Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended September 30, 2009
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from __________ to ______________
Commission
File Number 000-27865
IceWEB,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
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13-2640971
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State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization
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Identification
No.)
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22900
Shaw Road, Suite 111, Sterling, VA
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20166
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(Address
of principal executive offices)
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(Zip
Code
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Registrant’s
telephone number, including area code: (571) 287-2400
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class
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Name
of each exchange on which registered
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None
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None
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Securities
registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par
Value
(Title of
class)
Indicate
by checkmark if the registrant is a well-know seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
o No þ
Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13 or 15 (d) of the Act
Yes
o No þ
Indicate
by checkmark 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 checkmark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate
by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained in this form, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a small reporting company. See the
definitions of “large accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company x
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Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average of the bid and asked price of such common equity, as
of the last business day of the registrant’s most recently completed second
fiscal quarter. The aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was sold on March 31, 2009, the last business
day of the registrant’s most recently completed second fiscal quarter was $_2,252,355.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
equity, as of the latest practicable date. The number of common
shares issued and outstanding as of December 21, 2009 was 82,469,617
shares
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the part of
the Form 10-K (e.g. Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). None
TABLE OF
CONTENTS
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3
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ITEM
1. BUSINESS
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3
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ITEM
1A. RISK FACTORS
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10
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ITEM
1B. UNRESOLVED STAFF COMMENTS
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16
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ITEM
2: PROPERTIES
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16
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ITEM
3: LEGAL PROCEEDINGS
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16
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ITEM
4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
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17
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PART II
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17
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ITEM
5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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17
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ITEM
6. SELECTED FINANCIAL DATA.
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19
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ITEM
7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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19
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ITEM
7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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23
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ITEM
8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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24
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ITEM
9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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53
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ITEM
9A(T): CONTROLS AND PROCEDURES
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53
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ITEM
9B: OTHER INFORMATION
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54
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PART
III
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54
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ITEM
10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
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54
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ITEM
11: EXECUTIVE COMPENSATION
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59
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ITEM
12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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65
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ITEM
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS
INDEPENDENCE
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67
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ITEM
14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
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67
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68
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ITEM
15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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68
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Cautionary
Statement Regarding Forward Looking Statements
This
Annual Report on Form 10-K contains statements that are considered
forward-looking statements. Forward-looking statements give our current
expectations and forecasts of future events. All statements other than
statements of current or historical fact contained in this annual report,
including statements regarding our future financial position, business strategy,
budgets, projected costs and plans and objectives of management for future
operations, are forward-looking statements. The words “anticipate”, “believe”,
“continue”, “estimate”, “expect”, “intend”, “may”, “plan”, and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. These statements are based on our current plans, and
our actual future activities and results of operations may be materially
different from those set forth in the forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from the statements made. Any or all
of the forward-looking statements in this annual report may turn out to be
inaccurate. We have based these forward-looking statements largely on its
current expectations and projections about future events and financial trends
that it believes may affect its financial condition, results of operations,
business strategy and financial needs. The forward-looking statements can be
affected by inaccurate assumptions or by known or unknown risks, uncertainties
and assumptions. We undertake no obligation to publicly revise these
forward-looking statements to reflect events occurring after the date hereof.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained in this annual report.
OTHER
PERTINENT INFORMATION
When used in this report, the terms the
“Company”, “IceWEB”, "we", "our", and "us" refers to IceWEB, Inc., a Delaware
corporation, and our subsidiaries. When used in this report, “fiscal
year 2009” means the year ended September 30, 2009 and "fiscal year 2008" means
the year ended September 30, 2008. The information which appears on
our Web sites is not part of this report.
PART
I
Headquartered
just outside of Washington, D.C., we manufacture and market purpose built
appliances, network and cloud attached storage solutions and deliver on-line
cloud computing application services. Our customer base includes U.S.
government agencies, enterprise companies, and small to medium sized businesses
(SMB). We have three key product offerings:
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Iplicity
Unified Network Storage Solutions
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Purpose
Built Network/Data Appliances
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Cloud
Computing Products/Services
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Iceweb, the Iceweb logo and other
trademarks or service marks of Iceweb are the property of
Iceweb.
Iplicity Unified Network
Storage Solutions
IceWEB is
a provider of high performance Unified Network Storage solutions. We
believe that our product offerings have broad appeal in the enterprise and
federal marketplaces, and are used as core building blocks (enabling
technologies) of business critical storage infrastructure for a diverse group of
data intensive key vertical market segments such as geospatial information
systems, entertainment, security and defense, higher education, Internet Service
Providers, Managed Service Providers, Oil and Gas, and Health
Care. Our innovative storage systems deliver levels of performance,
scalability, versatility and simplicity that exceed existing network storage
alternatives. Our Unified Network Storage offering, called Iplicity is deployed as
storage operating system software on our network attached storage (NAS), and
storage area network (SAN) hardware products. This Iplicity Unified Network
Storage environment empowers companies to:
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Quickly
and easily deploy large complex data storage infrastructure
environments
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Reduce
administrative costs for managing their storage by making complex
technical tasks far more simple to
accomplish
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Reduce
hardware and capital expenditure costs by more effectively using the
storage within the system and repurposing older legacy
hardware
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Protect
their business critical data by leveraging Iplicity’s built-in data
replication features
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Integrate
with emerging server virtualization software (VMWare, Citrix Xen and
Microsoft’s Hyper V) to better manage those
solutions
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Iplicity
replaces complex and performance-limited products with high performance,
scalable and easy to use systems capable of handling the most data intensive
applications and environments. We believe that the Iplicity solution
delivers three key benefits:
Performance - which equals or
exceeds all competitive products
Management – which requires
less expertise and time from overburdened technical staffers
Cost – our solutions
typically can be deployed costing two to three times less than those
of ours competitors, and are far more feature rich
The
Competitive Landscape
Traditionally
a company such as IceWEB would compete with other storage vendors of similar
size, some of those competitors would be Compellent, Isilon, and LeftHand
Networks. In actuality, we more often find ourselves becoming an
alternative in our customers’ eyes to purchasing additional equipment from large
and expensive legacy storage providers such as EMC Corporation, IBM, Hewlett
Packard, Network Appliance and Hitachi Data Systems. What IceWEB is
finding is that with data growing at alarming rates within all organizations,
budgetary and common sense decision making is creating a second tier storage
marketplace where our Iplicity is perceived as very
compelling. Customers are recoiling from the high costs and fork-lift
upgrades often required by the larger Tier 1 storage providers that would be
necessary to accommodate their rapid data growth. Therefore, rather
than purchasing additional expensive solutions from their existing vendors they
opt to deploy our product with its versatile and feature rich capabilities in an
overflow or project by project type environment. Because Iplicity
storage space can be purchased two to three times more cheaply than the legacy
alternatives, these customers are actually able to purchase ahead of their
perceived data growth rate.
Purpose Built Network and
Data Appliances
IceWEB
has been building Purpose Built Network and Data Appliances for several
years. Purpose Built Network and Data Appliances are devices which
provide computing resources (processors and memory), data storage, and specific
software for a specific application. The primary appliance products
that IceWEB has built have historically been centered on a single large business
partner, ESRI Corporation. IceWEB and ESRI have collaborated to
create ultra-high performance IceWEB/ESRI GIS systems that allow customers
access massive amounts of data with unprecedented speed ESRI
Corporation takes full responsibility for marketing to their customers and
business partners, via their worldwide sales and consultancy
organization.
IceWEB,
in an effort to capitalize on what has been a successful model built within the
Geographical Information System space, with ESRI has expanded our marketing of
our appliance design, manufacturing and support capabilities to additional
prospective partners. In October 2009 IceWEB, Spot Image (a large
satellite GIS data provider based in France), and Google Corporation agreed that
IceWEB would build an appliance to deliver GIS imagery from Spot Image satellite
data, powered by Google Earth Enterprise. This Google Earth Engine
appliance will be marketed worldwide through existing Spot Image and Google
business partners. IceWEB has also recently introduced a Cloud
Storage Appliance, a device which allows organizations and/or service providers
to rapidly and easily deploy cloud based storage services to their constituents
and customers. We are aggressively pursuing other Purpose Built
Appliance opportunities and hope that this strategy will begin to contribute
significantly to our business ramping over the next six months. Our
goal is that the Appliance business segment be grown to contribute approximately
35% of overall business revenue by the end of Fiscal Year 2010. We
expect to achieve this through our ongoing sales, marketing and research and
development efforts, funded by operations.
Cloud Computing Products and
Services
Cloud Computing
Services
In
December 2005, IceWEB launched IceMAIL TM a
packaged software service that provides network –hosted groupware, email,
calendaring and collaboration functionality. Customers are typically
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. Originally such hosted services were
referred to with the acronym ‘SaaS’, which stands for
Software-as-a-Service. Such services, hosted across the internet are
today commonly referred to as Cloud Computing. The benefits of
cloud computing are many. First, adoption of an application,
infrastructure, or storage environment which is available on-demand, with no
capital expenditures for the user company represents an attractive proposition
from the financial perspective. Secondly, such models greatly reduce
the need for highly paid internal technical staff, freeing critical resources to
work on more core business related functions. Thirdly, the
application software, hardware, and infrastructure needs of organizations are
constantly growing and evolving – Cloud Computing allows ad-hoc allocation of
resources, cost free software upgrades, and freedom from hardware/infrastructure
obsolescence.
Cloud Storage Appliances
(CSA)
Knowing
full well there will be many early entrants into the much hyped Cloud Computing
market space, IceWEB has focused our engineering and research and development
efforts on crafting our products to perform as scalable ‘building blocks’ for
those companies or service providers wishing to rapidly deploy high performance
infrastructure to enable delivery of Cloud based services. In
September 2009 IceWEB introduced a line of devices called “Cloud Storage
Appliances” (CSA). A cloud storage appliance is a purpose built
storage device configured for either branch office or central site deployment
which allows the housing and delivery of customer data across not only their
internal networking infrastructure, but also to make that data available to
employees or business partners securely via the internet (often called the
cloud). The CSA line has been built to address concerns within the
enterprise marketplace which revolve around hesitation to entrust corporate data
to third party providers such as Amazon S3, Mozy, Nirvanix, and others, and to
address additional concerns about data access latency and
performance. Companies, by implementing our CSA devices, can gain all
of the benefits of cloud computing, while mitigating vendor lock-in issues,
reducing the potential for security breaches, and maintaining high performance
data transfer by back-hauling the data (and replicating it) from remote branch
offices across existing wide area network links to the corporate IT
infrastructure. An additional obvious benefit derived from the
deployment of private or hybrid storage clouds on the CSA products is that
companies do not have to pay per-megabyte or per-gigabyte transfer and storage
fees to third party service companies.
Sale
of IceWEB Virginia, Inc. (doing business as IceWeb Solutions Group)
As
described elsewhere herein, in March 2009 we sold our interest in IceWEB
Virginia, Inc. (dba IceWEB Solutions Group) subsidiary to an unrelated third
party in exchange for the assumption of approximately $3.2 million in
liabilities and 1,000,000 shares of our common stock valued at
$80,000. IceWEB Virginia, Inc. was a provider of computer network
security products and services such as access control, wide area network
optimization, content filtering, email security, intrusion detection, to the
Federal, State, and Local government entities. This subsidiary
accounted for 43% and 91% of our revenues for fiscal years 2009 and 2008,
respectively. We sold this business in order for us to be able to
focus on our high margin storage business.
As a
result of this transaction, absent a significant increase in our sales from
other areas of our business our sales in fiscal year 2010 will be substantially
lower than the prior two years.
Our
Customers
Our
products have been sold to customers in the U.S., Canada and Europe across a
broad range of industries, including GIS; oil and gas; state, local and federal
government; and healthcare. We believe that our customers have a high level of
satisfaction with our products and services. During the year ended
September 30, 2009 one customer accounted for 10% or more of our consolidated
revenue.
Sales
and Marketing Plans
We intend
to sell our products with our direct sales force and through our
expanding network of channel partners, which currently includes Utilipath,
Level3, Google, Citrix, and Symantec. In a Channel Based sales model,
companies with products or services build partnerships with Systems Integrators,
other manufacturers, vertical companies (such as ESRI and Spot Image), and
distributors and leverage the sales resources of those groups to drive sales of
products/services. The value of a Channel Based sales model is
twofold. First it allows IceWEB to grow total sales volume
significantly while not incurring increases in SG&A. Rather than
building a significant worldwide sales force of our own, this model allows us to
build a small Channel Organization responsible for identification, training and
support of partner organizations to ensure their success and
productivity. The second value of the Channel Based model is that
partners bring their own knowledge of key accounts and have relationships
already in place – this compresses the sales cycle, increases the close ratio on
new business and funnels more sales into IceWEB products and
services.
In the
third and fourth fiscal quarters of 2009 the company signed channel partners
agreements with Utilipath LLC and Spot Image. The company is
aggressively pursuing other partner agreements to increase our sales and market
exposure and footprint. Such channel partner agreements typically
take between three and six months to develop prior to materially increasing
sales revenues.
Manufacturing
Manufacturing
is conducted at company headquarters in Sterling, VA. Utilizing
chassis from premium manufacturers such as AIC Corporation, Intel, New Isis, and
others, all systems are built, burned, and tested at this facility by our
in-house engineering and production staff. We manufacture data appliances,
Modular Lightweight Portable enterprise servers (MLP), workgroup servers,
Iplicity storage management platform, as well as an array of database and
customized appliances. We use best-of-breed readily available,
commercial off-the-shelf products sourced from various resellers and suppliers
in our manufacturing process.
Competition
The
market for IceWEB storage is highly competitive and likely to become even more
competitive in the future. Established companies have historically dominated the
storage market, including EMC, Network Appliance, Dell, Hewlett-Packard, Sun
Microsystems, Hitachi Data Systems and IBM.
In
addition there is additional competition from smaller companies such as
Compellent Technologies and LeftHand Networks. In the future, new competitors
will emerge as well as increased competition, both domestically and
internationally, from other established storage companies. The
principal competitive market factors are:
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Product
scalability, performance and
reliability
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Ease
of installation and management;
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Software
functionality;
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Total
cost of ownership;
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IceWEB
competes effectively across all of these factors. In particular, our product
architecture provides significant competitive advantages in terms of
performance, scalability, ease of management and low total cost of
ownership. OEM partners provide us with a significant number of
reference accounts which address credibility and helps marketing to new
customers.
Many of
the competitors have longer operating histories, better name recognition, larger
customer bases and significantly greater financial, technical, sales and
marketing resources than we have. Competitors may also be able to devote greater
resources to the development, promotion, sale and support of their products.
Competitors may also have more extensive customer bases and broader customer
relationships than we do, including relationships with potential IceWEB
customers.
Research
and development
Research
and development expenses consist primarily of personnel-related expenses, costs
of prototype equipment, costs of using contractors, allocated facility and IT
overhead expenses and depreciation of equipment used in research and development
activities. We expense research and development costs as incurred. We intend to
continue to invest significantly in our research and development efforts, which
we believe are essential to maintaining our competitive position. As a result,
we expect research and development expenses to increase in absolute dollars,
although we expect these expenses to decrease as a percentage of
revenue.
Intellectual
Property
Success
in our technological markets depends, in part, upon our ability to obtain and
maintain proprietary protection for its products, technology and
know-how. This must be accomplished without infringing the
proprietary rights of others and while simultaneously preventing others from
infringing upon our proprietary rights.
IceWEB
seeks to protect its proprietary positions by, among other methods, filing
patent applications. Patent efforts are focused in the United States and, when
justified by cost and strategic importance, we plan to file related foreign
patent applications in jurisdictions such as the European Union and Japan. The
company has retained an Intellectual Property Law firm and is in the process of
preparing filings for two or more provisional patents (Cloud Storage Appliance
and WISCSI technologies respectively).
Pending
patent applications relate to the rapid ingestion of massive amounts of video
and other data and other network storage concepts. It is unknown if
any of the patent applications will issue as patents. The patent
applications may be opposed, contested, circumvented, designed around by a
third-party, or found to be invalid or unenforceable.
Copy
right law, trademarks and trade secret agreements are also used to protect and
maintain proprietary positions. Our proprietary information is
protected by internal and external controls, including contractual agreements
with employees, end-users and channel partners. There is no assurance that these
parties will abide by the terms of their agreements.
Trademarks
are used on some of the IceWEB products and these distinctive marks may be an
important factor in marketing the products. Inline® and Inline logo
trademarks have been registered in the United States.
Purchase
of Interest in VOIS Inc.
As also
described later in this section, in November 2009 we purchased an approximately
16% interest in VOIS Inc. (OTCBB: VOIS), a development stage company that
operates a social commerce website where people can find and do business with
buyers and sellers of on-demand work or manufacturing around the world for
$48,000. We acquired a strategic interest in VOIS to enter the Cloud
Computing marketplace and deploy our storage products in conjunction with VOIS’
product offerings. In exchange for this strategic interest, VOIS
received access to distribute IceMAIL, IcePORTAL, and IceSECURE to their
existing and prospective new user base, and IceWEB’s cloud storage
network.
Our
History
We
were originally formed under the laws of the State of Delaware in February 1969.
For many years, we were a wholesaler of custom one, two, three and four-color
processed commercial printing, as well as disposable and durable office
equipment including stock paper, fax paper, fax and copy machines, computers,
file cabinets and safes. We conducted our business throughout the United States
of America and Puerto Rico from our headquarters in New York.
In March
1999, we changed the focus of our business and closed a transaction by which we
acquired 100% of the outstanding capital stock of North Orlando Sports
Promotions, Inc., a privately held Florida corporation. From 1999 until July
2001, we operated a variety of Internet-related services, however, we were
unable to generate positive cash flow from these Internet-related
businesses.
In May
2001, we executed an Agreement and Plan of Reorganization and Stock Purchase
Agreement with Disease S.I., Inc. Under the terms of the agreement, we acquired
100% of the issued and outstanding stock of Disease S.I., Inc. in exchange for
750,000 shares of our common stock. The transaction was accounted for as a
reverse acquisition under the purchase method for business combinations.
Accordingly, the combination of the two companies was recorded as a
recapitalization of Disease S.I., Inc., pursuant to which Disease S.I., Inc. was
treated as the continuing entity. Disease S.I., Inc. was a developmental stage
biopharmaceutical clinical diagnostics company planning to employ a broad array
of technologies to detect, identify and quantify substances in blood or other
bodily fluids and tissues. It intended to derive revenues from patent
sub-licensing fees, royalties from pharmaceutical sales, appropriate milestone
payments and research and development contracts.
Following
completion of the acquisition of Disease S.I., Inc., it became apparent to us
that it would be in our best long-term interest that the Internet operations be
conducted apart from the biopharmaceutical clinical diagnostics operations. On
July 24, 2001, we sold a former officer and director 100% of our subsidiary
North Orlando Sports Promotions, Inc., in exchange for the assumption of all
liabilities related to North Orlando Sports Promotions, Inc. and its operations
estimated at approximately $112,000, and which included the forgiveness of
$91,500 in accrued compensation. Included in the sale along with the capital
stock of North Orlando Sports Promotions, Inc. were fixed assets, rights to
several domain names and various contractual rights and
obligations.
On
November 27, 2001, we acquired 9,050,833 shares of the common stock of
Healthspan Sciences, Inc., a privately held California corporation in exchange
for 5,000 shares of our common stock in a private transaction exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) of
that act. This agreement was rescinded on March 21, 2002. Pursuant to the
rescission, Healthspan Sciences, Inc. returned all 5,000 shares of our common
stock issued in the exchange and we returned all 9,050,833 shares of Healthspan
Sciences, Inc. which we had received.
On March
21, 2002, we executed an Agreement and Plan of Merger with IceWEB
Communications, Inc., a Delaware corporation and its stockholders. Founded in
2000, IceWEB Communications, Inc. enabled interactive communications and
education on the web. In June 2001, it had acquired the assets in bankruptcy of
Learning Stream, Inc., a provider of streaming services. Pursuant to the
agreement, each of the 22,720,500 shares of common stock of IceWEB
Communications, Inc. issued and outstanding immediately prior to the merger were
converted into the right to receive 0.13375 shares of our common stock, for an
aggregate of 303,888 shares of common stock. Each of the warrants to purchase an
aggregate of 680,125 shares of IceWEB Communications, Inc. common stock issued
and outstanding immediately prior to the merger were converted into the right to
receive one warrant to purchase 0.13375 shares of our common stock upon exercise
of said warrant.
In June
2003, we acquired 100% of the capital stock of Interlan Communications, Inc., a
privately held corporation, in exchange for 25,000 shares of our common stock.
In June 2003, we also acquired 100% of the capital stock of Seven Corporation in
exchange for 37,500 shares of our common stock and cash consideration of
$123,000. As described later in this section, we sold Seven Corporation company
in February 2007.
In
October 2003, we acquired 19% of the capital stock of Iplicity, Inc. of
Virginia, together with substantially all of its assets including software
licenses, source code, potential patents and trademarks for a combined stock and
cash value of approximately $632,000 which included the issuance of 191,381
shares of our common stock and cash consideration of $65,500.
In May
2004, we acquired substantially all of the assets of DevElements, Inc. of
Virginia, including software licenses, source code, potential patents and
trademarks, cash, hardware, and equipment. As consideration for the purchase of
the assets, we paid DevElements $100,000 and agreed to the assumption of
liabilities up to an aggregate of $150,000. In exchange for the 19% interest in
DevElements, we issued to the stockholders of DevElements 187,500 shares of our
common stock and options to purchase 187,500 shares of common stock exercisable
at a price of $27.20 per share and expiring May 13, 2009. We issued to the
stockholders options to purchase 6,250 shares, which were contingently
exercisable upon the satisfaction of certain performance criteria. The
performance criteria, which required contracts, task orders and other work
assignments involving billing of at least $840,000 during the six-month period
ending November 13, 2004, was not met and the options were
cancelled.
On
October 18, 2004, we entered into a non-binding letter of intent to acquire 100%
of the issued and outstanding stock of Plan Graphics, Inc. The transaction was
subject to approval by the Plan Graphics, Inc. stockholders, and certain terms
and conditions, including terms and conditions which are customary to this type
of transaction. On April 29, 2005 the letter of intent expired without a
definitive agreement having been executed or all conditions precedent to the
closing having been completed.
In March
2006 we acquired PatriotNet, Inc., an Internet service provider, for total
consideration of $290,000 of which $190,000 was paid in cash and $100,000 was
paid through the issuance of 100,000 shares of our common stock. We granted
Patriot Computer Group, Inc., the seller in the transaction, certain piggyback
registration rights for the 100,000 shares of our common stock issued as partial
consideration in the transaction. At the time of the acquisition, the purchase
price exceeded the fair value of the assets acquired by $390,600 which we
treated as goodwill for accounting purposes. From the date of acquisition
through September 30, 2007 sales from PatriotNet were approximately $316,000 and
represented approximately 6% of our consolidated sales. On December 1, 2006 we
sold PatriotNet to Leros Online, Inc., a third party, for $150,000 in cash and
the assumption of $60,000 in liabilities. At September 30, 2007 we recorded
goodwill impairment of $180,000 related to this transaction.
On
December 1, 2006 we sold 100% of the capital stock of our wholly-owned
subsidiary, Integrated Power Solutions, Inc. to Mr. John Younts, our Vice
President of Integrated Power Solutions and a key employee, for the assumption
of approximately $180,000 in liabilities and the payment of $12,000 we owed him.
For the fiscal year ended September 30, 2006, sales for Integrated Power
Solutions were approximately $457,000, or approximately, 9.5%, of our total
sales.
On
November 15, 2006, we acquired certain of the assets of True North Solutions
related to its governmental customer business for $350,000 of which $250,000 was
paid in cash and the balance was paid through the delivery of a $100,000
principal amount promissory note secured by collateral pledge of the assets,
payable immediately upon accomplishment of the novation of the GSA Schedule.
Under the terms of the agreement, we acquired the customers, forecast, contract
renewals, and GSA schedule of True North Solutions. We permitted True North
Solutions to use the purchased assets until December 31, 2006 pursuant to which
we acted as the seller’s subcontractor until the novation of the GSA Schedule
was complete. The novation of the GSA schedule was completed in March,
2008. The assets acquired in this transaction became the basis for
our IceWEB Virginia, Inc. subsidiary.
On
February 16, 2007 we sold 100% of the outstanding stock of our subsidiary, The
Seven Corporation of Virginia, Inc., to PC NET in exchange for the waiver of
approximately $11,000 we owed PC NET. Under the terms of the agreement we may
not engage in any staffing services businesses as The Seven Corporation had
conducted for a period of at least two years. For the fiscal year ended
September 30, 2006 sales from The Seven Corporation were $360,000, or
approximately 7.5%, of our total sales.
On
December 22, 2007, we acquired 100% of the outstanding stock of Inline
Corporation, (now known as IceWEB Storage Corporation) for $1,925,128 in cash,
plus 503,356 shares of our common stock valued at $276,846, the fair market
value on the date of acquisition. The purchase of Inline Corporation included
the acquisition of assets of $2,688,795, and liabilities of
$614,668.
In March, 2009, we sold 100% of the
capital stock of our wholly-owned subsidiary, IceWEB Virginia, Inc. to an
unrelated party. We exchanged our GSA schedule and 1,000,000 shares
of our common stock valued at $80,000 for the assumption of approximately $3.2
million in liabilities. In fiscal 2008, sales for IceWEB Virginia,
Inc. accounted for approximately $14,887,587 or 91% of our total
sales
On
November 3, 2009 we purchased 160,000,000 shares of common stock from VOIS Inc.
for $48,000 in a private transaction exempt. Immediately prior to the
transaction, on October 30, 2009 Mr. Mark B. Lucky, our Chief Financial Officer,
joined the Board of VOIS, and on November 2, 2009 Mr. John R. Signorello, our
Chief Executive Officer, purchased 225,000,000 shares of VOIS’ common stock,
which then represented approximately 27% of its outstanding common stock, from a
former executive officer and director of our company for nominal
consideration.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a significant degree of risk. You should
not invest in our common stock unless you can afford to lose your entire
investment. You should consider carefully the following risk factors and other
information in this annual report before deciding to invest in our common
stock. If any of the following risks and uncertainties develop into
actual events, our business, financial condition or results of operations could
be materially adversely affected and you could lose your entire investment in
our company.
RISKS
RELATED TO OUR COMPANY
WE
HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE CONTINUING LOSSES THAT WILL RESULT
IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS ABSENT A MATERIAL INCREASE IN
OUR REVENUES.
We have
an accumulated deficit of approximately $22.7 million at September 30,
2009. For the Years ended September 30, 2009 and 2008, we had a net
loss of approximately $2.5 million and approximately $6.4 million,
respectively. In fiscal year 2009, cash used in operations was
approximately $2.1 million and we had approximately $63,000 of cash on hand at
September 30, 2009. The report of our independent registered public accounting
firm on our consolidated financial statements for the fiscal year ended
September 30, 2009 contains a qualification expressing substantial doubt as to
our ability to continue as a going concern as a result of our net losses and
cash used in operations. We reported a decrease in our sales for fiscal 2009 as
compared to fiscal 2008 of approximately 76% which is primarily related to the
Company’s focus on its storage business, and lower sales from our IceWEB
Virginia, Inc. subsidiary. In addition, we sold IceWEB Virginia, Inc.
to a related third party in March, 2009.We cannot assure you that our sales will
increase in future periods, nor can we assure you that they will not further
decrease. As long as our cash flow from operations remains insufficient to fund
our operations, we will continue depleting our cash and other financial
resources, as well as issue additional equity to raise capital. Our failure to
achieve profitable operations in future periods will adversely affect our
ability to continue as a going concern. In this event, you could lose all of
your investment in our company.
WE
WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE
TERMS. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY TO EXECUTE
OUR GROWTH STRATEGY AND FUND OUR ONGOING OPERATIONS WILL BE IN
JEOPARDY.
Historically,
our operations have been financed primarily through the issuance of equity and
short-term loans. Capital is typically needed not only to fund our ongoing
operations and to pay our existing obligations, but capital is also necessary if
we wish to acquire additional assets or companies and for the effective
integration, operation and expansion of these businesses. Our future capital
requirements, however, depend on a number of factors, including our ability to
internally grow our sales, manage our business and control our expenses. At
September 30, 2009, we had a working capital deficit of approximately $3.2
million. We have available to us the ability to raise up to $3
million under a Preferred Stock Purchase Agreement (the “Purchase Agreement”)
with a third party investor, which provides that the Investor under certain
terms and conditions, is committed to purchase up to $3,000,000 of our Series C
Preferred Stock until July 23, 2010.
OUR
TARGET MARKETS ARE HIGHLY COMPETITIVE AND DOMINATED BY LARGER COMPANIES AND WE
MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The
market for our products is highly competitive and we expect competition to
intensify in the future. This competition could result in increased pricing
pressure, reduced gross margins, increased sales and marketing expenses or our
failure to increase, or our loss of, market share, any of which could seriously
harm our business, operating results and financial condition.
Currently,
we face competition from a number of established companies, including EMC
Corporation, or EMC, Hewlett-Packard Company, or HP, Hitachi Limited,
International Business Machines Corporation, or IBM, and Network Appliance,
Inc., or NetApp. We also face competition from a large number of
private companies and recent public company market entrants, such as Isilon
Systems, Inc. Many of our current competitors have, and some of our
potential competitors could have, longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical, sales, marketing and other resources than we have. Potential
customers may prefer to purchase from their existing suppliers rather than a new
supplier regardless of product performance or features.
NetApp is
our primary competition in the high performance unified network storage system
market. They have a significantly greater share of this market than we do. In
addition, they are a substantially larger company with more resources than we
have.
Our
ability to compete effectively in our target markets depends on a number of
factors, including:
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our
products’ scalability, performance, ease of use and cost effectiveness
relative to that of our competitors’
products;
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aggressive
business tactics by our competitors, including selling at a discount or
asserting intellectual property rights irrespective of the validity of the
claims;
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our
success in utilizing new and proprietary technologies to offer products
and features previously not available in the
marketplace;
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our
success in identifying new markets, applications and
technologies;
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our
ability to attract and retain value-added resellers and
OEMs;
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our
name recognition and
reputation;
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our
ability to recruit development engineers and sales and marketing
personnel; and
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our
ability to protect our intellectual
property.
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We expect
increased competition from other established and emerging companies, including
companies such as networking infrastructure and storage management companies
that provide complementary technology and functionality. Some of our
competitors, including EMC, HP and NetApp, have made acquisitions of businesses
that allow them to offer more directly competitive and comprehensive solutions
than they had previously offered. Our current and potential competitors may also
establish cooperative relationships among themselves or with third parties. If
so, new competitors or alliances that include our competitors may emerge that
could acquire significant market share.
WE
ARE SUBSTANTIALLY DEPENDENT ON CUSTOMERS IN A LIMITED NUMBER OF INDUSTRIES.
DOWNTURNS IMPACTING CERTAIN INDUSTRIES MAY RESULT IN REDUCED SALES FOR
US.
In fiscal
year 2009, a substantial majority of our net revenue was generated from
Geographic Information Systems (“GIS”), state, local, and federal government,
and oil and gas companies. If however, economic conditions change for these
industries, or if we are unable to continue to attract significant numbers of
customers in other industries, our prospects for growth could be
reduced.
IF
WE ARE UNABLE TO CONTINUE TO DEVELOP AND INTRODUCE NEW PRODUCTS AND RESPOND TO
TECHNOLOGICAL CHANGES, OUR REVENUE COULD BE REDUCED.
Our
future growth depends on the successful development and introduction of new
systems and software products. Due to the complexity of network storage systems,
these products are subject to significant technical risks that may impact our
ability to introduce these products successfully. Our new products also may not
achieve market acceptance. In addition, our new products must respond to
technological changes and evolving industry standards. If we are unable for
technological or other reasons to develop and introduce new products in a timely
manner in response to changing market conditions or customer requirements, or if
these products do not achieve market acceptance, our revenue could be
reduced.
IMPROVEMENTS
IN ALTERNATIVE MEANS TO ACCELERATE STORAGE PERFORMANCE OR REDUCE STORAGE COSTS
COULD HARM OUR BUSINESS AS THE DEMAND FOR OUR SYSTEMS MAY BE
REDUCED.
Our
products are designed to improve the performance of many applications, including
applications that are based on Microsoft Corporation’s, or Microsoft, protocols.
Accordingly, improvements to Microsoft application protocols to accelerate
storage performance or reduce storage costs may reduce the need for our
products, adversely affecting our business, operating results and financial
condition. Improvement in other application protocols or in the Transmission
Control Protocol could have a similar effect.
IF
WE ARE UNABLE TO CONTINUE TO CREATE VALUABLE INNOVATIONS IN SOFTWARE AND
HARDWARE, WE MAY NOT BE ABLE TO GENERATE ADDITIONAL HIGH-MARGIN REVENUE THAT
WILL ENABLE US TO MAINTAIN OR INCREASE OUR GROSS MARGINS, WHICH COULD REDUCE OUR
REVENUE.
Our
industry has a history of declining network storage hardware prices as measured
on a “dollar per gigabyte of storage capacity” basis. To maintain or increase
our gross margins, we will need to continue to create valuable software that is
included with our network storage systems and/or sold separately as a licensed
software application. Any new feature or application that we develop or acquire
may not be introduced in a timely or cost- effective manner and may not achieve
the broad market acceptance necessary to help increase our overall gross margin.
If we are unable to successfully develop or acquire and then market and sell
additional software and hardware functionality, our revenue could be
reduced.
OUR
ABILITY TO SELL OUR PRODUCTS IS HIGHLY DEPENDENT ON THE QUALITY OF OUR SUPPORT
SERVICES, AND ANY FAILURE TO OFFER HIGH-QUALITY SUPPORT SERVICES COULD REDUCE
OUR PRODUCT SALES AND REVENUE.
After our
products are deployed within our customers’ networks, our customers depend on
our support services organization to resolve issues relating to our products and
how they perform within our customer’s environment. High-quality support
services are therefore critical for the successful marketing and sale of our
products. If we do not succeed in helping our customers to quickly resolve
post-deployment issues and provide ongoing support if our partners do not
effectively assist our customers in deploying our products, it would adversely
affect our ability to sell our products to existing customers and could harm our
prospects with potential customers. In addition, as we expand our operations
internationally, our support services organization will face additional
challenges, which we expect to include those issues that are associated with
delivering support, training and documentation in languages other than English.
As a result, our failure to maintain high-quality support services could reduce
our product sales and revenue.
OUR
PRODUCTS ARE HIGHLY TECHNICAL AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE
DEFECTS, WHICH COULD CAUSE DATA UNAVAILABILITY, LOSS OR CORRUPTION THAT MIGHT,
IN TURN, RESULT IN LIABILITY TO OUR CUSTOMERS, HARM TO OUR REPUTATION AND A
REDUCTION OF PRODUCT SALES AND REVENUE.
Our
network storage products are highly technical and complex and are often used to
store information critical to our customers’ business operations. Our products
have contained and may contain undetected errors, defects or security
vulnerabilities that could result in data unavailability, loss or corruption or
other harm to our customers. Some errors in our products may only be discovered
after they have been installed and used by customers. Any errors, defects or
security vulnerabilities discovered in our products after commercial release, as
well as any computer virus or human error on the part of our customer support or
other personnel resulting in a customer’s data unavailability, loss or
corruption could result in a loss of customers or increased support and warranty
costs, any of which may adversely affect our business, operating results and
financial condition. In addition, we could face claims for product liability,
tort or breach of warranty, including claims relating to changes to our products
made by our partners. Our contracts with customers contain provisions relating
to warranty disclaimers and liability limitations, which may be difficult to
enforce. Defending a lawsuit, regardless of its merit, could be costly and might
divert management’s attention and adversely affect the market’s perception of us
and our products. In addition, if our business liability insurance coverage
proves inadequate for a claim, or future coverage is unavailable on acceptable
terms or at all, our product sales and revenue could be reduced.
In
December 2005 and as amended during fiscal 2006 and fiscal 2008, we entered into
a Finance Agreement with Sand Hill Finance, LLC for a $2.75 million accounts
receivable factoring line. Under the terms of this agreement we agreed not to
take certain actions including undertaking a transaction which would result in a
change of control of our company or the transfer of more than 20% of our
securities and incurring any indebtedness other than trade credit in the
ordinary course of business. These restrictions may limit our ability to raise
working capital as needed.
OUR
PRIMARY ASSETS SERVE AS COLLATERAL UNDER OUR ACCOUNTS RECEIVABLE FACTORING LINE.
IF WE WERE TO DEFAULT ON THIS AGREEMENT, THE LENDER COULD FORECLOSE ON OUR
ASSETS.
The
revolving line with Sand Hill Finance, LLC is collateralized by a blanket
security interest in our assets. If we were to default on this agreement, the
lender could seek to foreclose on our primary assets. If the lender was
successful, we would be unable to conduct our business as it is presently
conducted and our ability to generate sales and fund our ongoing operations
would be materially adversely affected.
WE
DO NOT HAVE A DISASTER RECOVERY PLAN AND WE DO NOT CARRY BUSINESS INTERRUPTION
INSURANCE.
Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-ins
and similar events. Our headquarters are physically located in Fairfax County,
Virginia, a Washington, DC suburb, in close proximity to the US Capitol, White
House, Pentagon, CIA, and numerous other agencies within the intelligence
community. All these government installations are considered potential targets
of any future terrorist attacks. We do not currently have a disaster recovery
plan, nor do we carry business interruption insurance to compensate our company
for losses that may occur. We are also vulnerable to computer viruses and/or
physical disruptions, which could lead to interruptions, delays, loss of data or
the inability to accept orders. The occurrence of any of the foregoing events
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
OUR
MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR ACQUISITIONS AND TO MANAGE
OUR GROWTH AND WE MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS OF
THESE ACQUISITIONS.
Our
business strategy includes growth through acquisition and internal development.
We are subject to various risks associated with our growth strategy, including
the risk that we will be unable to identify and recruit suitable acquisition
candidates in the future or to integrate and manage the acquired companies.
Acquired companies’ histories, geographical locations, business models and
business cultures can be different from ours in many respects. Our directors and
senior management face a significant challenge in their efforts to integrate our
businesses and the business of the acquired companies or assets, and to
effectively manage our continued growth. There can be no assurance that our
efforts to integrate the operations of any acquired assets or companies acquired
in the future will be successful, that we can manage our growth or that the
anticipated benefits of these proposed acquisitions will be fully realized. The
dedication of management resources to these efforts may detract attention from
our day-to-day business. There can be no assurance that there will not be
substantial costs associated with these activities or of the success of our
integration efforts, either of which could have a material adverse effect on our
operating results.
WE
HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE
ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR
MATTERS.
Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or The Nasdaq Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of
directors’ independence, audit committee oversight, and the adoption of a code
of ethics. Because our stock is not listed on an exchange we are not required to
adopt these corporate governance standards. While our board of directors has
adopted a Code of Ethics and Business Conduct and our Board has established
Audit and Compensation Committees, we have not adopted all of the corporate
governance measures which we might otherwise have been required to adopt if our
securities were listed on a national securities exchange. It is possible that if
we were to adopt all of these corporate governance measures, stockholders would
benefit from somewhat greater assurances that internal corporate decisions were
being made by disinterested directors and that policies had been implemented to
define responsible conduct. Prospective investors should bear in mind our
current lack of corporate governance measures in formulating their investment
decisions.
THE
EXERCISE OF WARRANTS AND OPTIONS AND THE CONVERSION OF SHARES OF OUR SERIES B
CONVERTIBLE PREFERRED STOCK WILL BE DILUTIVE TO OUR EXISTING
STOCKHOLDERS.
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68,469,617
shares of our common stock,
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626,667
shares of Series B Convertible Preferred Stock owned by our Chief
Executive Officer which is convertible into 626,667 shares of our common
stock,
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common
stock purchase warrants to purchase a total of 225,000 shares of our
common stock with exercise prices ranging from $0.50 to $8.00 per share,
and
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Stock
options granted under our 2000 Management and Director Equity Incentive
and Compensation Plan which are exercisable into 10,944,483 shares of our
common stock with a weighted average exercise price of $0.27 per
share.
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CERTAIN
OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE PROVISIONS WHICH MEANS WE
WILL NOT RECEIVE ANY CASH PROCEEDS UPON THEIR EXERCISE.
In
December 2005, we issued a seven year common stock purchase warrant to purchase
25,000 shares of our common stock with an exercise price of $1.00 per share in
connection with our accounts receivable financing agreement with Sand Hill
Finance, LLC.
These
warrants were exercisable on a cashless basis which means that the holders,
rather than paying the exercise price in cash, may surrender a number of
warrants equal to the exercise price of the warrants being exercised. The
utilization of this cashless exercise feature deprived us of additional capital
which might otherwise be obtained if the warrants did not contain a cashless
feature.
PROVISIONS
OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A TAKE-OVER
WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.
Provisions
of our certificate of incorporation and bylaws may be deemed to have
anti-takeover effects, which include when and by whom special meetings of our
stockholders may be called, and may delay, defer or prevent a takeover attempt.
In addition, certain provisions of the Delaware General Corporations Law also
may be deemed to have certain anti-takeover effects which include that control
of shares acquired in excess of certain specified thresholds will not possess
any voting rights unless these voting rights are approved by a majority of a
corporation’s disinterested stockholders.
In
addition, our certificate of incorporation authorizes the issuance of up to
10,000,000 shares of preferred stock with such rights and preferences as may be
determined from time to time by our Board of Directors. We presently have
outstanding 626,667 shares of Series B Convertible Preferred Stock and have a
commitment to issue up to $3,000,000 of shares of Series C Preferred
Stock. Our Board of Directors may, without stockholder approval,
issue additional series of preferred stock with dividends, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of our common stock.
OUR
COMMON STOCK COULD BE REMOVED FROM QUOTATION ON THE OTCBB IF WE FAIL TO TIMELY
FILE OUR ANNUAL OR QUARTERLY REPORTS. IF OUR COMMON STOCK WAS NO LONGER ELIGIBLE
FOR QUOTATION ON THE OTCBB, THE LIQUIDITY OF OUR STOCK MAY BE FURTHER ADVERSELY
IMPACTED.
Under the
rules of the Securities and Exchange Commission we are required to file our
quarterly reports within 45 days from the end of the fiscal quarter and our
annual report within 90 days from the end of our fiscal year. Under rules
adopted by the Financial Industry Regulatory Authority (FINRA) in 2005 which is
informally known as the “Three Strikes Rule”, a FINRA member is prohibited from
quoting securities of an OTCBB issuer such as our company if the issuer either
fails to timely file these reports or is otherwise delinquent in the filing
requirements three times in the prior two year period or if the issuer’s common
stock has been removed from quotation on the OTCBB twice in that two year
period. We failed to file this annual report on a timely basis. If we were to
fail to file two additional reports on a timely basis our stock would be removed
from quotation on the OTCBB and would in all likelihood then be quoted on the
Pink Sheets Electronic Quotation Service. Pink Sheets offers a quotation service
to companies that are unable to list their securities on the OTCBB or an
exchange. The requirements for listing on the Pink Sheets are considerably lower
and less regulated than those of the OTCBB an exchange. If our common stock were
to be quoted on the Pink Sheets, it is possible that even fewer brokers or
dealers would be interested in making a market in our common stock which would
further adversely impact its liquidity.
THE
APPLICATION OF THE “PENNY STOCK” RULES TO OUR COMMON STOCK COULD LIMIT THE
TRADING AND LIQUIDITY OF OUR COMMON STOCK, ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK AND INCREASE STOCKHOLDER TRANSACTION COSTS TO SELL THOSE
SHARES.
As long
as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be subject to the “penny stock”
rules, unless we otherwise qualify for an exemption from the “penny stock”
definition. The “penny stock” rules impose additional sales practice
requirements on certain broker-dealers who sell securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). These regulations, if they apply, require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks. Under these
regulations, certain brokers who recommend such securities to persons other than
established customers or certain accredited investors must make a special
written suitability determination regarding such a purchaser and receive such
purchaser’s written agreement to a transaction prior to sale. These regulations
may have the effect of limiting the trading activity of our common stock,
reducing the liquidity of an investment in our common stock and increasing the
transaction costs for sales and purchases of our common stock as compared to
other securities.
THE
MARKET PRICE FOR OUR COMMON STOCK MAY BE PARTICULARLY VOLATILE GIVEN OUR STATUS
AS A RELATIVELY UNKNOWN COMPANY WITH A LACK OF PROFITS, WHICH COULD LEAD TO WIDE
FLUCTUATIONS IN OUR SHARE PRICE. THE PRICE AT WHICH STOCKHOLDERS PURCHASE SHARES
OF OUR COMMON STOCK MAY NOT BE INDICATIVE OF THE PRICE OF OUR COMMON STOCK THAT
WILL PREVAIL IN THE TRADING MARKET.
The
market for our common stock has been characterized by significant price
volatility when compared to seasoned issuers, and we expect that our stock price
could continue to be more volatile than a seasoned issuer for the indefinite
future. The potential volatility in our share price is attributable to a number
of factors. First, there has been limited trading in our common stock. As a
consequence of this lack of liquidity, any future trading of shares by our
stockholders may disproportionately influence the price of those shares in
either direction. Second, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk averse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors will be beyond our control and may decrease the market price of
our common stock, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
stock will be at any time or as to what effect that the sale of shares or the
availability of shares for sale at any time will have on the prevailing market
price.
In
addition, the market price of our common stock could be subject to wide
fluctuations in response to:
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quarterly
variations in our sales and operating
expenses;
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announcements
of new products or services by us;
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fluctuations
in interest rates;
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significant
sales of our common stock;
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the
operating and stock price performance of other companies that investors
may deem comparable to us; and
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news
reports relating to trends in our markets or general economic
conditions.
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SHARES
ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended, subject to certain limitations. In general, pursuant to Rule 144, a
stockholder (or stockholders whose shares are aggregated) who is not an
affiliate of our company and who has satisfied a six month holding period may,
as long as we are current in our required filings with the SEC, sell securities
without further limitation. Rule 144 also permits, under certain circumstances,
the sale of securities, without any limitations, by a non-affiliate of our
company who has satisfied a one-year holding period. Affiliates of our company
who have satisfied a six month holding period may sell securities subject to
volume limitations. Any substantial sale of our common stock pursuant to Rule
144 or pursuant to any resale prospectus may have an adverse effect on the
market price of our securities. Currently, almost all of our securities are
either free trading or subject to the release of trading restrictions under the
six month or one year holding periods of Rule 144.
COMPLIANCE
WITH THE RULES ESTABLISHED BY THE SEC PURSUANT TO SECTION 404 OF THE
SARBANES-OXLEY ACT OF 2002 WILL BE COMPLEX. FAILURE TO COMPLY IN A TIMELY MANNER
COULD ADVERSELY AFFECT INVESTOR CONFIDENCE AND OUR STOCK PRICE.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require us to perform an annual assessment of our internal controls over
financial reporting and certify the effectiveness of those controls. The
standards that must be met for management to assess the internal controls over
financial reporting as now in effect are complex, and require significant
documentation, testing and possible remediation to meet the detailed standards.
We may encounter problems or delays in completing activities necessary to make
an assessment of our internal controls over financial reporting. In addition,
the attestation process is new for us and we may encounter problems or delays in
completing the implementation of any requested improvements and receiving an
attestation of the assessment by our independent registered public accountants.
If we cannot perform the assessment or certify that our internal controls over
financial reporting are effective, or our independent registered public
accountants are unable to provide an unqualified attestation on such assessment,
investor confidence and share value may be negatively impacted.
ITEM
1B.
UNRESOLVED STAFF COMMENTS.
Not applicable to a smaller reporting
company.
ITEM
3. LEGAL
PROCEEDINGS.
At
September 30, 2009 we are the subject of, or party to, eight known, pending or
threatened, legal actions. As of the date of this report on Form
10-K, none of the legal proceedings have been resolved. Following is
a discussion of each:
1. We
were named as the defendant in a legal proceeding brought by Avnet, Inc. (the
plaintiff) in the United States District Court for the Eastern District of
Virginia, Alexandria Division. The plaintiff asserts that the Company
breached purchase orders to which the plaintiff was a party involving the
purchase of goods and services from plaintiff.
2. We
were named as the defendant in a legal proceeding brought by Patriot
Technologies, Inc. (the plaintiff) in the United States District Court for the
Eastern District of Virginia, Alexandria Division. The plaintiff
asserts that the Company is liable for a judgment plaintiff holds against Iceweb
Virginia, Inc. Iceweb Virginia, Inc. was sold by the Company in 2009
and recently filed Chapter 7 bankruptcy proceedings.
3. We
were named as the defendant in a legal proceeding brought by Xyratex
International, Inc. (the plaintiff) in the Fairfax County Circuit Court,
Fairfax, Virginia. The plaintiff asserts that Iceweb failed to pay
for certain computer components purchased from plaintiff.
4. We
were named as the defendant in a legal proceeding brought by Vencore Solutions,
LLC (the plaintiff) in the Circuit Court of the State of Oregon for the County
of Multnomah. The plaintiff asserts that Iceweb failed to make
certain lease payments.
5. We
were named as the defendant in a legal proceeding brought by Immixtechnology,
Inc. (the plaintiff) in the Fairfax County Circuit Court, Fairfax,
Virginia. The plaintiff asserts that Iceweb failed to pay for certain
computer components purchased from plaintiff.
6. We
were named as the defendant in a legal proceeding brought by International
Business Machines Corporation-IBM Internet Security Systems Division (the
plaintiff) in the Supreme Court f the State of New York, County of
Westchester. The plaintiff asserts that the Company failed to pay
certain invoices for goods or services sold to IceWeb Virginia, Inc. by
plaintiff for resale to its customers.
7. We
were named as the defendant in a legal proceeding brought by Controlling Assets,
LLC (the plaintiff) in the Fairfax County Circuit Court, Fairfax,
Virginia. The plaintiff asserts that Iceweb failed to pay rents and
other charges for office and warehouse space in Loudoun County,
Virginia.
8. We
were named as the defendant in a legal proceeding brought by Charles Rothermel
(the plaintiff) in the Equal Opportunity Commission. The plaintiff
asserts that Iceweb discriminated against him on the basis of age.
From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART
II
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
|
Our
common stock is quoted on the OTCBB under the symbol IWEB. The reported high and
low bid prices for the common stock as reported on the OTCBB are shown below for
the periods indicated. The quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions.
|
|
High
|
|
|
Low
|
|
Fiscal 2008
|
|
|
|
|
|
|
First
quarter ended December 31, 2007
|
|
$ |
0.65 |
|
|
$ |
0.45 |
|
Second
quarter ended March 31, 2008
|
|
$ |
0.59 |
|
|
$ |
0.28 |
|
Third
quarter ended June 30, 2008
|
|
$ |
0.62 |
|
|
$ |
0.29 |
|
Fourth
quarter ended September 30, 2008
|
|
$ |
0.35 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
First
quarter ended December 31, 2008
|
|
$ |
0.18 |
|
|
$ |
0.04 |
|
Second
quarter ended March 31, 2009
|
|
$ |
0.15 |
|
|
$ |
0.05 |
|
Third
quarter ended June 30, 2009
|
|
$ |
0.11 |
|
|
$ |
0.05 |
|
Fourth
quarter ended September 30, 2009
|
|
$ |
0.14 |
|
|
$ |
0.05 |
|
As of
December 21, 2009 the last sale price of our common shares as reported on the
OTC Bulletin Board was $0.12 per share. As of December 20, 2009,
there were approximately 1,875 record owners of our common stock.
Dividend
Policy
We have
never paid cash dividends on our common stock. Under Delaware law, we may
declare and pay dividends on our capital stock either out of our surplus, as
defined in the relevant Delaware statutes, or if there is no such surplus, out
of our net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. If, however, the capital of our company, computed in
accordance with the relevant Delaware statutes, has been diminished by
depreciation in the value of our property, or by losses, or otherwise, to an
amount less than the aggregate amount of the capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets, we are prohibited from declaring and paying out of such net profits
any dividends upon any shares of our capital stock until the deficiency in the
amount of capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets shall have been
repaired.
We do not
anticipate that any cash dividends will be declared or paid on our common stock
in the foreseeable future.
RECENT
SALES OF UNREGISTERED SECURITIES
On
October 28, 2008 we issued 3,431,680 shares of restricted common stock at a per
share price of $0.07, valued at $240,218, in lieu of pay to our
employees. 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
February 18, 2009 we issued 480,000 shares of restricted common stock at a per
share price of $0.14, valued at $67,200, in lieu of pay to our
employees. 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 March
26, 2009 we issued 6,243,581shares of restricted common stock at a per share
price of $0.09, valued at $560,305, in lieu of pay to our
employees. 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 August
19, 2009 we issued 3,000,000 shares of restricted common stock at a per share
price of $0.10, valued at $300,000, in lieu of pay to our
employees. 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 August
10, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.08,
valued at $80,000 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
September 2, 2009, we issued 1,500,000 shares of our common stock valued at
$120,000 in satisfaction of debt in the amount of $120,000, which related to
services rendered to us. The recipient was 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
November 2, 2009, we sold 1,500,000 shares of common stock at a per share price
of $0.10, valued at $150,000 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.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table sets forth securities authorized for issuance under equity
compensation plans, including individual compensation arrangements, by us under
our 2000 Management and Director Equity Incentive and Compensation Plan and any
compensation plans not previously approved by our stockholders as of September
30, 2009.
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
|
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants and
rights (b
|
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected
in column (a)) (c)
|
|
Plan
category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans
approved by our stockholders:
|
|
|
|
|
|
|
|
|
|
2000
Management and Director Equity Incentive and Compensation
Plan
|
|
|
10,944,483 |
|
|
$ |
0.27 |
|
|
|
25,305,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans
not approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
0 |
|
|
|
n/a |
|
|
|
n/a |
|
A
description of each of these plans is contained later in this report under Part
III Item 10. Executive Compensation – Stock Option Plan.
Not
applicable for a smaller reporting company.
ITEM
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
INTRODUCTION
Management’s
discussion and analysis of financial condition and results of operations is
provided as a supplement to the accompanying consolidated statements and
footnotes to help provide an understanding of our financial condition, the
changes in our financial condition and the results of operations. Our discussion
is organized as follows:
•
|
|
Overview. This section
provides a general description of our business, as well as recent
significant transactions and events that we believe are important in
understanding the results of operations, as well as to anticipate future
trends in those operations.
|
|
|
|
•
|
|
Results of operations.
This section provides an analysis of our results of operations
presented in the accompanying consolidated statements of operations by
comparing the results for fiscal 2009 to fiscal
2008.
|
•
|
|
Financial condition, liquidity
and capital resources. This section provides an analysis of our
cash flows, working capital and financial commitments, as well as a
discussion of our outstanding debt that existed as of September 30, 2009.
Included in the discussion of outstanding debt is a discussion of the
amount of financial capacity available to fund our future commitments, as
well as a discussion of other financing arrangements.
|
|
|
|
•
|
|
Critical accounting estimates.
This section discusses those accounting policies that both are
considered important to our financial condition and results, and require
significant judgment and estimates on the part of management in their
application. In addition, all of our significant accounting policies,
including critical accounting policies, are summarized in Note 2 to the
accompanying consolidated financial
statements.
|
•
|
|
Recent accounting
pronouncements. This section discusses new accounting
pronouncements, dates of implementation and impact on our accompanying
consolidated financial statements, if
any.
|
Results
of Operations
FISCAL
YEAR 2009 AS COMPARED TO FISCAL YEAR 2008
The
following table provides an overview of certain key factors of our results of
operations for fiscal year 2009 as compared to fiscal year 2008:
|
|
Fiscal Year Ended
September 30,
|
|
|
$
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
Sales
|
|
$ |
3,934,684 |
|
|
$ |
16,294,423 |
|
|
$ |
(12,359,739 |
) |
|
|
(76
|
)% |
Cost
of sales
|
|
|
2,674,692 |
|
|
|
14,067,629 |
|
|
|
(11,392,937
|
) |
|
|
(81
|
)% |
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
81,636 |
|
|
|
192,595 |
|
|
|
(110,959
|
) |
|
|
(58
|
)% |
Depreciation
and amortization
|
|
|
742,636 |
|
|
|
575,499 |
|
|
|
167,137 |
|
|
|
29
|
% |
Research
and development
|
|
|
336,616 |
|
|
|
303,526 |
|
|
|
33,090 |
|
|
|
11
|
% |
General
and administrative
|
|
|
4,625,113 |
|
|
|
6,910,039 |
|
|
|
(2,284,926 |
) |
|
|
(33
|
)% |
Total
operating expenses
|
|
|
5,786,001 |
|
|
|
7,981,659 |
|
|
|
(2,195,658 |
) |
|
|
(27
|
)% |
Loss
from operations
|
|
|
(4,526,009
|
) |
|
|
(5,754,865
|
) |
|
|
1,228,856 |
|
|
|
21
|
% |
Total
other income (expense)
|
|
|
1,999,407 |
|
|
|
(655,928
|
) |
|
|
2,655,335 |
|
|
|
405
|
% |
Net
loss
|
|
$ |
(2,526,602 |
) |
|
$ |
(6,410,793 |
) |
|
$ |
(3,884,191 |
) |
|
|
(61
|
)% |
Other
Key Indicators:
|
|
Fiscal
2009
|
|
|
Fiscal
2008
|
|
|
%
Change
|
|
Cost
of sales as a percentage of sales
|
|
|
68.0 |
% |
|
|
86.3 |
% |
|
|
(18.4 |
)% |
Gross
profit margin
|
|
|
32.0 |
% |
|
|
13.7 |
% |
|
|
18.4 |
% |
General
and administrative expenses as a percentage of sales
|
|
|
117.6 |
% |
|
|
42.4 |
% |
|
|
(75.1 |
)% |
Total
operating expenses as a percentage of sales
|
|
|
147.0 |
% |
|
|
49.0 |
% |
|
|
(98.1 |
)% |
Sales
Our sales
decreased approximately 76% in fiscal year 2009 from fiscal year
2008. Of our total net sales for fiscal 2009, approximately
$1,692,102 is attributable to third party product sales by our IceWEB Virginia,
Inc subsidiary, approximately $1,964,912 is attributable to our sale of storage
products, and approximately $277,670 is attributable to sales from our online
products and services. Of our total net sales for fiscal 2008, approximately
$14,886,699 is attributable to third party product sales by our IceWEB Virginia,
Inc. subsidiary, approximately $982,049 is attributable to our sale of storage
products, and approximately $425,675 is attributable to sales from our online
products and services.
The
decrease in fiscal 2009 net sales from fiscal 2008 is primarily due to a
decrease in our third party product sales through our IceWEB Virginia, Inc., as
we have refocused our efforts on our leading edge storage
products. As described elsewhere herein, in March 2009 we sold our
IceWEB Virginia, Inc. subsidiary, and, accordingly, our revenues in fiscal year
2010 will be accordingly impacted. We anticipate revenues for fiscal
2010 will increase due to sales of our Unified Network Storage Solutions and
other data storage products.
.
Cost of Sales and Gross
Profit
Our cost
of sales consists primarily of products purchased to manufacture our storage
products and for resale by our IceWEB Virginia, Inc. subsidiary. For
fiscal 2009, cost of sales was approximately 68.0% of sales, as compared to
approximately 86.3% of sales, for fiscal 2008. The decrease in costs of sales as
a percentage of revenue and the corresponding increase in our gross profit
margin for fiscal 2009 as compared to fiscal 2008 was the result of an increase
in higher margin storage sales in fiscal 2009. We anticipate that our cost of
sales as a percentage of revenue will drop to approximately 50% in fiscal 2010,
as 95% of our fiscal 2010 revenues are expected to come primarily from our
higher margin storage business.
Total
Operating Expenses
Our total
operating expenses decreased approximately 27% for fiscal 2009 as compared to
fiscal 2008. The decrease is primarily due to a corporate initiative
to reduce costs across the board, including the consolidation of office
locations and the reduction of headcount. This decrease
includes:
• Marketing and Selling. For
fiscal 2009, marketing and selling costs decreased approximately 58% from fiscal
2008. This decrease was primarily due to a decrease in online web
marketing, advertising and print advertising during fiscal 2009We anticipate
that our marketing and selling expenses will increase in fiscal 2010 as we
execute on our plan to increase our storage sales.
• Depreciation and amortization
expense. For fiscal 2009, depreciation and amortization expense increased
approximately 29% from fiscal 2008. The increase in depreciation of
$172,278 was attributable to the acquisition in December 2007 of Inline
Corporation.
Amortization expense is related to the
customer relationships and manufacturing GSA schedule which are intangible
assets that we generated through our acquisition of Inline Corporation. It also
includes the amortization of the value of the GSA schedule which was acquired as
part of the True North Solutions Group acquisition up to the date of the sale of
Iceweb Virginia, Inc. in March, 2009. These GSA schedules are being
amortized on a straight-line basis over three years. For fiscal 2009,
amortization expense was $289,003 as compared to $294,144 for fiscal 2008. The
decrease in amortization expense of $5,141 is due to the sale of the GSA
schedule as part of the sale of our IceWEB Virginia, Inc.
subsidiary.
• Research
and development expense. For fiscal 2009, research and development
expenses increased approximately 11% from fiscal 2008. This increase
is related to increased research and development efforts related to our storage
products. We anticipate the spending on research and development in
fiscal 2010 will be approximately $100,000 per quarter related to developing and
enhancing our storage solutions and pursuing intellectual property patents when
we believe it is warranted
• General and administrative
expense. For fiscal 2009, general and administrative expenses decreased
approximately 33% from fiscal 2008. This decrease is primarily attributable to a
Company-wide initiative to reduce costs, including reductions in headcount,
consolidation and relocation of office space, and reduced travel and
entertainment activity. For fiscal 2009 and 2008, general and
administrative expenses consisted of the following:
|
|
2009
|
|
|
2008
|
|
Salaries/benefits
|
|
$ |
3,883,647 |
|
|
$ |
4,544,682 |
|
Occupancy
|
|
|
68,553 |
|
|
|
301,313 |
|
Professional
fees
|
|
|
82,929 |
|
|
|
93,365 |
|
Other
|
|
|
149,050 |
|
|
|
524,935 |
|
Consulting
|
|
|
85,738 |
|
|
|
197,082 |
|
Investor
Relations
|
|
|
173,686 |
|
|
|
904,537 |
|
Travel/Entertainment
|
|
|
57,105 |
|
|
|
125,729 |
|
Internet/Phone
|
|
|
54,649 |
|
|
|
93,638 |
|
Leased
Equipment
|
|
|
4,918 |
|
|
|
66,424 |
|
Insurance
|
|
|
59,072 |
|
|
|
48,768 |
|
Licenses
|
|
|
5,766 |
|
|
|
9,566 |
|
|
|
$ |
4,625,113 |
|
|
$ |
6,910,039 |
|
•
|
For
fiscal 2009, salaries and related taxes and benefits decreased
approximately 14.5% from fiscal 2008. The decrease was primarily
attributable cost cutting measures undertaken by us, including the
reduction of headcount. In addition, there was an increase in
expense in accordance with ASC Topic 718, “Compensation – Stock
Compensation (Formerly SFAS No. 123 (R), “Share-Based
Payments”), expense for fiscal 2009 of $394,274, or 19.8%, which relates
to the granting of stock options in fiscal 2009 to members of the board of
directors, executive officers, and
employees.
|
•
|
For
fiscal 2009, occupancy expense decreased approximately 77.2% from fiscal
2008. The decrease was due to consolidation and relocation of
office locations.
|
•
|
For
fiscal 2009, professional fees decreased approximately 11.2% from fiscal
2008. The decrease was primarily attributable to a decrease in legal fees
incurred to litigate and settle lawsuits against us, which occurred in
fiscal 2008.
|
•
|
For
fiscal 2009, other expense decreased approximately 71.6% from fiscal 2008.
The decrease is primarily due to non-recurring expenses incurred in fiscal
2008, including the accrued costs to settle potential litigation of
$165,000, a decrease in hosting fees of $56,687, a decrease in web
development expense of $55,475, and property taxes related to the former
Inline office space of $18,169. Other expenses were down across
the board in fiscal 2009 versus fiscal 2008, driven by cost-cutting
measures adopted by us.
|
•
|
For
fiscal 2009, consulting expense decreased by approximately 56.5% from
fiscal 2008. The decrease was primarily due to non-recurring consulting
fees related to the acquisition of Inline Corporation in fiscal
2008.
|
•
|
For
fiscal 2009, investor relations expense decreased approximately 80.8% from
fiscal 2008. The decrease was attributable to a decrease in general
investor relations activity versus fiscal 2008. We expect that
in fiscal 2010 our investor relations activity and related expense will be
substantially flat.
|
•
|
For
fiscal 2009, internet and telephone expense decreased approximately 41.6%.
The decrease was attributable to cost cutting measures adopted by us,
including reduced headcount.
|
•
|
For
fiscal 2009, travel and entertainment expense decreased approximately
54.6%. The decrease was attributable to cost cutting measures adopted by
us, and a decrease in general business, sales, and travel-related investor
relations activity.
|
•
|
For
fiscal 2009, insurance expense increased approximately 21.1% from fiscal
2008. The increase was attributable to higher premiums paid for general
business and directors and officer’s
insurance.
|
LOSS FROM
OPERATIONS
Our loss
from operations decreased approximately 21.4% in fiscal year 2009 as compared to
fiscal year 2008. This decrease is primarily the result of
significant reductions in operating expenses, offset by a significant decrease
in sales.
TOTAL
OTHER INCOME (EXPENSES)
Gain (loss) from sale of
assets. During fiscal 2009 we recorded a gain of $2,666,236 on the sale
of our IceWEB Virginia, Inc. subsidiary. We did not have a comparable
transaction in fiscal 2008.
Interest Expense. For fiscal
2009, interest expense increased approximately 1%. The increase in interest
expense is primarily attributable to higher average outstanding note balances
during fiscal 2009, and higher deferred loan fee amortization in fiscal 2009 of
$30,248 as compared to deferred loan fee amortization of $16,196 in fiscal
2008.
NET
LOSS
Our net
loss was $2,526,602 for fiscal 2009 compared to $6,410,793 for fiscal 2008, an
improvement of $3,884,191 or approximately 61%.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is the ability of a company to generate adequate amounts of cash to meet its
needs for cash.
At
September 30, 2009, we had a working capital deficit of $(3,158,232) compared to
a working capital deficit of $(5,572,672) at September 30, 2008, a decrease of
$2,414,440. The decrease in the deficit is primarily attributable to
the sale of IceWEB Virginia, Inc. in March, 2009, which resulted in a decrease
in accounts payable of $2,865,801. In addition, the changes are
primarily attributable to the decreases in accounts payable and accrued expenses
of $3,017,502, offset by the decrease in accounts receivable of $2,669,191. Also
contributing was the decrease in prepaid expenses of $29,975, the decrease in
net inventory of $248,951, and the decrease in deposits of $33,032, offset by
the decrease in deferred revenue of $2,902.
Net cash
used in operating activities was $2,145,514 for fiscal 2009 as compared to net
cash provided by operating activities of $862,691 for fiscal 2008, an increase
of $3,008,205. For fiscal 2009, our cash used in operations of
$2,145,514 consisted of a net loss of $2,526,602, offset by non-cash items
totaling $3,086,579 including items such as depreciation and amortization of
$739,973, stock based compensation of $1,167,724, the amortization of deferred
compensation of $1,016,134, and other non-cash items of
$162,748. Additionally, during fiscal 2009 we had a decrease in
operating liabilities and a decrease in operating assets which offset our net
loss. This change in operating assets and liabilities primarily consisted of a
decrease in accounts receivable of $2,669,191 attributable to a decrease in
annual sales, and a decrease in prepaid expenses of $29,975, a decrease in
deposits of $33,032, and a decrease in net inventory of $248,951, offset by a
decrease in accounts payable and accrued liabilities of $3,017,502 and an
increase in deferred revenue of $2,903.
For fiscal 2008, our cash provided by operations of $862,691 consisted of
a net loss of $6,410,793, offset by non-cash items totaling $7,058,551 including
items such as depreciation and amortization of $575,499, stock based
compensation of $1,573,363, the amortization of deferred compensation of
$910,930, and other non-cash items of $16,196. Additionally, during fiscal 2008
we had an increase in operating liabilities and a decrease in operating assets
which offset our net loss. This change in operating assets and liabilities
primarily consisted of a decrease in accounts receivable of $2,887,773
attributable to a decrease in fourth quarter sales, an increase in accounts
payable and accrued liabilities of $1,342,947, offset by an increase in
inventory of $2,647.
Net cash used in investing activities for
fiscal 2009 was $99,762 as compared to net cash used in investing activities of
$2,111,749 for fiscal 2008. During fiscal 2009 we used cash of
$99,762 for property and equipment purchases. During fiscal 2008, net cash used
in investing activities was $2,111,749. During fiscal 2008, we
acquired Inline Corporation and in connection therewith used net cash of
$1,925,128. Additionally, we used cash of $186,621 for property and
equipment purchases.
Net cash
provided by financing activities for fiscal 2009 was $2,303,806 as compared to
$161,368 for fiscal 2008, an increase of $2,142,438. The primary
reason for the increase was due to the proceeds from the exercise of common
stock options of $979,300, the sale of common stock of $207,000 and the net
increase in borrowings from Sand Hill Finance of $545,233.
At
September 30, 2009 we had an accumulated deficit of $22,658,558 and the report
from our independent registered public accounting firm on our audited financial
statements at September 30, 2009 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. In spite of our sales, there is no assurance that we will
be able to maintain or increase our sales in fiscal 2009 or that we will report
net income in any future periods.
We do not
have any working capital commitments nor do we not presently have any external
sources of working capital. Historically, our sales 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 September 30, 2009 we had cash on hand of $63,310. In
addition to the cash necessary to fund our operating losses, research and
development, marketing and general growth, we will need cash to satisfy certain
obligations. 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 $1.8 million. This financing agreement was
amended in fiscal 2008 to increase the line amount to $2,750,000, and to add an
18 month term loan of $1,000,000 with an interest rate of 24% per
annum. As of September 30, 2009, we had $967,490 available under the
line of credit facility. Also, in July 2006, we entered into what is
in essence a sale and leaseback agreement with respect to certain computer and
office equipment. This agreement has expired and we are in default under the
agreement. We have accrued for the remaining liability under this
agreement, and the amount is included in our accounts payable and accrued
liabilities on our balance sheet at September 30, 2009.
Our
working capital needs in future periods depend primarily on the rate at which we
can increase our sales 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. 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 also 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 fund our working capital needs will 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 sales 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.
Off
Balance Sheet Arrangements.
None.
Recent
Accounting Pronouncements
Accounting
Standards Codification
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Codification (“ASC”) 105, FASB Accounting Standards
Codification (“ASC 105”). The statement confirmed that the FASB Accounting
Standards Codification (the “Codification”) is the single official source of
authoritative GAAP (other than guidance issued by the SEC), superseding existing
FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force, and related literature. The Codification does not change GAAP. Instead,
it introduces a new structure that is organized in an easily accessible,
user-friendly online research.
Recent Accounting
Pronouncements
In
June 2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally
Accepted Accounting Principles” (ASC Topic 105) which establishes the
FASB Accounting Standards Codification (“the Codification” or “ASC”)
as the official single source of authoritative U.S. generally accepted
accounting principles (“GAAP”). All existing accounting standards are
superseded. All other accounting guidance not included in the Codification will
be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same
topical structure in separate sections within the Codification.
Following
the Codification, the Board will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to
update the Codification, provide background information about the guidance and
provide the basis for conclusions on the changes to the
Codification.
The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our third-quarter
2009 financial statements and the principal impact on our financial statements
is limited to disclosures as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. In order to
ease the transition to the Codification, we are providing the Codification
cross-reference alongside the references to the standards issued and adopted
prior to the adoption of the Codification.
In April
2009, the FASB issued FASB Staff Positions FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (ASC Topic 320-10-65).
This update provides guidance for allocation of charges for other-than-temporary
impairments between earnings and other comprehensive income. It also
revises subsequent accounting for other-than-temporary impairments and expands
required disclosure. The update was effective for interim and annual periods
ending after June 15, 2009. The adoption of FAS 115-2 and FAS 124-2 did not have
a material impact on the results of operations and financial
condition.
In April
2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures About
Fair Value of Financial Instruments” (ASC Topic 320-10-65). This update
requires fair value disclosures for financial instruments that are not currently
reflected on the balance sheet at fair value on a quarterly basis and is
effective for interim periods ending after June 15, 2009. The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and notes
payable. At September 30, 2009 and September 30, 2008 the carrying
value of the Companies financial instruments approximated fair value, due to
their short term nature.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic 855). This
guidance is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. It is effective for
interim and annual reporting periods ending after June 15, 2009. The
adoption of this guidance did not have a material impact on
our consolidated financial statements. The Company evaluated all
events and transactions that occurred after September 30, 2009 up through
December 22, 2009. During this period no material subsequent events
came to our attention.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (ASC Topic 810-10). This updated guidance requires a qualitative approach
to identifying a controlling financial interest in a variable interest entity
(VIE), and requires ongoing assessment of whether an entity is a VIE and whether
an interest in a VIE makes the holder the primary beneficiary of the VIE. It is
effective for annual reporting periods beginning after November 15, 2009. We are
currently evaluating the impact of the pending adoption of SFAS No. 167 on
our consolidated financial statements.
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue
Arrangements.” This ASU establishes the accounting and reporting guidance for
arrangements including multiple revenue-generating activities. This ASU provides
amendments to the criteria for separating deliverables, measuring and allocating
arrangement consideration to one or more units of accounting. The amendments in
this ASU also establish a selling price hierarchy for determining the selling
price of a deliverable. Significantly enhanced disclosures are also required to
provide information about a vendor’s multiple-deliverable revenue arrangements,
including information about the nature and terms, significant deliverables, and
its performance within arrangements. The amendments also require providing
information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The Company is currently evaluating this new
ASU.
In
October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements
That Include Software Elements.” This ASU changes the accounting model for
revenue arrangements that include both tangible products and software elements
that are “essential to the functionality,” and scopes these products out of
current software revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered “essential to the
functionality.” The amendments will now subject software-enabled products to
other revenue guidance and disclosure requirements, such as guidance surrounding
revenue arrangements with multiple-deliverables. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The Company is currently evaluating this new
ASU.
ITEM
7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not
applicable to a smaller reporting company.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
IceWEB,
Inc. and Subsidiaries
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report
of Independent Registered Public Accounting Firm
|
25
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Consolidated
Balance Sheets
|
26
|
|
|
Consolidated
Statements of Operations
|
27
|
|
|
Consolidated
Statement of Changes in Stockholders’ Deficit
|
28
|
|
|
Consolidated
Statements of Cash Flows
|
29
|
|
|
Notes
to Consolidated Financial Statements
|
30
- 51
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
IceWEB,
Inc.
We have
audited the accompanying consolidated balance sheets of IceWEB, Inc. and
Subsidiaries as of September 30, 2009 and 2008 and the related consolidated
statements of operations, changes in stockholders’ deficit and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of our management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of our internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IceWEB, Inc.
and Subsidiaries, as of September 30, 2009 and September 30, 2008 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company had net losses of $2,526,602 and
$6,410,793 respectively, for the years ended September 30, 2009 and 2008. These
matters raise substantial doubt about the Companys’ ability to continue as a
going concern. Management’s plans in regards to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/
Sherb & Co., LLP
|
Certified
Public Accountants
|
December
23, 2009
ICEWEB,
Inc.
Consolidated
Balance Sheets
|
|
September
30,
2009
|
|
|
September
30,
2008
|
|
CURRENT
ASSETS: |
|
|
|
|
|
|
Cash
|
|
$ |
63,310 |
|
|
$ |
4,780 |
|
Accounts
receivable, net of allowance for doubtful accounts of
$9,000
|
|
|
424,919 |
|
|
|
3,094,110 |
|
Inventory,
net
|
|
|
151,361 |
|
|
|
400,312 |
|
Other
current assets
|
|
|
6,390 |
|
|
|
21,572 |
|
Prepaid
expenses
|
|
|
25,180 |
|
|
|
55,155 |
|
|
|
|
671,160 |
|
|
|
3,575,929 |
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of
$1,761,730
|
|
|
752,162 |
|
|
|
1,169,369 |
|
Deposits
|
|
|
13,320 |
|
|
|
61,418 |
|
Intangible
assets, net of accumulated amortization of $425,408
|
|
|
790,042 |
|
|
|
1,132,612 |
|
Total
Assets
|
|
$ |
2,226,684 |
|
|
$ |
5,939,328 |
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
1,971,376 |
|
|
$ |
7,762,872 |
|
Notes
payable
|
|
|
1,847,755 |
|
|
|
1,372,565 |
|
Deferred
revenue
|
|
|
10,261 |
|
|
|
13,164 |
|
|
|
|
3,829,392 |
|
|
|
9,148,601 |
|
Long-Term
Liabilities
|
|
|
|
|
|
|
|
|
Notes
Payable
|
|
|
934,756 |
|
|
|
956,520 |
|
Total
Liabilities
|
|
|
4,764,148 |
|
|
|
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 ($.001 par value; 626,667 shares issued and
outstanding at September 30, 2009 and 1,253,334 shares issued and
outstanding as of September 30, 2008)
|
|
|
626 |
|
|
|
1,253 |
|
Common
stock ($.001 par value; 1,000,000,000 shares authorized; 68,469,617 shares
issued and 68,307,117 shares outstanding at September 30, 2009 and
24,688,088 shares issued and 24,525,588 outstanding at September 30,
2008)
|
|
|
68,471 |
|
|
|
24,690 |
|
Additional
paid in capital
|
|
|
20,064,998 |
|
|
|
15,953,221 |
|
Accumulated
deficit
|
|
|
(22,658,559
|
) |
|
|
(20,131,957
|
) |
Treasury
stock, at cost, (162,500 shares)
|
|
|
(13,000
|
) |
|
|
(13,000
|
) |
Total
stockholders’ deficit
|
|
|
(2,537,464
|
) |
|
|
(4,165,793
|
) |
|
|
|
|
|
|
|
|
|
Total
Liabilities and stockholders’ deficit
|
|
$ |
2,226,684 |
|
|
$ |
5,939,328 |
|
See
accompanying notes to consolidated financial statements
ICEWEB,
Inc.
Consolidated
Statements of Operations
|
|
|
For the Year
Ended
September 30,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,934,684
|
|
|
$
|
16,294,423
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,674,692
|
|
|
|
14,067,629
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,259,992
|
|
|
|
2,226,794
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Marketing
and selling
|
|
|
81,636
|
|
|
|
192,595
|
|
Depreciation
and amortization expense
|
|
|
742,636
|
|
|
|
575,499
|
|
Research
and development
|
|
|
336,616
|
|
|
|
303,526
|
|
General
and administrative
|
|
|
4,625,113
|
|
|
|
6,910,039
|
|
Total
operating expenses
|
|
|
5,786,001
|
|
|
|
7,981,659
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,526,009
|
)
|
|
|
(5,754,865
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
Gain
from sale of subsidiary
|
|
|
2,666,236
|
|
|
|
-
|
|
Interest
income
|
|
|
1,142
|
|
|
|
3,444
|
|
Interest
expense
|
|
|
(667,971
|
)
|
|
|
(659,372
|
)
|
|
|
|
|
|
|
|
|
|
Total
other income (expenses)
|
|
|
1,999,407
|
|
|
|
(655,928
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,526,602
|
)
|
|
$
|
(6,410,793
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding basic and diluted
|
|
|
40,911,411
|
|
|
|
18,321,369
|
|
See
accompanying notes to consolidated financial statements
IceWEB,
Inc. and Subsidiaries
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
For
the years ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Preferred Stock
|
|
|
Series B
Preferred Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Share
|
|
|
Amount
|
|
|
Total
|
|
Balance
at September 30, 2007
|
|
|
456,667 |
|
|
$ |
457 |
|
|
|
1,833,334 |
|
|
$ |
1,833 |
|
|
|
13,040,315 |
|
|
$ |
13,042 |
|
|
$ |
12,248,779 |
|
|
$ |
(13,721,164 |
) |
|
|
(162,500 |
) |
|
$ |
(13,000 |
) |
|
$ |
(1,470,053 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
910,930 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
910,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
400,000 |
|
|
|
400 |
|
|
|
79,600 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for exercise of options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,780,000 |
|
|
|
1,780 |
|
|
|
217,420 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
219,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for exercise of warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,625,000 |
|
|
|
2,625 |
|
|
|
(2,625 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with notes payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
266,500 |
|
|
|
267 |
|
|
|
40,860 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
41,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of series A preferred to common stock
|
|
|
(456,667 |
) |
|
|
(457 |
) |
|
|
- |
|
|
|
- |
|
|
|
456,667 |
|
|
|
457 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of series B preferred to common stock
|
|
|
- |
|
|
|
- |
|
|
|
(580,000 |
) |
|
|
(580 |
) |
|
|
580,000 |
|
|
|
580 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,086,250 |
|
|
|
1,086 |
|
|
|
495,577 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
496,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to employees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,950,000 |
|
|
|
2,950 |
|
|
|
1,073,750 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,076,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with acquisition
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,503,356 |
|
|
|
1,503 |
|
|
|
875,343 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
876,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,587 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,410,793 |
) |
|
|
- |
|
|
|
- |
|
|
|
(6,410,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2008
|
|
|
- |
|
|
|
- |
|
|
|
1,253,334 |
|
|
|
1,253 |
|
|
|
24,688,088 |
|
|
|
24,690 |
|
|
|
15,953,221 |
|
|
|
(20,131,957 |
) |
|
|
(162,500 |
) |
|
|
(13,000 |
) |
|
|
(4,165,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,016,137 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,016,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,900,000 |
|
|
|
3,900 |
|
|
|
203,100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
207,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(100,000 |
) |
|
|
(100 |
) |
|
|
100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for exercise of options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,715,000 |
|
|
|
18,715 |
|
|
|
960,585 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
979,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with notes payable
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,959,601 |
|
|
|
1,960 |
|
|
|
150,313 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
152,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of series B preferred to common stock
|
|
|
- |
|
|
|
- |
|
|
|
(626,667 |
) |
|
|
(627 |
) |
|
|
626,667 |
|
|
|
627 |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,725,000 |
|
|
|
1,725 |
|
|
|
130,775 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
132,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to employees
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,155,261 |
|
|
|
13,154 |
|
|
|
1,154,567 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,167,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with disposition of subsidiary
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
79,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with conversion of convertible
debenture
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,800,000 |
|
|
|
2,800 |
|
|
|
417,200 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
420,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,526,602 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,526,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
|
- |
|
|
$ |
- |
|
|
|
626,667 |
|
|
$ |
626 |
|
|
|
68,469,617 |
|
|
$ |
68,471 |
|
|
$ |
20,064,998 |
|
|
$ |
(22,658,559 |
) |
|
|
(162,500 |
) |
|
$ |
(13,000 |
) |
|
$ |
(2,537,464 |
) |
See
accompanying notes to consolidated financial statements
ICEWEB,
Inc.
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,526,602 |
) |
|
$ |
(6,410,793 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
742,636 |
|
|
|
575,498 |
|
Share-based
compensation
|
|
|
1,167,721 |
|
|
|
1,573,363 |
|
Amortization
of deferred compensation
|
|
|
1,016,134 |
|
|
|
910,930 |
|
Gain
on sale of subsidiary
|
|
|
(2,666,236 |
) |
|
|
—
|
|
Common
stock issued for services rendered
|
|
|
132,500 |
|
|
|
— |
|
Amortization
of deferred finance costs
|
|
|
30,248 |
|
|
|
16,196
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,669,191 |
|
|
|
2,887,773 |
|
Prepaid
expense
|
|
|
29,975 |
|
|
|
(27,436 |
) |
Inventory
|
|
|
248,951
|
|
|
|
2,647
|
|
Deposits
|
|
|
33,035 |
|
|
|
(11,143 |
) |
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(3,020,165 |
) |
|
|
1,342,947
|
|
Deferred
revenue
|
|
|
(2,902 |
) |
|
|
2,709
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(2,145,514 |
) |
|
|
862,691
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(99,762 |
) |
|
|
(186,621 |
) |
Cash
used in acquisitions, net
|
|
|
|
|
|
|
(1,925,128 |
) |
|
|
|
|
|
|
|
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(99,762 |
) |
|
|
(2,111,749 |
) |
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment
of equipment financing
|
|
|
-
|
|
|
|
(98,887 |
) |
Proceeds
from notes payable - related party
|
|
|
-
|
|
|
|
157,425
|
|
Repayment
of notes payable - related party
|
|
|
- |
|
|
|
(124,109 |
) |
Proceeds
from notes payable
|
|
|
7,594,455 |
|
|
|
6,519,365 |
|
Payments
on notes payable
|
|
|
(6,476,949 |
) |
|
|
(6,591,626 |
) |
Proceeds
from sale of common stock
|
|
|
207,000
|
|
|
|
80,000
|
|
Proceeds
from exercise of common stock options
|
|
|
979,300
|
|
|
|
219,200
|
|
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
2,303,806
|
|
|
|
161,368
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE/(DECREASE) IN CASH
|
|
|
58,530 |
|
|
|
(1,087,690 |
) |
|
|
|
|
|
|
|
|
|
CASH
- beginning of period
|
|
|
4,780 |
|
|
|
1,092,470
|
|
|
|
|
|
|
|
|
|
|
CASH
- end of period
|
|
$ |
63,310 |
|
|
$ |
4,780 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
552,886 |
|
|
$ |
659,372 |
|
Income
taxes
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common
stock issued for debt and interest
|
|
$ |
152,273 |
|
|
$ |
41,127 |
|
Warrant
granted for debt discount and debt issuance costs
|
|
$ |
— |
|
|
$ |
13,587 |
|
Common
stock issued in connection with convertible debenture
|
|
$ |
420,000 |
|
|
$ |
— |
|
Common
stock issued in connection with acquisition/disposition
|
|
$ |
80,000 |
|
|
$ |
876,846 |
|
|
|
|
|
|
|
|
|
|
Acquisition
details:
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
$ |
— |
|
|
$ |
2,688,795 |
|
Intangible
assets
|
|
$ |
— |
|
|
$ |
1,215,450 |
|
Liabilities
assumed
|
|
$ |
— |
|
|
$ |
(614,668 |
) |
Common
stock issued in connection with acquisition
|
|
$ |
— |
|
|
$ |
876,846 |
|
See
accompanying notes to consolidated financial statements
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE
1 – ORGANIZATION
IceWEB,
Inc. (the “Company”) began trading publicly in April 2002. Utilizing resources
gained through acquisitions, we have developed two lines of business, IceWEB
Storage products, and IceMAIL which is a hosted Microsoft Exchange application
service. We currently have two wholly owned operating subsidiaries:
IceWEB Storage Corporation (formerly known as Inline Corporation), and IceWEB
Online, Inc.
BUSINESS
OF ICEWEB
Since
2005, the Company has been focused on serving 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 manufacturing
company.
In March,
2009, the Company sold its wholly owned subsidiary, IceWEB Virginia, Inc. to an
unrelated 3rd party,
and in the process exited its low-margin IT re-seller business products business
to further focus on the higher margin data storage manufacturing
business.
At the
close of fiscal year 2009, the Company has three key product
offerings:
• Iplicity
Unified Network Storage Solutions
• Purpose
Built Network/Data Appliances
• Cloud
Computing Products/Services
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles and include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
Certain
reclassifications have been made to previously reported amounts to conform to
2008 amounts. The reclassifications had no impact on previously reported results
of operations or shareholders’ deficit.
Going
Concern
Our
auditors stated in their report on the consolidated financial statements of the
Company for the Years ended September 30, 2009 and 2008 that we have had losses
since inception that raise doubt about our ability to continue as a going
concern. In addition and as discussed further in Note 6, we are not in
compliance with debt covenants under our Financing Agreements with Sand Hill
Finance LLC. For the year ended September 30, 2009 we incurred a net loss of
$2,526,602. 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 we cannot continue in existence.
Management
has established plans intended to increase the sales of our 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 we will be
able to raise any additional funds.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
value of financial instruments
The
carrying amounts of financial instruments, including cash, accounts receivable,
prepaid expenses, and other current assets, accounts payable and accrued
liabilities, and deposits approximated fair value as of September 30, 2009 and
2008, because of the relatively short-term maturity of these instruments and
their market interest rates.
Use
of Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 balance sheets and the reported amounts of sales and expenses during the
reporting periods. 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 allowance for inventory obsolescence
and the useful life of property and equipment and intangible assets, and
litigation reserves.
Cash
and Cash Equivalents
We
consider all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable consists of normal trade receivables. We recorded a bad debt
allowance of $9,000 as of September 30, 2009. Management performs ongoing
evaluations of its accounts receivable. Management believes that all remaining
receivables are fully collectable. Bad debt expense amounted to $29,324 and $0
for the Years ended September 30, 2009 and 2008, respectively.
Inventory
Inventory
is valued at the lower of cost or market, on an average cost basis.
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.
Intangible
Assets
Intangible
assets, net consists of the cost of acquired customer relationships. We
capitalize and amortize the cost of acquired intangible assets over their
estimated useful lives on a straight-line basis. The estimated useful life of
our acquired customer relationships is five years.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-lived
Assets
In
accordance with ASC Topic 360, “Property, Plant, and Equipment” (formerly
SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets”), we review 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
We follow
the guidance of Accounting Standards Codification (ASC) Topic 605, “Revenue
Recognition” (formerly Staff Accounting Bulletin (SAB) No. 104, “Revenue
Recognition”) for revenue recognition. In general, we record 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 our various revenues streams:
Revenues
from sales of products are generally recognized when products are shipped unless
we 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.
Earnings
per Share
We
compute earnings per share in accordance with ASC Topic 260, “Earnings Per
Share” (formerly SFAS No. 128, “Earnings per Share”) Under the provisions
of ASC Topic 260, 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 antidilutive. At September 30, 2009, there were
options and warrants to purchase 11,169,483 shares of common stock, 626,667
shares issuable upon conversion of Series B preferred stock, and no shares of
Series C preferred stock outstanding which could potentially dilute future
earnings per share.
Stock-Based
Compensation
As more
fully described in Note 12, we have a stock option plan that provides for
non-qualified and incentive stock options to be issued to directors, officers,
employees and consultants (the 2000 Management and Director Equity Incentive and
Compensation Plan (the “Plan”).
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
Stock-Based
Compensation (continued)
Prior to
October 1, 2005, we 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 ASC Topic 718,
“Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments. No stock-based compensation cost related to employee
stock options was recognized in the Consolidated Statement of Operations for the
year ended September 30, 2005 as all options granted under the Plan had an
exercise price equal to the market value of the underlying common stock on the
date of grant.
Effective
October 1, 2005, we adopted the fair value recognition provisions of ASC Topic
718, “Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments using the modified-prospective-transition method. Under
that transition method, compensation cost recognized in the year ended September
30, 2006 includes: (a) compensation cost for all share-based payments granted
prior to, but not yet vested as of September 30, 2005, 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). Financial results for the year ended
September 30, 2005 have not been restated.
Recent
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (FASB), issued SFAS No. 168, "The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles-a replacement of FASB Statement No. 162". SFAS
No. 168 establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles in the United States. This SFAS is effective for financial statements
issued for interim and annual periods ending after September 15, 2009, and is
not expected to have a material impact on our consolidated financial
statements.
In
June 2009, the FASB issued Accounting Standards Update No. 2009-01, “Generally
Accepted Accounting Principles” (ASC Topic 105) which establishes the
FASB Accounting Standards Codification (“the Codification” or “ASC”)
as the official single source of authoritative U.S. generally accepted
accounting principles (“GAAP”). All existing accounting standards are
superseded. All other accounting guidance not included in the Codification will
be considered non-authoritative. The Codification also includes all relevant
Securities and Exchange Commission (“SEC”) guidance organized using the same
topical structure in separate sections within the Codification.
Following
the Codification, the Board will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates (“ASU”) which will serve to
update the Codification, provide background information about the guidance and
provide the basis for conclusions on the changes to the
Codification.
The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification is effective for our fiscal year
ending 2009 financial statements and the principal impact on our financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the Codification. In
order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.
In April
2009, the FASB issued FASB Staff Positions FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (ASC Topic 320-10-65).
This update provides guidance for allocation of charges for other-than-temporary
impairments between earnings and other comprehensive income. It also
revises subsequent accounting for other-than-temporary impairments and expands
required disclosure. The update was effective for interim and annual periods
ending after June 15, 2009. The adoption of FAS 115-2 and FAS 124-2 did not have
a material impact on the results of operations and financial
condition.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
Recent
Accounting Pronouncements (continued)
In April
2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures About
Fair Value of Financial Instruments” (ASC Topic 320-10-65). This update
requires fair value disclosures for financial instruments that are not currently
reflected on the balance sheet at fair value on a quarterly basis and is
effective for interim periods ending after June 15, 2009. The
Company’s financial instruments include cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and notes
payable. At September 30, 2009 and September 30, 2008 the carrying
value of the Companies financial instruments approximated fair value, due to
their short term nature.
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (ASC Topic 855). This
guidance is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. It is effective for
interim and annual reporting periods ending after June 15, 2009. The
adoption of this guidance did not have a material impact on
our consolidated financial statements. The Company evaluated all
events and transactions that occurred after September 30, 2009 up through
December 22, 2009. During this period no material subsequent events
came to our attention.
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (ASC Topic 810-10). This updated guidance requires a qualitative approach
to identifying a controlling financial interest in a variable interest entity
(VIE), and requires ongoing assessment of whether an entity is a VIE and whether
an interest in a VIE makes the holder the primary beneficiary of the VIE. It is
effective for annual reporting periods beginning after November 15, 2009. We are
currently evaluating the impact of the pending adoption of SFAS No. 167 on
our consolidated financial statements.
In
October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue
Arrangements.” This ASU establishes the accounting and reporting guidance for
arrangements including multiple revenue-generating activities. This ASU provides
amendments to the criteria for separating deliverables, measuring and allocating
arrangement consideration to one or more units of accounting. The amendments in
this ASU also establish a selling price hierarchy for determining the selling
price of a deliverable. Significantly enhanced disclosures are also required to
provide information about a vendor’s multiple-deliverable revenue arrangements,
including information about the nature and terms, significant deliverables, and
its performance within arrangements. The amendments also require providing
information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The Company is currently evaluating this new
ASU.
In
October 2009, the FASB issued ASU No. 2009-14, “Certain Revenue Arrangements
That Include Software Elements.” This ASU changes the accounting model for
revenue arrangements that include both tangible products and software elements
that are “essential to the functionality,” and scopes these products out of
current software revenue guidance. The new guidance will include factors to help
companies determine what software elements are considered “essential to the
functionality.” The amendments will now subject software-enabled products to
other revenue guidance and disclosure requirements, such as guidance surrounding
revenue arrangements with multiple-deliverables. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The Company is currently evaluating this new
ASU.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE
3 - PROPERTY AND EQUIPMENT
At
September 30, 2009, property and equipment consisted of the
following:
|
|
Estimated
Life
|
|
2009
|
|
|
2008
|
|
Office
equipment
|
|
5
years
|
|
$ |
637,920 |
|
|
$ |
628,080 |
|
Computer
software
|
|
3
years
|
|
|
607,278 |
|
|
|
713,876 |
|
Furniture
and fixtures
|
|
5
years
|
|
|
261,385 |
|
|
|
261,385 |
|
Leasehold
improvements
|
|
5
years
|
|
|
1,007,250 |
|
|
|
999,050 |
|
|
|
|
|
|
2,513,833 |
|
|
|
2,602,391 |
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
|
|
(1,761,671 |
) |
|
|
(1,433,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
752,162 |
|
|
$ |
1,169,369 |
|
Depreciation
expense for the years ended September 30, 2009 and 2008 was $453,633 and
$281,355 respectively.
NOTE 4 -
INTANGIBLE ASSETS
At
September 30, 2009, intangible assets consist of the following:
|
|
2009
|
|
|
2008
|
|
Acquired
software library
|
|
$ |
- |
|
|
|
100,000
|
|
GSA
Schedule - IceWEB Virginia, Inc.
|
|
|
-
|
|
|
|
275,479
|
|
Manufacturing
GSA Schedule
|
|
|
750,000
|
|
|
|
750,000
|
|
Customer
relationships intangible
|
|
|
465,451
|
|
|
|
465,451
|
|
|
|
|
1,215,451
|
|
|
|
1,590,930
|
|
Less:
accumulated amortization
|
|
|
(425,409 |
) |
|
|
(458,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
790,042 |
|
|
|
1,132,612 |
|
Amortization
expense amounted to $289,003 and $294,144 for the Years ended September 30, 2009
and 2008, respectively.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
Amortization
expense subsequent to the year ended September 30, 2009 is as
follows:
Years
ending September 30:
|
|
|
|
2010
|
|
$
|
243,090
|
|
2011
|
|
|
243,090
|
|
2012
|
|
|
243,090
|
|
2013
|
|
|
60,772
|
|
|
|
$
|
790,042
|
|
NOTE 5 -
RELATED PARTY TRANSACTIONS
Advances
from Related Party
Our Chief
Executive Officer provides advances to us from time-to-time for operating
expenses. These advances are short-term in nature and are non-interest bearing.
At September 30, 2009 and 2008, amounts due to this related party amounted to
$0.
NOTE 6 -
NOTES PAYABLE
Sand Hill Finance,
LLC
On
December 19, 2005, we entered into a Financing Agreement with Sand Hill Finance,
LLC pursuant to which, together with related amendments, we may borrow up to 80%
on our 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, in November, 2008 we and Sand Hill Finance, LLC entered into a 36
month term note agreement in the amount of $1,000,000. Amounts borrowed under
the Financing Agreement are secured by a first security interest in
substantially all of our assets. At September 30, 2009, the principal
amount due under the Financing Agreement amounted to $1,847,755. The
principal amount due under the term note amounted to $934,756. These
amounts are included in the notes payable balance of $2,782,510 on the balance
sheet at September 30, 2009.
Interest
is payable under the Financing Agreement at a rate of 1.75% per month on the
average loan balance outstanding during the year, equal to an annual interest of
approximately 21% per year. We 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, we are 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, we 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 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 our 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.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 6 -
NOTES PAYABLE (continued)
In
connection with the term loan, we 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 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 our 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 $13,587 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 restricts us 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. Sand Hill Finance
provided a waiver with respect to our disposition of IceWEB, Virginia, Inc. in
March, 2009, as discussed herein.
Third
party guarantee - In November 2006, we sold our interest in one of our
subsidiaries (Integrated Power Solutions, Inc. or IPS) to a shareholder of ours
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. We remain liable for any such amounts borrowed under the
Financing Agreement by IPS which is no longer under our control. To date, IPS
has not borrowed any funds under the Financing Agreement.
In
August, 2008, we 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 shares of our common stock. As of September 30, 2009
we had repaid the note in full
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 7 -
EQUIPMENT FINANCING PAYABLE
On July
6, 2006, we entered into what is in essence a sale and leaseback agreement with
respect to certain computer and office equipment. We received gross proceeds of
$300,000 from the sale of the equipment to a third party. As part of the same
transaction, we entered into an agreement to lease the equipment back from the
third party for 36 monthly rent payments of $10,398 until August 2009. We are
accounting for this equipment financing arrangement as a capital lease. In
connection with the agreement, we made an initial security deposit of $30,000.
The equipment had a net book value of $37,846 on the date of the transaction. In
connection with the financing, we did not record any gain or loss. Imputed
interest on this financing is 20% per annum. This agreement terminated in
August, 2009. We are in default under this agreement, and the
remaining estimated amount owed under this agreement is included in accounts
payable and accrued liabilities on the accompanying balance sheet.
NOTE
8 - INVENTORY
Inventory
consisted of the following:
|
|
September
30,
2009
|
|
|
September
30,
2008
|
|
Raw
materials
|
|
$ |
78,966 |
|
|
$ |
351,579 |
|
Work
in progress
|
|
|
14,862 |
|
|
|
65,921 |
|
Finished
goods
|
|
|
57,533 |
|
|
|
21,974 |
|
|
|
|
151,361 |
|
|
|
439,474 |
|
|
|
|
|
|
|
|
|
|
Less:
reserve for obsolescence
|
|
|
- |
|
|
|
(39,162
|
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
151,361 |
|
|
$ |
400,312 |
|
NOTE 9 -
COMMITMENTS
We lease
office space in Sterling, Virginia under a two-year operating lease that expires
on March 31, 2011. The office lease agreement has certain escalation
clauses and renewal options. Additionally, we have lease agreements for computer
equipment and an office copier/fax machine. Future minimum rental payments
required under these operating leases are as follows:
Years
ending September 30:
|
|
|
|
2010
|
|
$
|
75,222
|
|
2011
|
|
|
37,611
|
|
2012
|
|
|
-
|
|
2013
|
|
|
-
|
|
2014
and thereafter
|
|
|
-
|
|
|
|
$
|
112,833
|
|
Rent
expense was $71,400 and $326,932 for the years ended September 30, 2009 and
2008.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 10 -
INCOME TAXES
We
account for income taxes under the provisions of ASC 740-10-25 effective
September 30, 2007. ASC 740-10-25 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. Benefits from tax positions should be recognized in the
financial statements only when it is more likely than not that the tax position
will be sustained upon examination by the appropriate taxing authority that
would have full knowledge of all the relevant information. A tax
position that meets the more-likely-than-not recognition threshold is measured
at the largest amount of benefit that is greater than fifty percent likely of
being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than not recognition threshold should
be recognized in the first subsequent financial reporting period in which that
threshold is met. Previously recognized tax positions that no longer
meet the more-likely-than-not recognition threshold should be derecognized in
the first subsequent financial reporting period in which that threshold is no
longer met. ASC 740-10-25 also provides guidance on the accounting
for and disclosure of unrecognized tax benefits, interest, and penalties. ASC
740-10-25 requires the recognition of deferred tax assets and liabilities for
both the expected impact of differences between the financial statements and the
tax basis of assets and liabilities, and for the expected future tax benefit to
be derived from tax losses and tax credit carryforwards. ASC 740-10-25
additionally requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets.
As of
September 30, 2009 we had unused net operating loss carry forwards of
approximately $11,000,000 available to reduce our future federal taxable income.
Net operating loss carryforwards expire through fiscal years ending 2029.
Internal Revenue Code Section 382 places a limitation on the amount of taxable
income that can be offset by carryforwards after a change in control (generally
a greater than 50% change in ownership).
|
|
2009
|
|
|
2008
|
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
|
|
Tax
benefit of net operating loss carry forward
|
|
$ |
4,146,000 |
|
|
$ |
4,865,000 |
|
Grant
of stock options/restricted stock to employees
|
|
|
1,768,000 |
|
|
|
838,000 |
|
Unpaid
accrued salaries
|
|
|
31,000 |
|
|
|
20,000 |
|
Reserve
for legal settlement
|
|
|
451,000 |
|
|
|
- |
|
Amortization
of leasehold improvements
|
|
|
115,000 |
|
|
|
49,000 |
|
Amortization
of intangibles
|
|
|
175,000 |
|
|
|
97,000 |
|
|
|
|
6,686,000 |
|
|
|
5,869,000 |
|
|
|
|
|
|
|
|
|
|
Less:
valuation allowance
|
|
|
(6,686,000
|
) |
|
|
(5,869,000
|
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$ |
— |
|
|
|
— |
|
Net
operating loss carryforwards and the associated deferred tax asset were reduced
during fiscal September 30, 2009 to reflect the impact of the disposition of
IceWEB Virginia, Inc. in a stock sale transaction in the second
quarter.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
The table
below summarizes the differences between our effective tax rate and the
statutory federal rate as follows for fiscal 2009 and 2008. The effective tax
rate is 34% Federal and 3.6% State after Federal tax benefit:
|
|
2009
|
|
|
2008
|
|
Computed
“expected” tax benefit
|
|
|
(34.0
|
)% |
|
|
(34.0
|
)% |
State
income taxes
|
|
|
(3.6
|
)% |
|
|
(3.6
|
)% |
Other
permanent differences
|
|
|
42.0
|
% |
|
|
— |
|
Change
in valuation allowance
|
|
|
(4.4
|
)% |
|
|
37.6
|
% |
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
0.0
|
% |
|
|
0.0
|
% |
The
valuation allowance at September 30, 2009 was $6,686,000. The increase during
fiscal 2009 was approximately $817,000.
NOTE 11 -
CONCENTRATION OF CREDIT RISK
Bank
Balances
We
maintain our 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). During October 2008,
the FDIC increased the insured amounts at participating financial institutions
from $100,000 to $250,000 and provided unlimited coverage for non-interest
bearing transaction accounts. At September 30, 2009 we had no amounts
in excess of FDIC insured limits. We have not experienced any losses in such
accounts.
Major
Customers
Sales to
eight customers represented approximately 82% of total sales for the year ended
September 30, 2009. As of September 30, 2009 approximately 48% of our accounts
receivable was due from one customer. Sales to ten customers represented
approximately 63% in 2008.
NOTE 12 -
STOCKHOLDERS’ DEFICIT
Preferred
Stock
Our
authorized capital includes 10,000,000 shares of blank check preferred stock,
par value $0.001 per share, of which 1,666,667 shares have previously been
designated as Series A Convertible Preferred Stock. Our Board of Directors,
without further stockholder approval, may issue our preferred stock in one or
more series from time to time and fix or alter the designations, relative
rights, priorities, preferences, qualifications, limitations and restrictions of
the shares of each series. In September 2005, Our Board of Directors authorized
a series of 833,334 shares of blank check preferred stock be designated as
Series B Convertible Preferred Stock and on September 28, 2005, we filed a
Certificate of Designations of Preferences, Rights and Limitations of Series B
Preferred with the Secretary of State of Delaware. On December 29, 2005, we
filed an Amended and Restated Certificate of Designations of Preferences, Rights
and Limitations of Series B Convertible Preferred Stock increasing the number of
shares authorized under this series to 1,833,334 shares.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 12 -
STOCKHOLDERS’ DEFICIT (continued)
A) Series A Convertible
Preferred Stock
On March
30, 2005, we entered into a Preferred Stock Purchase Agreement and related
agreements with Barron Partners LP. Under the terms of this agreement, we sold
Barron Partners LP, an accredited investor, 1,666,667 shares of our Series A
Convertible Preferred Stock and issued the purchaser the Common Stock Purchase
Warrants “A”, “B” and “C” to purchase an aggregate of 4,500,000 shares of our
common stock at exercise prices ranging from $2.00 to $9.60 per share for an
aggregate purchase price of $1,000,000. We received net proceeds of $900,000
after payment of expenses of $35,000 and a finder’s fee to Liberty Company LLC
of $65,000. We also issued Liberty Company LLC, a broker-dealer, a Common Stock
Purchase Warrant “A” exercisable into 175,000 shares of our common stock with an
exercise price of $0.70 per share as additional compensation for its services.
We used these proceeds for general working capital and acquisitions. The
transaction was exempt from registration under the Securities Act in reliance on
an exemption provided by Section 4(2) of that act.
All
shares of Series A Convertible Preferred Stock were converted into shares of our
common stock in fiscal 2008. As of September 30, 2009 there are no
Series A Convertible Preferred shares outstanding. The warrants issued in
conjunction with the Series A Convertible Preferred Stock transaction were fully
converted into shares of our common stock in fiscal 2008. There are
no outstanding warrants related to the Series A Convertible Preferred Stock
transaction at September 30, 2009.
B) Series B Convertible
Preferred Stock
The
designations, rights and preferences of the Series B Convertible Preferred Stock
provide:
•
|
no dividends are payable on the
Series B Convertible Preferred Stock. So long as these shares are
outstanding, we cannot pay dividends on our common stock nor can it redeem
any shares of its common stock, the shares of Series B Convertible
Preferred Stock do not have any voting rights, except as may be provided
under Delaware law,
|
•
|
so long as the shares are
outstanding, we cannot change the designations of the Series B Convertible
Preferred Stock, create a class of securities that in the instance of
payment of dividends or distribution of assets upon our liquidation ranks
senior to or pari passu with the Series B Convertible Preferred Stock or
increase the number of authorized shares of Series B Convertible Preferred
Stock, the shares carry a liquidation preference of $0.2727 per
share,
|
•
|
each
share of Series B Convertible Preferred Stock is convertible at the option
of the holder into one share of our common stock based upon an initial
conversion value of $0.2727 per share. The conversation ratio is subject
to adjustment in the event of stock dividends, stock splits or
reclassification of our common stock. The conversion ratio is also subject
to adjustment in the event we should sell any shares of its common stock
or securities convertible into common stock at an effective price less
than the conversion ratio then in effect, in which case the conversion
ratio would be reduced to the lesser price. No conversion of the Series B
Convertible Preferred Stock may occur if a conversion would result in the
holder, and any of its affiliates beneficially owning more than 4.9% of
our outstanding common shares following such conversion. This provision
may be waived or amended only with the consent of the holders of all of
the Series B Convertible Preferred Stock and the consent of the holders of
a majority of our outstanding shares of common stock who are not
affiliates,
|
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 12 -
STOCKHOLDERS’ DEFICIT (continued)
•
|
so
long as the Series B Convertible Preferred Stock is outstanding, we have
agreed not to issue any rights, options or warrants to holders of its
common stock entitling the holders to purchase shares of its common stock
at less than the conversion ratio without the consent of the holders of a
majority of the outstanding shares of Series B Convertible Preferred
Stock. If we should elect to undertake such an issuance and the Series B
holders consent, the conversion ratio would be reduced. Further, if we
should make a distribution of any evidence of indebtedness or assets or
rights or warrants to subscribe for any security to our common
stockholders, the conversion value would be
readjusted,
|
•
|
the shares of Series B
Convertible Preferred Stock automatically convert into shares of our
common stock in the event of change of control of the Company,
and
|
•
|
so long as the shares of Series B
Convertible Preferred Stock 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 of the
Series B Convertible Preferred
Stock.
|
During
fiscal 2008, Series B Preferred stockholders’ converted 580,000 shares of Series
B Preferred Stock into 580,000 shares of common stock.
During
fiscal 2009, Series B Preferred stockholders’ converted 626,667 shares of Series
B Preferred Stock into 580,000 shares of common stock.
During
fiscal 2009, the remaining 626,667 shares of Series B Preferred Stock were
acquired from the original holders by John Signorello, the Company’s CEO, for
total consideration of $75,000.
On
December 28, 2005, the Company consummated a Preferred Stock Purchase Agreement
and related agreements with Barron Partners LP. Under the terms of these
agreements, the Company issued Barron Partners LP, an accredited investor,
1,833,334 shares of its Series B Convertible Preferred Stock and Common Stock
Purchase Warrants “D”, “E” and “F” to purchase an aggregate of 2,250,000 shares
of its common stock at exercise prices ranging from $2.00 to $9.60 per share,
for an aggregate purchase price of $500,000. The Company received net proceeds
of $475,000 after payment of commissions of $25,000 (before placement expenses).
The Company used these proceeds for general working capital. The transaction was
exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 12 -
STOCKHOLDERS’ DEFICIT (continued)
On the
date of issuance of the Series B Preferred Stock, the effective conversion price
was at a discount to the price of the common stock into which it was
convertible. In fiscal 2006, the Company recorded a $500,000 preferred stock
dividend related to the beneficial conversion feature and the fair value of the
warrants granted in connection with the preferred stock.
Under the
terms of the Preferred Stock Purchase Agreement, the Company
agreed:
•
|
to
maintain a majority of independent directors on its Board of Directors,
and that these independent directors will make up a majority of the audit
and compensation committees of its Board. If at any time the Company
should fail to maintain these independent majority requirements, the
Company is required to pay Barron Partners LP liquidated damages of 24% of
the purchase price of the securities ($120,000) per annum, payable monthly
in kind,
|
•
|
that
if within 24 months from the closing date the Company consummates the sale
of debt or equity securities with a conversion price less than the then
effective conversion price of the Series B Convertible Preferred Stock,
the Company will make a post-closing adjustment in the conversion price of
the Series B Convertible Preferred Stock to such lower conversion
price,
|
•
|
that
for a period of three years all employment and consulting agreements must
have the unanimous consent of the compensation committee of its Board, and
any awards other than salary are usual and appropriate for other officers,
directors, employees or consultants holding similar positions in similar
publicly held-companies,
|
•
|
that
for a period of two years from the closing the Company will not enter into
any new borrowings of more than twice as much as the sum of EBITDA from
recurring operations over the past four quarters, subject to certain
exceptions,
|
•
|
that
for long as Barron Partners LP holds any of the securities, the Company
will not enter into any subsequent financing in which we issue or sell any
debt or equity securities with a floating conversion price or containing a
reset feature, and
|
•
|
that
the Company will submit a proposal at its next annual meeting of
stockholders to amend our Certificate of Incorporation to require the
consent of the holders of a designated percentage of a designated class of
its securities to waive or amend the terms of any rights, options and
warrants approved by its Board.
|
Mr. John
R. Signorello, the Company’s CEO, agreed not to sell any shares of the Company’s
common stock that he may own in excess of 1% per quarter or at a price of less
than $1.50 per share for a period ending August 30, 2007, and that the earliest
any other insiders could sell their shares would be beginning two years from the
closing date.
The
Company granted Barron Partners LP a right of first refusal to participate in
any subsequent funding the Company may undertake on a pro rata basis at 94% of
the offering price.
Warrants
Issued In the Series B Convertible Preferred Stock Transaction
In
connection with the sale of shares of our Series B Convertible Preferred Stock,
we issued the purchaser the following common stock purchase
warrants:
•
|
Common Stock Purchase Warrants
“D” to purchase an aggregate of 1,000,000 shares of our common stock at an
exercise price of $2.00 per
share,
|
•
|
Common Stock Purchase Warrants
“E” to purchase an aggregate of 625,000 shares of our common stock at an
exercise price of $4.80 per share,
and
|
•
|
Common Stock Purchase Warrants
“F” to purchase an aggregate of 625,000 shares of our common stock at an
exercise price of $9.60 per
share.
|
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 12 -
STOCKHOLDERS’ DEFICIT (continued)
We also
issued Liberty Company LLC, a broker dealer which served as finder for us in the
transaction, a Common Stock Purchase Warrant “G” to purchase 25,000 shares of
its common stock at an exercise price of $1.00 per share. Other than the
exercise price, all other terms of the warrant issued to Liberty Company LLC are
identical to the Common Stock Purchase Warrants “E” and “F” issued to the
purchaser.
The
expiration date of the warrants is five years, or 18 months after effectiveness
of a registration statement subsequent to the issuance hereof with such 18
months to be extended by one month for each month or portion of a month during
which such registration statement’s effectiveness has lapsed or been suspended,
whichever is longer. The warrants contain a cashless exercise provision which
permits the holder, rather than paying the exercise price in cash, to surrender
a number of warrants equal to the exercise price of the warrants being
exercised. The holder cannot utilize the cashless exercise feature during the
first six months of the term or so long as there is an effective registration
statement covering the shares of common stock underlying the warrants. The
exercise price of the warrants and the number of shares issuable upon the
exercise of the warrants is subject to adjustment in the event of stock splits,
stock dividends and reorganizations, as well as if we issue common stock or
securities convertible into common stock at an effective price less than the
then current exercise price of the warrant.
The
warrants issued in conjunction with the Series B Convertible Preferred Stock
transaction were fully converted into shares of our common stock in fiscal
2008. There are no outstanding warrants related to the Series B
Convertible Preferred Stock transaction.
Series
C Preferred Stock
On July
29, 2009, we entered into a Preferred Stock Purchase Agreement with an Investor
which provided 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 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:
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 12 - STOCKHOLDERS’ DEFICIT (continued)
|
●
|
senior to our common stock;
and
|
|
●
|
on parity with our Series B
Preferred Stock.
|
Common
Stock
Fiscal
2008 Transactions
During
fiscal 2008, Series A preferred stockholders’ converted 456,667 shares of Series
A Preferred Stock into 456,667 shares of common stock.
During
fiscal 2008, Series B preferred stockholders’ converted 580,000 shares of Series
B Preferred Stock into 580,000 shares of common stock.
In fiscal
2008, in connection with the exercise of 1,780,000 stock options, we issued
1,780,000 shares of common stock for cash proceeds of $219,200.
During
fiscal 2008, in connection with the cashless exercise of 5,250,000 stock
warrants, we issued 2,525,000 shares of common stock.
During
fiscal 2008, in connection with the payment on a note payable discussed in Note
6, we issued 266,500 shares of common stock. The shares were valued
at $41,126, the fair market value in the date of issuance.
During
fiscal 2008, in connection with the payment for consulting services rendered, we
issued 2,086,250 shares of common stock. The services were valued at
$1,096,663, the fair market value on the date of issuance.
During
fiscal 2008, in connection with the acquisition of Inline Corporation, we issued
503,356 shares of common stock. The shares were valued at $276,846,
the fair market value on the date of issuance.
During
fiscal 2008 we issued 2,950,000 shares of common stock to employees, valued at
$1,076,700, the fair market value at the time of issuance, as additional
compensation.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
Fiscal
2009 Transactions
On
October 28, 2008 we issued 3,431,680 shares of restricted common stock at a per
share price of $0.07, valued at $240,218, in lieu of pay to our
employees. 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
February 18, 2009 we issued 480,000 shares of restricted common stock at a per
share price of $0.14, valued at $67,200, in lieu of pay to our
employees. 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 March
26, 2009 we issued 6,243,581shares of restricted common stock at a per share
price of $0.09, valued at $560,305, in lieu of pay to our
employees. 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 August
19, 2009 we issued 3,000,000 shares of restricted common stock at a per share
price of $0.10 valued at $300,000, in lieu of pay to our
employees. 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 1,400,000 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
8, 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
11, 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.
On August
10, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.08,
valued at $80,000 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 March
10, 2009, we issued 25,000 shares of our common stock valued at $2,500 in
satisfaction of debt in the amount of $2,500, which related to services rendered
to the Company. The recipient was 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 March
11, 2009, we issued 100,000 shares of our common stock valued at $4,000 in
satisfaction of debt in the amount of $4,000, which related to services rendered
to the Company. The recipient was 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
25, 2009, we issued 100,000 shares of our common stock valued at $6,000 in
satisfaction of debt in the amount of $6,000, which related to services rendered
to the Company. The recipient was 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.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
Fiscal
2009 Transactions (continued)
On
September 2, 2009, we issued 1,500,000 shares of our common stock valued at
$120,000 in satisfaction of debt in the amount of $120,000, which related to
services rendered to the Company. The recipient was 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.
In March,
2009, in conjunction with the sale of its subsidiary IceWEB Virginia, Inc., the
Company issued 1,000,000 shares of our common stock to the purchaser, valued at
$80,000. The recipient was 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.
During
fiscal 2009, we issued 18,715,000 of our common stock in connection with the
exercise of options under our stock option plan.
In the
fiscal first quarter of 2009, we issued 1,959,601 shares of common stock in
connection with payments on a short term note payable, valued at
$152,273.
Common Stock
Warrants
A summary
of the status of our outstanding common stock warrants as of September 30, 2009
and 2008 and changes during the period ending on that date is as
follows:
|
|
Year Ended September 30,
2009
|
|
|
Year Ended September 30,
2008
|
|
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
300,000 |
|
|
$ |
1.25 |
|
|
|
5,955,000 |
|
|
$ |
1.25 |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
120,000 |
|
|
|
1.00 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
(5,150,000
|
) |
|
|
0.28 |
|
Forfeited
|
|
|
(75,000
|
) |
|
|
0.65 |
|
|
|
(625,000
|
) |
|
|
2.79 |
|
Balance
at end of year
|
|
|
225,000 |
|
|
$ |
1.78 |
|
|
|
300,000 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at end of year
|
|
|
225,000 |
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
Weighted
average fair value of warrants granted or re-priced during the
year
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
The
following table summarizes information about common stock warrants outstanding
at September 30, 2009:
|
|
Warrants
Outstanding
|
|
|
Warrants Exercisable
|
|
Range of
Exercise
Price
|
|
Number
Outstanding at
September 30,
2009
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
September 30,
2009
|
|
|
Weighted
Average
Exercise
Price
|
|
0.50
|
|
|
145,000 |
|
5.05
Years
|
|
|
0.50 |
|
|
|
145,000 |
|
|
|
0.50 |
|
2.00
|
|
|
5,000 |
|
1.81
Years
|
|
|
2.00 |
|
|
|
5,000 |
|
|
|
2.00 |
|
4.00
|
|
|
37,500 |
|
0.25
Years
|
|
|
4.00 |
|
|
|
37,500 |
|
|
|
4.00 |
|
8.00
|
|
|
37,500 |
|
0.25
Years
|
|
|
8.00 |
|
|
|
37,500 |
|
|
|
8.00 |
|
|
|
|
225,000 |
|
|
|
$ |
1.78 |
|
|
|
225,000 |
|
|
$ |
1.78 |
|
NOTE 13 -
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 our stock at
exercise prices determined by our Board of Directors. The Plan was approved by
our stockholders in August 2001.
The
purpose of the Plan is to advance our 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, we believe 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 our 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 our 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.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 13 -
STOCK OPTION PLAN (continued)
As
amended in fiscal 2009, the Plan permits the grant of options and shares for up
to 60,000,000 shares of our common stock. The Plan terminates 10 years from the
date of the Plan’s adoption by our 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 our 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. We used the following assumptions for
determining the fair value of options granted under the Black-Scholes option
pricing model:
|
|
Year
Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Expected
volatility
|
|
149%
- 183%
|
|
|
87%
- 198%
|
|
Expected
term
|
|
1 -
5 Years
|
|
|
1 -
5 Years
|
|
Risk-free
interest rate
|
|
2.53%
- 4.76%
|
|
|
2.34%
- 4.38%
|
|
Forfeiture
Rate
|
|
0%
- 45%
|
|
|
0%
- 45%
|
|
Expected
dividend yield
|
|
0%
|
|
|
0%
|
|
The
expected volatility was determined with reference to the historical volatility
of our stock. We use historical data to estimate option exercise, employee
termination, and forfeiture rate 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
year ended September 30, 2009, total stock-based compensation charged to
operations for option-based arrangements amounted to $1,016,134. At September
30, 2009, there was approximately $519,182 of total unrecognized compensation
expense related to non-vested option-based compensation arrangements under the
Plan.
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
A summary
of the status of our outstanding stock options as of September 30, 2009 and
changes during the period ending on that date is as follows:
|
|
Year Ended September 30,
2009
|
|
|
Year Ended September 30,
2008
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
|
6,583,827 |
|
|
$ |
0.61 |
|
|
|
|
|
$ |
5,212,219 |
|
|
$ |
0.61 |
|
|
$ |
|
|
Granted
|
|
|
24,395,000 |
|
|
|
0.06 |
|
|
|
|
|
|
7,310,000 |
|
|
|
0.27 |
|
|
|
|
|
Exercised
|
|
|
(18,715,000
|
) |
|
|
0.05 |
|
|
|
|
|
|
(1,780,000
|
) |
|
|
0.12 |
|
|
|
|
|
Forfeited
|
|
|
(1,319,344
|
) |
|
|
0.28 |
|
|
|
|
|
|
(4,158,392
|
) |
|
|
0.49 |
|
|
|
|
|
Balance
at end of year
|
|
|
10,944,483 |
|
|
$ |
0.27 |
|
|
$ |
103,006 |
|
|
|
6,583,827 |
|
|
$ |
0.45 |
|
|
$ |
92,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of year
|
|
|
9,352,725 |
|
|
$ |
0.28 |
|
|
$ |
103,006 |
|
|
|
4,123,134 |
|
|
$ |
0.47 |
|
|
$ |
10,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
$ |
0.27 |
|
|
|
|
|
The
following table summarizes information about employee stock options outstanding
at September 30, 2009:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise
Price
|
|
Number
Outstanding at
September 30,
2009
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
September 30,
2009
|
|
|
Weighted
Average
Exercise
Price
|
|
$ 0.001-0.25
|
|
|
6,990,000 |
|
2.67
Years
|
|
$ |
0.08 |
|
|
|
5,909,400 |
|
|
$ |
0.09 |
|
0.30-0.48
|
|
|
535,000 |
|
2.56
Years
|
|
|
0.45 |
|
|
|
501,950 |
|
|
|
0.46 |
|
0.54-0.60
|
|
|
2,501,608 |
|
2.89
Years
|
|
|
0.58 |
|
|
|
2,026,208 |
|
|
|
0.58 |
|
0.61-0.80
|
|
|
917,500 |
|
1.91
Years
|
|
|
0.72 |
|
|
|
914,792 |
|
|
|
0.72 |
|
1.44-3.80
|
|
|
375 |
|
0.04
Years
|
|
|
3.80 |
|
|
|
375 |
|
|
|
3.80 |
|
|
|
|
10,944,483 |
|
|
|
$ |
0.27 |
|
|
|
9,352,725 |
|
|
$ |
0.28 |
|
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
NOTE 14 -
ACQUISITIONS AND DISPOSITIONS
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 our 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. 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: (i)
value of manufacturing GSA schedule with an assigned valued of $750,000
amortized straight line over five years; and (ii) 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 September 30, 2009: (i) value of manufacturing GSA schedule of
$487,500; and (ii) value of customer relationships of $302,543.
On March
30, 2009, we completed the sale of IceWEB Virginia, Inc., a wholly owned
subsidiary, to ABC Networks, Inc., a privately held U.S. company. Pursuant to
the terms of the transaction, ABC Networks, Inc. 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
|
|
|
(2,746,236
|
) |
|
|
$ |
(2,666,236 |
) |
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
|
|
|
2,799,801 |
|
Estimated
gain on the sale
|
|
$ |
2,666,236 |
|
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2009 and 2008
The
following table summarizes the required disclosures for the Company, as if the
disposition of IceWEB Virginia, Inc. had occurred at October 1,
2007.
|
|
For the Year Ended September
30,
|
|
|
|
2009
|
|
|
2008
|
|
Revenues,
net
|
|
$ |
1,969,772 |
|
|
$ |
1,407,725 |
|
|
|
|
|
|
|
|
|
|
Net
loss, excluding gain from sale in 2009
|
|
|
(3,425,195 |
) |
|
|
(2,248,048 |
) |
|
|
|
|
|
|
|
|
|
Net
income ( loss) per common share – basic and diluted
|
|
$ |
(0.08 |
) |
|
$ |
(0.12 |
) |
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 disposition occurred at October 1, 2007, nor is it
necessarily indicative of future operating results.
NOTE
15 - SEGMENT REPORTING
Although
the Company has a number of operating divisions, separate segment data has not
been presented as they meet the criteria for aggregation as permitted by ASC
Topic 280, “Segment Reporting” (formerly Statement of Financial Accounting
Standards (SFAS) No. 131, “Disclosures About Segments of an Enterprise and
Related Information”).
Our chief
operating decision-maker is considered to be our 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,
the Company has determined that it operates in a single operating segment,
specifically, web communications services. For the periods ended September 30,
2009 and 2008 all material assets and revenues of the Company were in the United
States.
NOTE
16 – SUBSEQUENT EVENTS
In
November 2009 we purchased an approximately 16% interest in VOIS Inc. (OTCBB:
VOIS), a development stage company that operates a social commerce website where
people can find and do business with buyers and sellers of on-demand work or
manufacturing around the world for $48,000. We acquired a strategic
interest in VOIS to enter the Cloud Computing marketplace and deploy our storage
products in conjunction with VOIS’ product offerings. In exchange for
this strategic interest, VOIS received access to distribute IceMAIL, IcePORTAL,
and IceSECURE to their existing and prospective new user base, and IceWEB’s
cloud storage network.
We have
evaluated events and transactions that occurred subsequent to September 30, 2009
through December 29, 2009, the date the financial instruments were issued, for
potential recognition or disclosure in the accompanying financial
statements. Other than the disclosures show, we did not identify any
events or transactions that should be recognized or disclosed in the
accompanying financial statements.
NOTE
17 – COMMITMENTS AND CONTINGENCIES
We are a
party to litigation which arises primarily in the ordinary course of business.
In the opinion of management, the ultimate disposition of such litigation should
not have a material adverse effect on our financial position or results of
operations.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A(T). CONTROLS AND PROCEDURES
Item
9A(T). Controls and Procedures
Evaluation of Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we have conducted
an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities and Exchange Act of 1934, as of the end of the period covered by this
report. Based on this evaluation, our principal executive officer and principal
financial officer concluded as of the evaluation date that our disclosure
controls and procedures were not effective.
Management's Annual Report
on Internal Control Over Financial Reporting
Management
of our company is responsible for establishing and maintaining adequate internal
control over financial reporting, as required by Sarbanes-Oxley (SOX) Section
404 A. Our company's internal control over financial reporting is a process
designed under the supervision of our company's Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our company's
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
As of
September 30, 2009, management assessed the effectiveness of our company's
internal control over financial reporting based on the criteria for effective
internal control over financial reporting established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting
such assessments. Based on that evaluation, they concluded that, during the
period covered by this report, such internal controls and procedures were not
effective to detect the inappropriate application of US GAAP rules as more fully
described below. This was due to deficiencies that existed in the design or
operation of our internal control over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses. The matters involving internal controls and procedures that
our company's management considered to be material weaknesses under the
standards of the Public Company Accounting Oversight Board were (1) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; and (2) ineffective controls over period end financial disclosure
and reporting processes. The aforementioned material weaknesses were identified
by our company's Chief Financial Officer in connection with the audit of our
financial statements as of September 30, 2009 and communicated the matters to
our management.
Management
believes that the material weaknesses set forth in items (1) and (2) above did
not have an effect on our company's financial results.
We are
committed to improving our financial organization. As part of this commitment,
we will prepare and implement sufficient written policies and checklists which
will set forth procedures for accounting and financial reporting with respect to
the requirements and application of US GAAP and SEC disclosure
requirements.
Management
believes that preparing and implementing sufficient written policies and
checklists will remedy the following material weaknesses (i) insufficient
written policies and procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements; and (ii) ineffective controls over period end financial close and
reporting processes.
We will
continue to monitor and evaluate the effectiveness of our internal controls and
procedures and our internal controls over financial reporting on an ongoing
basis and are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow. This annual
report does not include an attestation report of our company's registered
accounting firm regarding internal control over financial
reporting.
Management's
report is not subject to attestation by our company's registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission.
Changes in Internal Controls
Over Financial Reporting
There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rules 13a-15 or
15d-15 under the Exchange Act that occurred during the Registrant’s last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
During
fiscal 2009 we amended our 2000 Management and Director Equity Incentive and
Compensation Plan to increase the number of shares covered by the plan to an
aggregate sixty million shares.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following individuals serve as our executive officers and members of our Board
of Directors:
Name
|
|
Age
|
|
Positions
|
John
R. Signorello
|
|
43
|
|
Chairman
and Chief Executive Officer
|
Mark
B. Lucky
|
|
51
|
|
Chief
Financial Officer
|
Harold
F. Compton (1)(2)
|
|
62
|
|
Director
|
Raymond
H. Pirtle (2)
|
|
66
|
|
Director
|
Joseph
L. Druzak (1)
|
|
55
|
|
Director
|
Jack
Bush(1)
|
|
72
|
|
Director
|
Harry
E. Soyster
|
|
72
|
|
Director
|
(1)
Member of the Compensation Committee
(2)
Member of the Audit Committee
John R. Signorello.
Mr. Signorello has served as Chairman of the Board and CEO since March
2000. From 1991 until September 1997, Mr. Signorello served as the Chief
Executive Officer of STMS -”Solutions That Make Sense” - a private technology
company he founded that specialized in computer networks, systems integration
and information technology. In 1996, STMS was ranked the 17th fastest
growing technology company in America by The National Technology Council’s “The
Fast Five Hundred”. In September 1997, they were acquired by Steelcloud (Nasdaq:
SCLD), and Mr. Signorello remained as Vice President of Sales and Marketing
until November 1998. Mr. Signorello is an accomplished musician,
and serves as a principal in New York City Lights Entertainment.
Mr. Signorello received a B.B.A. in Marketing from Radford University in
1989.
Mark B. Lucky. Mark
B. Lucky has served as our Chief Financial Officer since March 2007. Since
October 30, 2009 he has also served as a member of the Board of Directors of
VOIS Inc. (OTCBB: VOIS), an entity in which we purchased an interest as
described elsewhere herein. He has over 20 years professional
experience in high growth/start-up ventures and established companies with
multi-industry experience including financial services, technology, software,
real estate, biotech and entertainment and media. Prior to joining IceWEB, he
consulted at Bearing Point on their financial restatement project. From 2004 to
2005 he was Vice President of Finance and Administration at Galt Associates,
Inc., a Sterling, Virginia informatics/ technology and medical research services
company and from 2001 to 2004 he was Vice President of Finance and
Administration of MindShare Design, Inc., a San Francisco, California based
internet technology company. While at both Galt Associates, Inc. and MindShare
Design, Inc. Mr. Lucky was the senior financial officer for the Company,
providing strategic and tactical analysis and managing day to day finance,
accounting, cash management, reporting and human resource responsibilities.
During his career Mr. Lucky has also been employed by Axys Pharmaceuticals,
Inc., a NASDAQ-listed South San Francisco, California-based early stage drug
discovery biotech company (acting CFO and Senior Director of Finance),
PriceWaterhouseCoopers, LLC, COMPASS Management and Leasing, Inc. (Vice
President - Finance 1997 to 1998), Mindscape, Inc. (Director of Financial
Planning and Analysis 1995 to 1996), The Walt Disney Company (Manager,
Operations Planning & Analysis, Manager of Corporate Planning 1991 to 1995),
and KPMG. Mr. Lucky is a member of the Board of Directors of VOIS Inc. and HASCO
Medical, Inc. Mr. Lucky is a CPA and received his B.A.,
Economics, from the University of California.
Harold F. Compton.
Mr. Compton has been a member of our Board of Directors since May 2005.
Mr. Compton has been a retailer for more than 30 years. Mr. Compton
joined CompUSA Inc. in 1994 as Executive Vice President-Operations, becoming
Executive Vice President and Chief Operating Officer in 1995, President of
CompUSA Stores in 1996 and Chief Executive Officer of CompUSA Inc. in 2000, a
position he held until his retirement in 2004. Prior to joining CompUSA, Inc.,
from 1993 until 1994 he served as President and COO of Central Electric Inc.,
Executive Vice President Operations and Human Resources, and Director of Stores
for HomeBase (1989 to 1993), Senior Vice President Operations and Director of
Stores for Roses Discount Department Stores (1986 to 1989), and held various
management positions including Store Manager, District Manager, Regional Vice
President and Zone Vice President for Zayre Corporation from 1965 to 1986. Since
1998 Mr. Compton was a member of the Board of Directors of Linens `N
Things, Inc., is currently a member of the Board of Directors of Maidenform
Brands, Inc. and is a member of its Compensation Committee and Corporate
Governance and Nominating Committee of the Board of Directors of that
company. Mr. Compton also serves as Chairman of the Board of HASCO
Medical, Inc.
Raymond Pirtle. Jr.
Mr. Pirtle has been a member of our Board of Directors since June 2005.
Mr. Pirtle is a veteran of the financial services industry, having spent
the past three decades in a variety of senior roles in corporate finance,
institutional sales, investment banking, and equity research. From 1966 until
1989 he was employed by J.C. Bradford & Co., a large regional investment
banking and brokerage, departing as a general partner. From 1989 until 2001 he
was a Director and co-head of institutional sales of Equitable Securities Corp.,
a banking and institutional brokerage firm later known as SunTrust Equitable. In
2001 he was one of the founding partners of Avondale Partners, LLC, an
institutional equity research and investment banking firm focusing on small
companies generally with a market cap in the range of $200 million to $2
billion. In March 2005 Mr. Pirtle founded Clairidge Company, LLC., a
consulting firm that represents micro-cap to small-cap companies with a public
equity valuation under $200 million or larger companies that are seeking to
attract broad attention from institutional portfolio managers, research analysts
or investment bankers. Since 1985 Mr. Pirtle has been serving on the board
of both public and private companies. He currently serves on the board of
Premier Global Services, Inc. (NYSE: PGI), a provider of business communications
services and business process solutions that enable enterprise customers to
automate and simplify components of their critical business processes and to
communicate more effectively with their constituents.
Joseph L. Druzak.
Mr. Druzak has been a member of our Board of Directors since June
2005. Since 1985 Mr. Druzak has served President and CEO of
Kreher Steel Company, LLC., a large, privately-held specialty steel distribution
company serving such diverse markets as automotive, rail, construction, oil and
gas, aerospace and defense.
Jack Bush.
Mr. Bush has been a member of our Board of Directors since August 2005.
Mr. Bush has served as the President of Raintree Partners, Inc., a
management consulting company, since September 1995. He is also currently
Chairman and Director of IdeaForest.com (Joann.com), and Vice Chairman and
Director of FPE Corporation (Framed Picture Enterprises). From 1995 to 1999 he
served as Chairman of Aaron Brothers Holding Company and of Carolina Art &
Frame Co. He was a founder, Chief Concept Officer and Director of Artistree Art,
Frame & Design Company. During this time he was also a Director of
Cyberplay, New York Coffee & Bagels, Bradlees Stores, Stage Stores, Telequip
and Jumbo Sports Company. He served on the board of Bradlees during a successful
reorganization and served as special assistant to the board of Stage Stores
during a successful reorganization. From 1997 to 1999 he served as Chairman, CEO
and President of Jumbo Sports Co. From 1991 to August 1995, he was President and
Director of Michaels Stores, Inc. and was Chairman of Michaels of
Canada. The Company grew from 136 to 530 stores and became the
largest arts and crafts retailer in the world. Upon leaving the NASDAQ-listed
company, sales reached $1.5 billion and had 22,000 associates. From 1990 to 1991
he served as Executive Vice President, Director of Operations and Stores for
Ames Department Stores. From 1985 to 1990 Mr. Bush was President and
Director of Roses stores, a NASDAQ-listed company. During his tenure the Company
grew to 226 stores with $1.6 billion in sales and 25,000 associates. From 1980
to 1985 He served as Vice President of Zayre Corporation, an NYSE-listed company
responsible for 105 stores and $750 million in sales. From 1958 to 1980 he
served in a variety of positions with J.C. Penney Company, an NYSE-listed
company. Mr. Bush was a U.S. Air Force Reserve officer and holds a Bachelor
of Science from the University of Missouri.
Harry E. Soyster.
General Soyster has been a member of our Board of Directors since
March 2008. General Soyster served as Director, Defense Intelligence
Agency during Desert Shield/Storm. He also served as Deputy Assistant
Chief of Staff for Intelligence, Department of the Army; Commanding General,
U.S. Army Intelligence and Security Command; and in the Joint Reconnaissance
Center, Joint Chiefs of Staff. In Vietnam, he was a field artillery
battalion operations officer, and was twice decorated for valor and wounded in
action. Upon retirement, General Soyster was Vice President for
International Operations with Military Professional Resources Incorporated where
he helped pioneer the concept of providing retired military expertise to support
emerging democracies in Eastern Europe and Africa. In 2006, he served
as Special Assistant to the SEC Army for World War II 60th
Anniversary Commemorations. Currently, he serves as consultant to
numerous corporations and participates in studies by the Center for Strategic
and International Studies and the National Institute for Public
Policy. In 1957, General Soyster graduated from the United States
Military Academy with a Bachelor of Science degree in Engineering. He also holds
a Masters of Science degree in Chemistry from Pennsylvania State University in
Chemistry and a Masters of Science degree in Management from the University of
Southern California. His military education includes completion of the Field
Artillery School, Basic and Advanced Courses; the U.S. Army Command and General
Staff College; and the National War College. General Soyster has an
active TS/SCI (Top Secret/Sensitive Compartmented Information)
clearance.
There are
no family relationships between any of the executive officers and directors.
Directors are elected at our annual meeting of stockholders and hold office
until the next annual meeting of stockholders or until his or her resignation,
removal, or death.
Committees
of the Board of Directors
Our Board
of Directors has created both an Audit Committee and a Compensation Committee.
We do not have a Nominating Committee or any committee performing a similar
function. The functions that such a committee would undertake are being
undertaken by the entire board as a whole. We do not have a policy regarding the
consideration of any director candidates which may be recommended by our
stockholders, including the minimum qualifications for director candidates, nor
has our Board of Directors established a process for identifying and evaluating
director nominees. We have not adopted a policy regarding the handling of any
potential recommendation of director candidates by our stockholders, including
the procedures to be followed. Our Board has not considered or adopted any of
these policies as we have never received a recommendation from any stockholder
for any candidate to serve on our Board of Directors or any inquiry as to what
the procedures may be if a stockholder wished to make such a
recommendation. Since 2008 the Board has been developing a nominating
and approval process and policy to guide the handling of potential
recommendations of board candidates. While there have been no nominations of
additional directors proposed, in the event such a proposal is made, all members
of our Board will participate in the consideration of director
nominees.
Audit Committee. The Audit
Committee of our Board of Directors was formed to assist the Board of Directors
in fulfilling its oversight responsibilities for the integrity of our
consolidated financial statements, compliance with legal and regulatory
requirements, the independent registered public accounting firm’s qualifications
and independence, and the performance of our internal audit function and
independent auditors. The Audit Committee will also prepare the report that SEC
rules require be included in our annual proxy statement. The Audit Committee has
adopted a charter which sets forth the parameters of its authority The Audit
Committee Charter provides that the Audit Committee is empowered
to:
•
|
Appoint, compensate, and oversee
the work of the independent registered public accounting firm employed by
our company to conduct the annual audit. This firm will report directly to
the audit committee;
|
•
|
Resolve any disagreements between
management and the auditor regarding financial
reporting;
|
•
|
Pre-approve all auditing and
permitted non-audit services performed by our external audit
firm;
|
•
|
Retain independent counsel,
accountants, or others to advise the committee or assist in the conduct of
an investigation;
|
•
|
Seek any information it requires
from employees - all of whom are directed to cooperate with the
committee’s requests - or external
parties;
|
•
|
Meet with our officers, external
auditors, or outside counsel, as necessary;
and
|
•
|
The committee may delegate
authority to subcommittees, including the authority to pre-approve all
auditing and permitted non-audit services, provided that such decisions
are presented to the full committee at its next scheduled
meeting.
|
Each
Audit Committee member is required to:
•
|
satisfy the independence
requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934,
and all rules and regulations promulgated by the SEC as well as the rules
imposed by the stock exchange or other marketplace on which our securities
may be listed from time to time,
and
|
•
|
meet the definitions of
“non-employee director” for purposes of SEC Rule 16b-3 and “outside
director” for purposes of Section 162(m) of the Internal Revenue
Code.
|
Each
committee member is required to be financially literate and at least one member
is to be designated as the “financial expert,” as defined by applicable
legislation and regulation. No committee member is permitted to simultaneously
serve on the audit committees of more than two other public companies.
Mr. Pirtle is considered an “audit committee financial expert” under the
definition under Item 407 of Regulation S-K. As we expand our Board of Directors
with additional independent directors the number of directors serving on the
Audit Committee will also increase.
A copy of
the Audit Committee Charter is available on our website at www.iceweb.com under
the “Investor Relations” tab.
Compensation Committee. The
Compensation Committee was appointed by the Board to discharge the Board’s
responsibilities relating to:
•
|
compensation of our
executives,
|
•
|
equity-based compensation plans,
including, without limitation, stock option and restricted stock plans, in
which officers or employees may participate,
and
|
•
|
arrangements with executive
officers relating to their employment relationships with our company,
including employment agreements, severance agreements, supplemental
pension or savings arrangements, change in control agreements and
restrictive covenants.
|
The
Compensation Committee has adopted a charter. The Compensation Committee charter
provides that the Compensation Committee has overall responsibility for
approving and evaluating executive officer compensation plans, policies and
programs of our company, as well as all equity-based compensation plans and
policies. In addition, the Compensation Committee oversees, reviews and approves
all of our ERISA and other employee benefit plans which we may establish from
time to time. The Compensation Committee is also responsible for producing an
annual report on executive compensation for inclusion in our proxy statement and
assisting in the preparation of certain information to be included in other
periodic reports filed with the SEC.
Each
Compensation Committee member is required to:
•
|
satisfy the independence
requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934,
and all rules and regulations promulgated by the SEC as well as the rules
imposed by the stock exchange or other marketplace on which our securities
may be listed from time to time,
and
|
•
|
meet the definitions of
“non-employee director” for purposes of SEC Rule 16b-3 and “outside
director” for purposes of Section 162(m) of the Internal Revenue
Code.
|
Pursuant
to our Compensation Committee Charter, the Compensation Committee is charged
with evaluating and recommending for approval by the Board of Directors the
compensation of our executive officers. In addition, the Compensation Committee
also evaluates and makes recommendations to the entire Board of Directors
regarding grants of options which may be made as director compensation. The
Compensation Committee does not delegate these authorities to any other persons
nor does it use the services of any compensation consultants.
Messrs. Compton,
Druzak and Bush are the members of our Compensation Committee. As we expand our
Board of Directors with additional independent directors the number of directors
serving on the Compensation Committee will also increase. A copy of the
Compensation Committee Charter is available on our website at www.iceweb.com
under the “Investor Relations” tab.
Code of
Ethics
In May
2005, we adopted a Code of Business Conduct and Ethics applicable to our Chief
Executive Officer, principal financial and accounting officers and persons
performing similar functions. A Code of Business Conduct and Ethics is a written
standard designed to deter wrongdoing and to promote:
|
•
|
honest and ethical
conduct,
|
|
•
|
full, fair, accurate, timely and
understandable disclosure in regulatory filings and public
statements,
|
|
•
|
compliance with applicable laws,
rules and regulations,
|
|
•
|
the prompt reporting violation of
the code, and
|
|
•
|
accountability for adherence to
the Code.
|
A copy of
our Code of Business Conduct and Ethics is filed as an exhibit to this annual
report. We will provide a copy, without charge, to any person desiring a copy of
the Code of Business Conduct and Ethics, by written request to us at our
principal offices to the attention of Corporate Secretary.
Section
16(a) Beneficial Reporting Compliance
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
under Rule 16a-3(d) of the Securities Exchange Act during the fiscal year ended
September 30, 2009 and Forms 5 and amendments thereto furnished to us with
respect to the fiscal year ended September 30, 2009, as well as any written
representation from a reporting person that no Form 5 is required, we are aware
that the following Board members and officers failed to file on a timely basis,
as disclosed in the aforementioned Forms, reports required by Section 16(a) of
the Securities Exchange Act during the fiscal year ended September 30, 2009,
except as set forth below:
|
•
|
Mr. Signorello failed to
file 1 report covering 1
transaction,
|
|
•
|
Mr. Druzak failed to file 1
reports covering 1 transaction,
and
|
|
•
|
Mr. Lucky failed to file 1
reports covering 1
transaction.
|
All such
Form 4s have subsequently been filed by the reporting person.
ITEM
11. Executive Compensation
Summary
Compensation Table
The
following table summarizes all compensation recorded by us in each of the last
two completed fiscal years for our principal executive officer, each other
executive officer serving as such whose annual compensation exceeded $100,000
and up to two additional individuals for whom disclosure would have been made in
this table but for the fact that the individual was not serving as an executive
officer of our company at September 30, 2009. The value attributable to any
option awards is computed in accordance with accordance with ASC Topic 718,
“Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments.
SUMMARY COMPENSATION
TABLE
Name and
principal position
(a)
|
|
Year
(b)
|
|
Salary
($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards
($)
(e)
|
|
Option
Awards
($)
(f)
|
|
Non-Equity
Incentive Plan
Compensation
($)
(g)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
|
|
All
Other
Compensation
($)
(i)
|
|
|
Total
($)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Signorello
(1)
|
|
2009
|
|
|
145,230 |
|
|
|
|
392,789 |
|
|
|
|
|
|
|
|
8,174 |
|
|
|
556,342 |
|
|
|
2008
|
|
|
235,500 |
|
|
|
|
559,500 |
|
|
- |
|
|
|
|
|
|
5,736 |
|
|
|
800,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
B. Lucky (2)
|
|
2009
|
|
|
147,500 |
|
|
|
|
176,148 |
|
|
- |
|
|
|
|
|
|
7,403 |
|
|
|
331,051 |
|
|
|
2008
|
|
|
211,250 |
|
|
|
|
158,900 |
|
|
9,601 |
|
|
|
|
|
|
5,736 |
|
|
|
385,487 |
|
(1) Mr. Signorello
is our Chief Executive Officer. All other compensation in fiscal 2009 includes
$8,174 which represents the value of health insurance premiums we pay for Mr.
Signorello. In fiscal 2009, we granted him 8,147,222 shares of our
restricted common stock, valued at $392,789. The compensation for Mr.
Signorello in fiscal 2009 included $26,500 in salary that had been accrued
and not yet paid. All other compensation in fiscal 2008 includes
$5,736 which represents the value of health insurance premiums we pay for
Mr. Signorello. In fiscal 2008 we granted him 1,500,000 shares of our
restricted common stock, valued at $559,500. The compensation for Mr.
Signorello in fiscal 2008 included $25,500 in salary that had been accrued
and not yet paid. The compensation table above excludes the
compensation provided to Mr. Signorello as a member of the Board of
Directors.
(2) Mr. Lucky
is our Chief Financial Officer. All other compensation in fiscal 2009 and 2008
represents the value of health insurance premiums we pay for Mr. Lucky. In
fiscal 2009, we granted him 3,100,606 shares of our restricted common stock,
valued at $176,148. The compensation for Mr. Lucky in fiscal 2009
included $40,000 in salary that had been accrued and not yet
paid. In fiscal 2008 we granted him options to purchase 50,000 shares
of our common stock with an exercise price of $0.001 valued at
$9,601. The compensation for Mr. Lucky in fiscal 2008 included
$12,750 in salary that had been accrued and not yet paid
How Mr. Signorello’s compensation is
determined
Mr. Signorello,
who has served as our CEO since March 2000, is not a party to an employment
agreement with our company. His compensation is determined by the Compensation
Committee of our Board of Directors. The Compensation Committee considered a
number of factors in determining Mr. Signorello’s compensation including
the scope of his duties and responsibilities to our company and the time he
devotes to our business. The Compensation Committee did not consult with any
experts or other third parties in fixing the amount of Mr. Signorello’s
compensation. During fiscal 2009 Mr. Signorello’s compensation package
included a base salary of $250,000 and company provided health care
benefits. Mr. Signorello’s compensation excludes option grants he
received as a member of the Board of Directors.
How
Mr. Lucky’s compensation is determined
Mr. Lucky,
who has served as our CFO since March 2007, is not a party to an employment
agreement with our company. His compensation is determined by the Compensation
Committee of our Board of Directors. The Compensation Committee considered a
number of factors in determining Mr. Lucky’s compensation including the
scope of his duties and responsibilities to our company and the time he devotes
to our business. The Compensation Committee did not consult with any experts or
other third parties in fixing the amount of Mr. Lucky’s compensation.
During fiscal 2009 Mr. Lucky’s compensation package included a base salary
of $225,000 and company provided health care benefits. Mr. Lucky did not receive
any stock option grants during this fiscal year. The amount of
compensation payable to Mr. Lucky can be increased at any time upon the
determination of the Compensation Committee of our Board of
Directors.
Director
Compensation
We have
not established standard compensation arrangements for our directors and the
compensation payable to each individual for their service on our Board is
determined from time to time by our Board of Directors based upon the amount of
time expended by each of the directors on our behalf. The following table
provides information concerning the compensation of our directors for their
services as members of our Board of Directors for the fiscal year ended
September 30, 2009.
Name
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Harold
Compton (1)
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
Jack
Bush (1)
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
John
R. Signorello (1)
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
Raymond
Pirtle (1)
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
Harry
E. Soyster (1)
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
Joseph
Druzak (1)
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,149 |
|
(1)
|
Includes
the value of stock options issued during the year to purchase 250,000
shares of our common stock at an exercise price of $0.10 per share, and
options to purchase 250,000 shares of our common stock at an exercise
price of $0.075 per share.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding as of September 30, 2009:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
|
|
OPTION AWARDS
|
|
STOCK AWARDS
|
Name
(a)
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
|
|
Option
Exercise
Price
($)
(e)
|
|
Option
Expiration
Date
(f)
|
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
(g)
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
(h)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(i)
|
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
R. Signorello
|
|
100,000
|
|
-
|
|
|
|
$
|
0.70
|
|
04/29/2012
|
|
|
|
|
|
|
|
|
|
|
435,000
|
|
65,000
|
|
|
|
$
|
0.58
|
|
05/06/2015
|
|
|
|
|
|
|
|
|
|
|
187,500
|
|
62,500
|
|
|
|
$
|
0.60
|
|
09/06/2012
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
-
|
|
|
|
$
|
0.10
|
|
03/09/2014
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
-
|
|
|
|
$
|
0.075
|
|
05/11/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Lucky
|
|
87,000
|
|
13,000
|
|
|
|
$
|
0.58
|
|
5/6/2012
|
|
|
|
|
|
|
|
|
|
|
126,000
|
|
24,000
|
|
|
|
$
|
0.55
|
|
6/14/2012
|
|
|
|
|
|
|
|
|
|
|
112,500
|
|
37,500
|
|
|
|
$
|
0.60
|
|
9/6/2012
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
35,000
|
|
|
|
$
|
0.001
|
|
3/18/2013
|
|
|
|
|
|
|
|
|
STOCK
OPTION PLAN
In August
2000, our Board of Directors adopted our 2000 Management and Director Equity
Incentive and Compensation Plan (the “Plan”). The Plan was approved by our
stockholders in August 2001. As amended in May 2006, June, 2007, February, 2009,
and October, 2009, we have reserved an aggregate of 60,000,000 shares of common
stock for issuance under the Plan. At November 30, 2009 we have granted options
to purchase 10,944,108 shares of our common stock under the Plan. Our Board of
Directors (or at their discretion a committee of our Board members) administers
the Plan including, without limitation, the selection of recipients of awards
under the Plan, the granting of stock options, restricted shares or performance
shares, the determination of the terms and conditions of any such awards, the
interpretation of the Plan and any other action they deem appropriate in
connection with the administration of the Plan.
The
purpose of the Plan is to advance our interests and those of our stockholders by
providing a means of attracting and retaining key employees, directors and
consultants. In order to serve this purpose, we believe the Plan encourages and
enables key employees, directors and consultants to participate in our future
prosperity and growth by providing them with incentives and compensation based
on our performance, development and financial success. Participants in the Plan
may include our 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 our 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 our 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 our officers or other key employees are eligible to receive incentive
stock options and performance share grants. Any non-qualified stock option
granted under our 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.
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 our 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:
•
|
delivery of unrestricted shares
of our common stock having a fair market value on the date of delivery
equal to the exercise price,
or
|
•
|
surrender of shares of our 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.
|
All Plan
options are nonassignable and nontransferable, except by will or by the laws of
descent and distribution and, during the lifetime of the optionee, may be
exercised only by such optionee. At the discretion of the Board of Directors, it
may approve the irrevocable transfer, without payment, of non-qualified options
to the option holder’s spouse, children, grandchildren, nieces or nephews, or to
the trustee of a trust for the principal benefit of one or more such persons, or
to a partnership whose partners are one or more of such persons. If an
optionee’s employment is terminated for any reason, other than due to his or her
death, disability or termination for cause, or if an optionee is not our
employee but is a member of our Board of Directors and his or her service as a
director is terminated for any reason, other than due to his or her death or
disability, the Plan option granted may be exercised on the earlier of the
expiration date or 90 days following the date of termination. If the optionee
dies during the term of his or her employment, the Plan option granted to him or
her shall lapse to the extent unexercised on the earlier of the expiration date
of the Plan option or the date one year following the date of the optionee’s
death. If the optionee’s employment, membership on the Board of Directors or
engagement as a consultant terminates by reason of the optionee’s retirement,
then the Plan option granted may be exercised until the earlier of 90 days
following the date of termination or the expiration date. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Internal Revenue Code, the Plan option granted to him or her lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
At the
time of the restricted share grant, the Board of Directors may determine the
vesting schedule of such shares and that after vesting, such shares may be
further restricted as to transferability or be subject to repurchase by us or
forfeiture upon the occurrence of certain events. Awards of restricted shares
must be accepted by the participant within 30 days of the grant.
At the
time of the award of performance shares, the Board of Directors shall establish
a range of performance goals to be achieved during the performance period,
including, without limitation, earnings, return on capital, or any performance
goal approved by our stockholders in accordance with Section 162(m) of the
Internal Revenue Code. Attainment of the highest performance goal for the
performance period will earn 100% of the performance shares awarded for the
performance period; failure to attain the lowest performance goal will result in
the participant earning no performance shares. Attainment of the performance
goals will be calculated from our financial statements, excluding changes in
federal income tax rates and the effect of non-recurring and extraordinary
items. The performance goals may vary for different performance periods and need
not be the same for each participant receiving an award during a performance
period.
If the
participant’s employment by us, membership on our Board of Directors, or
engagement by us as a consultant is terminated before the end of any performance
period, or upon the participant’s death, retirement or disability, the Board of
Directors, taking into consideration the performance of such participant and our
performance over the performance period, may authorize the issuance to the
participant or his or her legal representative or designated beneficiary all or
a portion of the performance shares which would have been issued to him or her
had the participant’s employment, Board membership or consulting engagement
continued to the end of the performance period. If the participant’s employment,
Board membership or consulting engagement terminates before the end of the
performance period for any other reason, all performance shares are
forfeited.
Notwithstanding
the foregoing, but subject to any stockholder approval or other requirements of
Section 162(m) of the Internal Revenue Code, the Board of Directors in its
discretion and as determined at the time of award of the performance shares, may
provide the participant with the option of receiving cash in lieu of the
performance shares in an amount determined at the time of award including,
without limitation, by one or more of the following methods:
•
|
the fair market value of the
number of shares subject to the performance shares agreement on the date
of award, or
|
•
|
part or all of any increase in
the fair market value since such date,
or
|
•
|
part or all of any dividends paid
or payable on the number of shares subject to the performance share
agreement, or
|
•
|
any other amounts which in the
Board’s sole discretion are reasonably related to the achievement of the
applicable performance goals,
or
|
•
|
any combination of the
foregoing.
|
The
purchase price for restricted shares or performance shares granted under the
Plan shall be set by the Board of Directors but may not be less than par value.
Payment of the purchase price for the restricted shares or performance share may
be made in either,
|
•
|
by delivery of unrestricted
shares of our common stock having a
fair
|
|
•
|
market value on the date of such
delivery equal to the total
|
|
•
|
a combination of either of these
methods.
|
The
restricted stock awards, performance stock awards and stock options are subject
to accelerated vesting in the event of our change of control. We may, at our
option, terminate all unexercised stock options 30 days after a change in
control and pay to the participant holding these unexercised options cash in an
amount equal to the difference between fair market value and the exercise price
of the stock option. If the fair market value is less than the exercise price,
we may terminate the options without payment to the holder. The per share
purchase price of shares subject to Plan options granted under the Plan or
related to performance share awards or restricted share awards may be adjusted
in the event of certain changes in our capitalization, but any such adjustment
shall not change the total purchase price payable upon the exercise in full of
such option or award. No participant in our Plan has any rights as a stockholder
until the shares subject to the Plan options or stock awards have been duly
issued and delivered to him or her.
We have
an option to purchase any shares of our common stock which have been issued to
Plan participants pursuant to restricted stock awards, performance stock awards
or stock options if the participant ceases to be our employee, a member of our
Board of Directors or a consultant to us for any reason. We must exercise our
repurchase right at the time of termination. The purchase price for any shares
we repurchase will be equal to the fair market value of the our total
stockholders’ equity divided by the total outstanding shares of our common stock
on the last day of that calendar month, calculated on a fully-diluted basis. If
we exercise our repurchase right, we much close the transaction within 20 days
from the termination date. At closing, we are entitled to delivery of a one-year
promissory note as payment for the purchase price or, at our option, we may pay
same in cash at closing.
We also
have a right of first refusal to meet the offer if the holder of any shares of
our common stock awarded or issued pursuant to our Plan desires to sell such
shares to a third party.
The Board
of Directors may amend, suspend or terminate our Plan at any time, except that
no amendment shall be made which:
•
|
affects outstanding Plan options
or any exercise right thereunder,
or
|
•
|
extends the term of any Plan
option beyond 10 years, or
|
•
|
extends the termination date of
the Plan.
|
Unless
the Plan shall be earlier suspended or terminated, the Plan shall terminate 10
years from the date of the Plan’s adoption by our stockholders. Any such
termination of our Plan shall not affect the validity of any Plan options
previously granted there under.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
At
December 22, 2009, there were 82,469,617 shares of our common stock issued and
outstanding. Our common stock is the only outstanding class of our voting
securities. The following table sets forth, as of December 22, 2009, information
known to us relating to the beneficial ownership of these shares
by:
|
•
|
each person who is the beneficial
owner of more than 5% of the outstanding shares of common
stock;
|
|
•
|
each executive officer;
and
|
|
•
|
all executive officers and
directors as a group.
|
Unless
otherwise indicated, the address of each beneficial owner in the table set forth
below is care of 22900 Shaw Road, Suite 111, Sterling, Virginia
20166.
We
believe that all persons named in the table have sole voting and investment
power with respect to all shares of beneficially owned by them. Under securities
laws, a person is considered to be the beneficial owner of securities he owns
and that can be acquired by him within 60 days from December 22, 2009 upon the
exercise of options, warrants, convertible securities or other understandings.
We determine a beneficial owner’s percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of December 15, 2009,
have been exercised or converted. Unless otherwise noted, the address of each of
these principal stockholders is our principal executive offices.
Name of Beneficial Owner
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
|
Percentage
of Class
|
|
|
|
|
|
|
|
|
John
R. Signorello (1)
|
|
|
12,144,785 |
|
|
|
14.5 |
% |
Hal
Compton (2)
|
|
|
2,522,833 |
|
|
|
3.0 |
% |
Raymond
H. Pirtle (3)
|
|
|
997,167 |
|
|
|
1.2 |
% |
Joseph
L. Druzak (4)
|
|
|
2,300,293 |
|
|
|
2.8 |
% |
Mark
B. Lucky (5)
|
|
|
4,273,673 |
|
|
|
5.1 |
% |
Ed
Soyster (6)
|
|
|
581,000 |
|
|
|
0.7 |
% |
Jack
Bush (7)
|
|
|
1,997,167 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
All
executive officers and as a group (seven persons)
|
|
|
24,816,918 |
|
|
|
29.7 |
% |
(1) The number of shares
beneficially owned by Mr. Signorello includes options to purchase 50,000
shares of our common stock at an exercise price of $0.47 per share, options to
purchase 100,000 shares of our common stock at an exercise price of $0.70 per
share, options to purchase 490,000 shares of our common stock at an exercise
price of $0.58 per share, options to purchase 232,500 shares of our common stock
at an exercise price of $0.60 per share, options to purchase 250,000 shares of
our common stock at an exercise price of $0.10 per share and options to purchase
250,000 shares of our common stock at an exercise price of $0.075 per
share. The number of shares beneficially owned by Mr. Signorello
excludes 626,667 shares of our common stock issuable upon the conversion of
626,667 shares of Series B Convertible Preferred Stock. Under the
designations, rights and preferences of such security, the Series B Convertible
Preferred Stock is not convertible by the holder if such conversion would result
in the holder becoming the beneficial owner of in excess of 4.99% of our common
stock. This provision may be waived or
amended only with the consent of the holders of all of the Series B
Convertible Preferred
Stock and the consent of the holders of a majority of our outstanding shares of common stock who are not our affiliates.
(2) The
number of shares beneficially owned by Mr. Compton includes options to
purchase 30,000 shares of our common stock at an exercise price of $0.80 per
share, options to purchase 50,000 shares of our common stock at an exercise
price of $0.47 per share, options to purchase 100,000 shares of our common stock
at an exercise price of $0.70, options to purchase 139,500 shares of our common
stock at an exercise price of $0.60 per share, options to purchase 139,000
shares of our common stock at an exercise price of $0.001 per share, options to
purchase 250,000 shares of our common stock at an exercise price of $0.10 per
share, and options to purchase 250,000 shares of our common stock at an exercise
price of $0.075 per share.
(3) The
number of shares beneficially owned by Mr. Pirtle includes options to
purchase 30,000 shares of our common stock at an exercise price of $0.80 per
share, options to purchase 50,000 shares of our common stock at an exercise
price of $0.47 per share, options to purchase 100,000 shares of our common stock
at an exercise price of $0.70 per share, options to purchase 139,500 shares of
our common stock at an exercise price of $0.60 per share, options to purchase
86,000 shares of our common stock at an exercise price of $0.001 per share,
options to purchase 250,000 shares of our common stock at an exercise price of
$0.10 per share, and options to purchase 250,000 shares of our common stock at
an exercise price of $0.075 per share.
(4) The
number of shares beneficially owned by Mr. Druzak includes options to
purchase 30,000 shares of our common stock at an exercise price of $0.80 per
share, options to purchase 50,000 shares of our common stock at an exercise
price of $0.47 per share, options to purchase 100,000 shares of our common stock
at an exercise price of $0.70 per share, options to purchase 139,500 shares of
our common stock at an exercise price of $0.60 per share, options to purchase
860,000 shares of our common stock at an exercise price of $0.001 per share,
options to purchase 250,000 shares of our common stock at an exercise price of
$0.10 per share, and options to purchase 250,000 shares of our common stock at
an exercise price of $0.075 per share.
(5) The
number of shares beneficially owned by Mr. Lucky includes options to
purchase 98,000 shares of our common stock at an exercise price of $0.58 per
share, options to purchase 145,500 shares of our common stock at an exercise
price of $0.55 per share, options to purchase 139,500 shares of our common stock
at an exercise price of $0.60 per share, and options to purchase 20,000 shares
of our common stock at an exercise price of $0.001 per share.
(6) The
number of shares beneficially owned by Mr. Soyster includes options to
purchase 18,750 shares of our common stock at an exercise price of $0.37 per
share, options to purchase 66,000 shares of our common stock at an exercise
price of $0.001 per share, options to purchase 250,000 shares of our common
stock at an exercise price of $0.10 per share, and options to purchase 250,000
shares of our common stock at an exercise price of $0.075 per
share.
(7) The
number of shares beneficially owned by Mr. Bush includes options to
purchase 30,000 shares of our common stock at an exercise price of $0.80 per
share, options to purchase 50,000 shares of our common stock at an exercise
price of $0.47 per share, options to purchase 100,000 shares of our common stock
at an exercise price of $0.70 per share, options to purchase 139,500 shares of
our common stock at an exercise price of $0.60 per share, options to purchase
86,000 shares of our common stock at an exercise price of $0.001 per share,
options to purchase 250,000 shares of our common stock at an exercise price of
$0.10 per share, and options to purchase 250,000 shares of our common stock at
an exercise price of $0.075 per share.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We are not a party to any transactions
since the beginning of fiscal year 2009 or which are currently proposed with any
“related person” as that term is described in Regulation S-K in an amount which
exceeds $120,000.
Director
Independence
Messrs. Compton,
Pirtle, Druzak, Soyster, and Bush, members of our Board of Directors, are
“independent” within the meaning of Rule 5605 of the NASDAQ Marketplace
Rules.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT
FEES
The
aggregate fees billed for professional services rendered by our principal
accountant for the audit of our annual financial statements, review of our
financial statements included in our quarterly reports and other fees that are
normally provided by our accountant in connection with our audits and reviews
for the fiscal Years ended September 30, 2009 and 2008 is $66,000 and $61,500,
respectively.
AUDIT-RELATED
FEES
This
category consists of assurance and related services by the independent auditors
that are reasonably related to the performance of the audit or review of our
financial statements and are not reported above under “Audit Fees.” The services
for the fees disclosed under this category include consultation regarding our
correspondence with the SEC and other accounting consulting. Our audit-related
and review fees for the fiscal Years ended September 30, 2009 and 2008 were $0
and $0.
TAX
FEES
The
aggregate fees billed for professional services rendered by our principal
accountant for tax compliance, tax advices and tax planning for the fiscal Years
ended September 30, 2009 and 2008 is $0 and $0, respectively.
ALL OTHER
FEES
There
were no other fees billed by our principal accountant for the fiscal Years ended
September 30, 2009 and 2008, except as provided above.
Our Board
of Directors has adopted a procedure for pre-approval of all fees charged by our
independent auditors. Under the procedure, the Board approves the engagement
letter with respect to audit, tax and review services. Other fees are subject to
pre-approval by the Board, or, in the period between meetings, by a designated
member of Board. Any such approval by the designated member is disclosed to the
entire Board at the next meeting. The audit and tax fees paid to the auditors
with respect to fiscal year 2009 were pre-approved by the entire Board of
Directors.
PART
IV
ITEM
15. EXHIBITS
2.1
|
Agreement
and Plan of Reorganization and Stock Purchase Agreement with Disease S.I.
Inc.(4)
|
2.2
|
Agreement
and Plan of Merger with IceWEB Communications, Inc. (8)
|
2.3
|
Agreement
and Plan of Merger with Seven Corporation (9)
|
3.1
|
Certificate
of Incorporation (1)
|
3.2
|
Certificate
of Amendment to Certificate of Incorporation (1)
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation (1)
|
3.4
|
Certificate
of Amendment to Certificate of Incorporation (1)
|
3.5
|
Certificate
of Amendment to Certificate of Incorporation (2)
|
3.6
|
Certificate
of Amendment to Certificate of Incorporation (3)
|
3.7
|
Certificate
of Amendment to Certificate of Incorporation (11)
|
3.8
|
Certificate
of Designations of Series A Convertible Preferred Stock
(12)
|
3.9
|
Certificate
of Amendment to Certificate of Incorporation (13)
|
3.10
|
Bylaws
(1)
|
3.11
|
Certificate
of Designations of Series B Convertible Preferred Stock
(17)
|
4.1
|
Form
of Common Stock Purchase Warrant “A” (12)
|
4.2
|
Form
of Common Stock Purchase Warrant “B” (12)
|
4.3
|
Form
of Common Stock Purchase Warrant “C” (12)
|
4.4
|
Form
of Series H Common Stock Purchase Warrant (16)
|
4.5
|
Form
of Series I Common Stock Purchase Warrant (16)
|
4.6
|
Form
of $0.70 Common Stock Purchase Warrant “A” (16)
|
4.7
|
Form
of Comerica Bank warrant (16)
|
4.8
|
Form
of Common Stock Purchase Warrant “D” (17)
|
4.9
|
Form
of Common Stock Purchase Warrant “E” (17)
|
4.10
|
Form
of Common Stock Purchase Warrant “F” (17)
|
4.11
|
Form
of Common Stock Purchase Warrant “G” (18)
|
4.12
|
Form
of Common Stock Purchase Warrant for Sand Hill Finance LLC
(18)
|
4.13
|
Secured
Convertible Debenture for Sand Hill Finance LLC
|
4.14
|
Warrant
Amendment Agreement with Sand Hill Finance LLC
|
10.1
|
Acquisition
Agreement with North Orlando Sports Promotions, Inc.
(1)
|
10.2
|
Asset
Purchase Agreement with Raymond J. Hotaling (5)
|
10.3
|
2000
Management and Director Equity Incentive and Compensation Plan
(6)
|
10.4
|
Stock
Purchase Agreement with Health Span Sciences, Inc. (7)
|
10.4
|
Stock
Purchase Agreement with Health Span Sciences, Inc. (7)
|
10.5
|
Stock
Purchase and Exchange Agreement with Interlan Communications
(9)
|
10.6
|
Preferred
Stock Purchase Agreement dated March 30, 2005 (12)
|
10.7
|
Registration
Rights Agreement with Barron Partners LP (12)
|
10.8
|
Asset
and Stock Purchase Agreement for iPlicity, Inc.(16)
|
10.9
|
Asset
and Stock Purchase Agreement for DevElements, Inc. of Virginia
(15)
|
10.10
|
Form
of Loan and Security Agreement with Comerica Bank (16)
|
10.11
|
Forbearance
Agreement (16)
|
10.12
|
Sublease
Agreement for principal executive offices (16)
|
10.13
|
Preferred
Stock Purchase Agreement dated September 8, 2005 (18)
|
10.14
|
Registration
Rights Agreement with Barron Partners LP (18)
|
10.15
|
Financing
Agreement with Sand Hill Finance LLC
(18)
|
10.16
|
Lease
Agreement for principal executive offices (19)
|
10.17
|
Retailer
Marketing Agreement with CompUSA (20)
|
10.18
|
Stock
Purchase Agreement with Inline Corporation (21)
|
10.19
|
First
Amendment to Stock Purchase Agreement with Inline Corporation
(21)
|
10.20
|
Convertible
Debenture with Sand Hill Finance LLC (22)
|
10.21
|
Stock
Purchase Agreement for Sale of IceWEB Virginia, Inc.
(23)
|
10.22
|
Series
C Preferred Stock Purchase Agreement (24)
|
14.1
|
Code
of Business Conduct and Ethics (16)
|
21.1
|
Subsidiaries
of the registrant (16)
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer
*
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer
*
|
32.1
|
Section
906 Certification of Chief Executive Officer *
|
32.2
|
Section
906 Certification of Chief Financial Officer
*
|
* filed
herewith
(1)
|
Incorporated by
reference to the Form 10-SB, file number 000-27865, filed
with on October 28, 1999, as
amended.
|
(2)
|
Incorporated
by reference to the definitive Information Statement on Schedule
14C as filed on June 18,
2001.
|
(3)
|
Incorporated
by reference to the definitive Information Statement on Schedule
14C as filed on June 26,
2001.
|
(4)
|
Incorporated
by reference to the Report on Form 8-K as filed on June 6,
2001.
|
(5)
|
Incorporated
by reference to the Report on Form 8-K as filed on July 26,
2001.
|
(6)
|
Incorporated
by reference to the definitive Information Statement on Schedule
14C as filed on July 23,
2001.
|
(7)
|
Incorporated
by reference to the Report on Form 8-K as filed on December 4,
2001.
|
(8)
|
Incorporated
by reference to the Report on Form 8-K as filed on April 4,
2002.
|
(9)
|
Incorporated
by reference to the Report on Form 8-K as filed on August 1,
2003.
|
(10)
|
Incorporated
by reference to the Report on Form 8-K/A as filed on February 20,
2004.
|
(11)
|
Incorporated
by reference to the definitive Information Statement on Schedule
14C as filed on August 20,
2004.
|
(12)
|
Incorporated
by reference to the Report on Form 8-K as filed on April 5,
2005.
|
(13)
|
Incorporated
by reference to the definitive Information Statement on Schedule14C
as filed on April 4,
2005.
|
(14)
|
Incorporated
by reference to Amendment No. 1 to the Report on Form 8-K/A
as filed on February 20,
2004.
|
(15)
|
Incorporated
by reference to the Report on Form 8-K as filed on July 23,
2004.
|
(16)
|
Incorporated
by reference to the registration statement on Form SB-2, SEC file
number 333-126898,
as amended.
|
(17)
|
Incorporated
by reference to our Annual Report on Form 10-KSB as filed on January 18,
2006.
|
(18)
|
Incorporated
by reference to the Report on Form 8-K as filed on January 30,
2006.
|
(19)
|
Incorporated
by reference to the registration statement on Form SB-2/A, SEC file
number 333-126898
filed on January 30.
2006.
|
(20)
|
Incorporated
by reference to the Report on Form 8-K as filed on June 22,
2006.
|
(21)
|
Incorporated
by reference to the Report on Form 8-K as filed on January 3,
2008.
|
(22)
|
Incorporated
by reference to the Report on Form 8-K as filed on December 1,
2008.
|
(23)
|
Incorporated
by reference to the Report on Form 8-K as filed on April 15,
2009.
|
(24)
|
Incorporated
by reference to the Report on Form 8-K as filed on July 31,
2009.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant had duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ICEWEB,
INC.
|
|
|
|
December
29, 2009
|
By:
|
/s/
John R. Signorello
|
|
John
R. Signorello, Chairman and Chief Executive Officer, principal
executive
officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ John R. Signorello
|
|
Chairman
of the Board and CEO, principal
|
|
December
29, 2009
|
John
R. Signorello
|
|
executive
officer |
|
|
|
|
|
|
|
/s/ Mark B. Lucky
|
|
Chief
Financial Officer, principal financial
|
|
December
29, 2009
|
Mark
B. Lucky
|
|
and
accounting officer |
|
|
|
|
|
|
|
/s/ Hal Compton
|
|
Director
|
|
December
29, 2009
|
Hal
Compton
|
|
|
|
|
|
|
|
|
|
/s/ Raymond H. Pirtle, Jr.
|
|
Director
|
|
December
29, 2009
|
Raymond
H. Pirtle, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Joseph Druzak
|
|
Director
|
|
December
29, 2009
|
Joseph
Druzak
|
|
|
|
|
|
|
|
|
|
/s/ Jack Bush
|
|
Director
|
|
December
29, 2009
|
Jack
Bush
|
|
|
|
|
|
|
|
|
|
/s/ Harry E. Soyster
|
|
Director
|
|
December
29, 2009
|
Harry
E. Soyster
|
|
|
|
|