storage products during the three months ended
June 30, 2009 as a percentage of total revenue.
Total
Operating Expenses
Our total
operating expenses decreased approximately 56% to $1,225,563 for the three
months ended June 30, 2009 as compared to $2,801,333 for the three months ended
June 30, 2008. These changes include:
•
Marketing and
Selling. For the three months ended June 30, 2009, marketing and selling
costs were $18,266 as compared to $50,208 for the three months ended June 30,
2008, a decrease of $31,942 or approximately 64%. The decrease was due to a
decrease in IceWEB Online web marketing, advertising and print advertising
during the three months ended June 30, 2009.
•
Depreciation and
amortization expense. For the three months ended June 30, 2009,
depreciation and amortization expense amounted to $85,793 as compared to
$259,933 for the three months ended June 30, 2008, a decrease of $174,140 or
67%. The decrease in depreciation and amortization was primarily attributable to
recording in the prior year of additional expense related to the amortization of
leasehold improvements, manufacturing GSA schedule, and other fixed assets
acquired as part of the acquisition of Inline Corporation.
•
Research and development
expense. For the three months ended June 30, 2009, research and
development expense amounted to $94,020 as compared to $121,906 for
the three months ended June 30, 2008, a decrease of $27,886 or 23%. The decrease
was primarily attributable to lower headcount in fiscal 2009 as compared to the
prior year.
•
General and administrative
expense. For the three months ended June 30, 2009, general and
administrative expenses were $1,027,484 as compared to $2,369,286 for the three
months ended June 30, 2008, a decrease of $1,341,802 or approximately 57%. For
the three months ended June 30, 2009 and 2008 general and administrative
expenses consisted of the following:
|
|
|
Fiscal
Q2
|
|
|
Fiscal
Q2
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Occupancy
|
|
|
24,408 |
|
|
|
82,484 |
|
|
Consulting
|
|
|
10,273 |
|
|
|
42,249 |
|
|
Employee
compensation
|
|
|
762,112 |
|
|
|
1,401,807 |
|
|
Professional
fees
|
|
|
123,408 |
|
|
|
8,224 |
|
|
Internet/Phone
|
|
|
8,579 |
|
|
|
16,518 |
|
|
Travel/Entertainment
|
|
|
14,299 |
|
|
|
29,089 |
|
|
Investor
Relations
|
|
|
29,500 |
|
|
|
674,701 |
|
|
Other
|
|
|
54,905 |
|
|
|
114,214 |
|
|
|
|
|
1,027,484 |
|
|
|
2,369,286 |
|
|
|
|
For
the three months ended June 30, 2009, Occupancy expense decreased to
$24,408 as compared to $82,484. Occupancy expense is lower due to the
Company’s consolidation of locations and relocation to its manufacturing
facility in Dulles, Virginia.
|
|
|
|
For
the three months ended June 30, 2009, Consulting expense decreased to
$10,273 as compared to $42,249. Consulting expense decreased as a result
of general cost-cutting measures put in place by the
Company.
|
|
|
|
For
the three months ended June 30, 2009, salaries and related expenses
decreased to $762,112 as compared to $1,401,807. Employee compensation is
lower due to lower headcount and the resulting lower salaries
paid.
|
|
|
|
For
the three months ended June 30, 2009, Professional fees expense increased
to $123,408 as compared to $8,224. Professional fees expense
increased as a result of legal fees incurred primarily related to the
Company’s fundraising efforts.
|
|
|
●
|
For
the three months ended June 30, 2009, travel and entertainment expense
decreased to $14,299 as compared to $29,089. Travel and entertainment
expense decreased as a result of limited travel by sales and marketing and
general cost-cutting measures put in place by the
Company.
|
|
|
|
For
the three months ended June 30, 2009 Other expense amounted to $54,905 as
compared to $114,214 for the three months ended June 30, 2008, a decrease
of 59,309. The decrease was due to a general cost-cutting measures
implemented by the Company and lower headcount-driven expenses such as
supplies, and the non-recurring expenses related to absorbing the
acquisition of Inline in the three months ended June 30, 2008. In
addition, web development expense was lower in the three months ended June
30, 2009 versus the year-ago period.
|
|
|
|
For
the three months ended June 30, 2009 Investor relations expense decreased
to $29,500 as compared to $674,701 for the three months ended June 30,
2008. The decrease is due to a decreased number of road shows and a
general decrease in investor relations
activity.
|
LOSS
FROM OPERATIONS
We
reported a loss from operations of $804,021 for the three months ended June 30,
2009 as compared to a loss from operations of $2,070,156 for the three months
ended June 30, 2008, an improvement of $1,266,135 or approximately
60%.
OTHER
INCOME (EXPENSES)
Interest Income.
Interest income for the three months ended June 30, 2009 amounted to $0 compared
to $682 in interest income in the comparable period in fiscal 2008.
Interest Expense. For
the three months ended June 30, 2009, interest expense amounted to $144,884 as
compared to $196,450 for the three months ended June 30, 2008, a decrease of
$51,566 or 26%. The decrease in interest expense is primarily attributable to
the decrease in borrowings and certain interest bearing liabilities related to
the acquisition of Inline Corporation.
NET
LOSS
Our net
loss was $948,905 for the three months ended June 30, 2009 compared to a net
loss of $2,265,924 for the three months ended June 30, 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
The following table provides an overview of certain selected balance sheet
comparisons between June 30, 2009 and September 30, 2008:
|
|
|
June
30,
|
|
|
September
30,
|
|
|
$
|
|
|
%
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Working
Capital
|
|
|
(1,997,739
|
) |
|
|
(5,572,672
|
) |
|
|
3,574,933 |
|
|
|
64.2
|
%
|
|
Cash
|
|
|
25,339 |
|
|
|
4,780 |
|
|
|
20,559 |
|
|
|
430.1
|
%
|
|
Accounts
receivable, net
|
|
|
859,623 |
|
|
|
3,094,110 |
|
|
|
(2,234,487
|
) |
|
|
(72.2
|
%)
|
|
Inventory
|
|
|
107,204 |
|
|
|
400,312 |
|
|
|
(293,108
|
) |
|
|
(73.2
|
%)
|
|
Total
current assets
|
|
|
1,063,976 |
|
|
|
3,575,930 |
|
|
|
(2,511,954
|
) |
|
|
(70.2
|
%)
|
|
Property
and equipment, net
|
|
|
993,079 |
|
|
|
1,169,369 |
|
|
|
(176,290
|
) |
|
|
(15.1
|
%)
|
|
Intangibles,
net
|
|
|
850,815 |
|
|
|
1,132,612 |
|
|
|
(281,797
|
) |
|
|
(24.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
2,982,441 |
|
|
|
5,939,327 |
|
|
|
(2,956,886
|
) |
|
|
(49.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
1,277,169 |
|
|
|
7,762,872 |
|
|
|
(6,485,703
|
) |
|
|
(83.5
|
%)
|
|
Notes
payable-current
|
|
|
1,773,445 |
|
|
|
1,372,565 |
|
|
|
400,881 |
|
|
|
29.2
|
%
|
|
Deferred
revenue
|
|
|
11,101 |
|
|
|
13,164 |
|
|
|
(2,063
|
) |
|
|
(15.7
|
%)
|
|
Total
current liabilities
|
|
|
3,061,715 |
|
|
|
9,148,601 |
|
|
|
(6,086,886
|
) |
|
|
(66.5
|
%)
|
|
Notes
payable-long term
|
|
|
1,252,085 |
|
|
|
956,519 |
|
|
|
295,566 |
|
|
|
30.9
|
%
|
|
Total
liabilities
|
|
|
4,313,800 |
|
|
|
10,105,120 |
|
|
|
(5,791,320
|
) |
|
|
(57.3
|
%)
|
|
Accumulated
deficit
|
|
|
(19,017,953
|
) |
|
|
(20,131,957
|
) |
|
|
1,114,004 |
|
|
|
(5.5
|
%)
|
|
Stockholders’
deficit
|
|
|
(1,331,358
|
) |
|
|
(4,165,793
|
) |
|
|
2,834,435 |
|
|
|
(68.0
|
%)
|
Net cash
used in operating activities was $1,408,644 for the nine months ended June 30,
2009 as compared to net cash used in operating activities of $385,319 for the
nine months ended June 30, 2008, an increase of $1,023,325. For the nine months
ended June 30, 2009, we had net income of $1,114,000 and non-cash items such as
depreciation and amortization expense of $432,838, share-based compensation
expense of $855,357, amortization of deferred finance costs of $21,108, offset
by the gain on sale of our IceWEB Virginia subsidiary in the amount of
$3,398,671, and decreases from changes in assets and liabilities of $457,278.
During the nine months ended June 30, 2009 we experienced a decrease in accounts
receivable of $2,234,488, which was offset by a decrease in accounts payable
during the period of $2,953,466. For the nine months ended June 30, 2008, we
used cash to fund our net loss of $4,540,382 offset by non-cash items such as
depreciation and amortization expense of $409,261, share-based compensation
expense of $1,873,089, and offset by changes in assets and liabilities of
$806,470. Also during the nine months ended June 30, 2008 we experienced a
decrease in accounts receivable of $1,014,880, and an increase in accounts
payable and accrued expenses during the period of $1,717,612.
Net cash
used in investing activities for the nine months ended June 30, 2009 was $28,318
as compared to net cash used in investing activities of $1,377,241 for the nine
months ended June 30, 2008. During the nine months ended June 30, 2009, we used
cash of $28,318 for property and equipment purchases. During the nine months
ended June 30, 2008, we used net cash of $1,311,318 as partial consideration
in our acquisition of Inline. Additionally, we used cash of $65,923 for property
and equipment purchases.
Net cash
provided by financing activities for the nine months ended June 30, 2009 was
$1,457,520 as compared to net cash provided of $718,424 for the nine months
ended June 30, 2008. For the nine months ended June 30, 2009, net cash provided
by financing activities related to proceeds received from notes payable of
$7,060,871 which were advances under our factoring line with Sand Hill Finance
LLC, proceeds from the exercise of common stock options of $454,300, and
proceeds from the sale of common stock of $97,000, offset by repayments on notes
payable of $(6,122,036) which were to pay down the balance on the Sand Hill
Finance LLC factoring line, and repayments of equipment financing of
$45,114. For the nine months ended June 30, 2008, net cash provided
by financing activities related to proceeds received from notes payable of
$7,092,685 which were advances under our factoring line with Sand Hill Finance
LLC, offset by repayments on notes payable of $6,476,876 which were to pay down
the balance on the Sand Hill Finance LLC factoring line, payments on related
party advances of $115,767 and repayments of equipment financing of
$44,136.
At June
30, 2009 we had a working capital deficit of $1,997,739 and an accumulated
deficit of $19,017,953. The report from our independent registered public
accounting firm on our audited financial statements for the fiscal year ended
September 30, 2008 contained an explanatory paragraph regarding doubt as to our
ability to continue as a going concern as a result of our net losses in
operations. While our sales decreased significantly during the nine months ended
June 30, 2009, our gross profit margin was approximately 37.0% and our sales
were not sufficient to pay our operating expenses. We reported net income of
$1,114,000 for the nine months ended June 30, 2009. There are no assurances that
we will report income from operations in any future periods.
Historically,
our revenues have not been sufficient to fund our operations and we have relied
on capital provided through the sale of equity securities, and various financing
arrangements and loans from related parties. At June 30, 2009 we had cash on
hand of $25,339. In fiscal 2006, we entered into a receivable
factoring agreement with Sand Hill Finance, LLC under which we can sell certain
accounts receivable to the lender on a full recourse basis at 80% of the face
amount of the receivable up to an aggregate of $3.0 million. At June 30, 2009 we
owed Sand Hill Finance, LLC $1,726,751 under this accounts receivable
line.
We do not
have any commitments for capital expenditures. In connection with our annual
report for our fiscal year ending September 30, 2009 our management will be
required to provide an assessment of the effectiveness of our internal control
over financial reporting, including a statement as to whether or not internal
control over financial reporting is effective. In order to comply with this
requirement we will need to engage a consulting firm to undertake an analysis of
our internal controls. We have yet to engage such a consulting firm and are
unable at this time to predict the costs associated with our compliance with
Section 404 of Sarbanes-Oxley Act of 2002. We do not presently have any external
sources of working capital other than what may be available under the factoring
agreement with Sand Hill Finance and loans from related parties. Our working
capital needs in future periods are dependent primarily on the rate at which we
can increase our revenues while controlling our expenses and decreasing the use
of cash to fund operations. Additional capital may be needed to fund
acquisitions of additional companies or assets, although we are not a party to
any pending agreements at this time and, accordingly, cannot estimate the amount
of capital which may be necessary, if any, for acquisitions.
As long
as our cash flow from operations remains insufficient to completely fund
operations, we will continue depleting our financial resources and seeking
additional capital through equity and/or debt financing. In December 2005 we
sold shares of our Series B Convertible Preferred Stock. The designations of
these shares included a restriction that so long as the shares are outstanding,
we cannot sell or issue any common stock, rights to subscribe for shares of
common stock or securities which are convertible or exercisable into shares of
common stock at an effective purchase price of less than the then conversion
value which is presently $0.2727 for the Series B Convertible Preferred Stock.
Under the terms of the Series B Convertible Preferred Stock transaction, we also
agreed not to issue any convertible debt or preferred stock. Finally, under the
terms of the financing agreement with Sand Hill Finance, LLC we agreed not to
incur any additional indebtedness other than trade credit in the ordinary course
of business. These covenants may limit our ability to raise capital in future
periods.
There can
be no assurance that acceptable financing can be obtained on suitable terms, if
at all. Our ability to continue our existing operations and to continue growth
strategy could suffer if we are unable to raise the additional funds on
acceptable terms which will have the effect of adversely affecting our ongoing
operations and limiting our ability to increase our revenues and maintain
profitable operations in the future. If we are unable to secure the necessary
additional working capital as needed, we may be forced to curtail some or all of
our operations.
Recent
Accounting Pronouncements
None.
| Item
3. Quantitative
and Qualitative Disclosures About Market
Risk |
None.
| Item
4. Controls
and Procedures |
Evaluation of disclosure controls
and procedures. Our Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) have evaluated the effectiveness of our disclosure controls and
procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
the end of the period covered by the Quarterly Report (the “evaluation date’).
They have concluded that, as of the evaluation date, these disclosure controls
and procedures were effective to ensure that material information relating to us
and our consolidated subsidiaries would be made known to them by others within
those entities and would be disclosed on a timely basis.
Changes in internal control over
financial reporting. There were no changes to internal controls over
financial reporting that occurred during the nine months ended June 30, 2009,
that have materially affected, or are reasonably likely to materially impact,
our internal controls over financial reporting.
PART
II - OTHER INFORMATION
| Item
1. Legal
Proceedings |
None.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed under the heading “Risk Factors” in our Annual
Report on Form 10-KSB/A filed on January 9, 2009, which could materially
affect our business operations, financial condition or future results.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business operations and/or financial condition. There have been no material
changes to our risk factors since the filing of our Form 10-KSB/A.
| Item
2. Unregistered
Sales of Equity Securities and Use of
Proceeds |
In March,
2009, in conjunction with the sale of its subsidiary IceWEB Virginia, Inc., the
Company issued 1,000,000 shares of IceWEB common stock to the
purchaser.
In March,
2009, the Company issued 125,000 shares of its common stock to two service
providers. The shares were valued at $6,500, the fair market value of the stock
on the dates the stock were issued.
In June,
2009 the Company sold 1,000,000 shares of its common stock to an accredited
investor. The shares were restricted and were sold at $0.04/share,
the market value at the time of the transaction.
In June,
2009 the Company sold 1,900,000 shares of its common stock to two accredited
investors. The shares were restricted and were sold at $0.03/share,
the market value at the time of the transaction.
In June,
2009, the Company issued 100,000 shares of its common stock to a service
provider. The shares were valued at $6,000, the fair market value of the stock
on the dates the stock were issued.
| Item
3. Defaults
Upon Senior Securities |
None.
| Item
4. Submission
of Matters to a Vote of Security Holders |
None.
| Item
5. Other
Information |
None.
|
Exhibit
Number
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
31.2
|
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 *
|
|
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 *
|
|
|
|
|
|
32.2
|
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 *
|
* Filed
herein
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
ICEWEB,
INC.
|
|
|
|
|
|
|
By:
|
/s/ John R. Signorello
|
|
August
14, 2009
|
|
John
R. Signorello,
|
|
|
|
Chief
Executive Officer, principal executive officer
|
|
|
|
|
|
|
By: |
/s/ Mark B. Lucky
|
|
August
14, 2009
|
|
Mark
B. Lucky
|
|
|
|
Chief
Financial Officer, principal financial and accounting
officer
|