United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-27865
ICEWEB INCORPORATED
DELAWARE 13-2640971
(STATE OF INCORPORATION) (I.R.S. ID)
620 HERNDON PARKWAY, SUITE 360, HERNDON, VA 20170
(703) 964-8000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 39,771,924 issued and
outstanding at April 30, 2004.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
ICEWEB INCORPORATED
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2004
INDEX
PART I Financial Information
Item 1. Financial Statements ..................................................4
Unaudited Consolidated Balance Sheet as at March 31, 2004..........4
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 2004 and March 31, 2003 ....................5
Unaudited Consolidated Statements of Operations for the six
months ended March 31, 2004 and March 31, 2003 ....................6
Unaudited Consolidated Statements of Cash Flows for the
six months ended March 31, 2004 and March 31, 2003 ................7
Notes to Unaudited Consolidated Financial Statements ..............8
Item 2. Management's Discussion and Analysis or Plan of Operation ............10
Item 3. Controls and Procedures .............................................12
OTHER INFORMATION ....................................................13
PART II Signatures ...........................................................14
2
FORWARD-LOOKING STATEMENTS
This Quarterly Report and related documents include "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements expressed or implied by
such forward looking statements not to occur or be realized. Such forward
looking statements generally are based upon the Company's best estimates of
future results, performance or achievement, based upon current conditions and
the most recent results of operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue," or similar terms,
variations of those terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as: our high level of
indebtedness and ability to satisfy the same, our history of unprofitable
operations, the continued availability of financing in the amounts, at the times
and on the terms required, to support our future business and capital projects,
the extent to which we are successful in developing, acquiring, licensing or
securing patents for proprietary products, changes in economic conditions
specific to any one or more of our markets, changes in general economic
conditions, our ability to produce and install product that conforms to contract
specifications and in a time frame that meets the contract requirements, and the
other factors and information disclosed and discussed in other sections of this
report. Investors and shareholders should carefully consider such risks,
uncertainties and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could cause actual
results to differ materially from those provided in the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
3
PART I
ITEM 1. Financial Statements
Iceweb, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
March 31, 2004
(Unaudited)
Current Assets:
Cash $239,544
Accounts receivable, net 981,577
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Total current assets 1,221,121
Property and equipment, net 90,912
Goodwill 718,353
Deposits 12,665
Due from related party 21,261
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Total assets $2,064,312
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Liabilities and stockholders' equity
Current liabilities:
Deferred revenue $38,060
Accounts payable 1,002,947
Accrued expenses 75,491
Notes payable - related parties 453,411
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Total current liabilities 1,569,909
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Stockholders' equity:
Common stock, par value $.001 39,772
100,000,000 shares authorized, 39,771,924 issued and outstanding
Additional paid in capital 3,199,900
Accumulated deficit (2,719,269)
Subscription receivable (26,000)
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Total stockholders' equity 494,403
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Total liabilities and stockholders' equity $2,064,312
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See accompanying notes to consolidated financial statements
4
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31, March 31,
2004 2003
(Unaudited) (Unaudited)
----------- -----------
Revenue $1,623,358 $13,054
Cost of Sales 1,223,282 2,625
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Gross Profit 400,076 10,429
Operating Expenses:
Marketing & Selling 59,349 3,964
Research & Development 71,670
General and Administrative 438,349 82,965
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Total Operating Expense 569,368 86,929
Operating Loss (169,292) (76,500)
Interest Expense (10,976) (9,601)
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Net Loss ($180,268) ($86,101)
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Basic & Diluted Loss per common share ($0.00) ($0.00)
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Weighted average common shares outstanding 38,775,553 30,744,465
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See accompanying notes to consolidated financial statements
5
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
March 31, March 31,
2004 2003
(Unaudited) (Unaudited)
-------------------------
Revenue $3,148,716 $32,865
Cost of Sales 2,226,064 10,746
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Gross Profit 922,652 22,119
Operating Expenses:
Marketing & Selling 96,209 12,024
Research & Development 127,670
General and Administrative 827,158 195,434
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Total Operating Expense 1,051,037 207,458
Operating Loss (128,385) (185,339)
Interest Expense (21,952) (9,597)
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Net Loss ($150,337) ($194,936)
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Basic & Diluted Loss per common share ($0.00) ($0.01)
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Weighted average common shares outstanding 38,482,777 30,526,237
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See accompanying notes to consolidated financial statements
6
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended
March 31, March 31,
2004 2003
(Unaudited) (Unaudited)
----------- -----------
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NET CASH USED IN OPERATING ACTIVITIES ($177,853) ($88,982)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (66,679)
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NET CASH USED IN INVESTING ACTIVITIES (66,679)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to related parties (27,156) (9,635)
Proceeds from related parties 79,538
Common Stock issued for cash 255,000
Proceeds from the exercise of common stock options 72,380 97,310
Increase in cash overdraft (7,703)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 379,762 79,972
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NET INCREASE (DECREASE) IN CASH 135,230 (9,010)
CASH - beginning of period 104,314 9,010
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CASH - end of period $239,544
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See accompanying notes to consolidated financial statements
7
ICEWEB, INC and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
MARCH 31, 2004
Note 1--Basis of Presentation
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustment) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual Report for the year ended
September 30, 2003, which is included in the Company's Form 10-KSB for the year
ended September 30, 2003. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Note 2--Related Parties
The Company has a note payable to John R. Signorello, the Chairman and CEO, for
$163,000 plus accrued interest of approximately $ 32,000. This note bears
interest at a rate of 12.5% per annum and is due on-demand. Other
Stockholders/Employees have loans totaling $227,186 plus accrued interest of
approximately $ 32,000. Of this amount, $150,000 bears interest at a rate of
12.5% per annum and is due on-demand. The remaining $77,186 bears zero interest
and is due on or before December 31, 2004.
Note 3 - Common Stock & Stock Options
The Company sold 925,000 shares to accredited investors for $185,000 exempt from
registration pursuant to Section 4(2). The investors were sophisticated and had
access to the consolidated financial statements of the corporation. The Company
issued 1,290,000 stock options to employees under the Company's stock option
plan.
During March 2004, the Company granted options to purchase 150,000 shares of
common stock to employees recognizing $27,000 in compensation expense.
8
Note 4 - Stock Options
Stock option activity during the period is indicated as follows:
Options
Available Exercise
for Grant Options Price
Balance, September 30, 2003 6,098,000 3,902,000 .08 - .40
Granted 3,940,996 .35 - .40
Exercised (160,000) .20
Forfeited -
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Balance, December 31, 2003 2,157,004 7,682,996
Granted 1,290,000 .18 - .39
Exercised (565,000) .12 - .20
Forfeited -
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Balance, March 31, 2004 867,004 8,407,996
================================================================================
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123") and SFAS No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS
148") requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS 123 specifies certain valuation techniques
that produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Company's Statement
of Operations, because Accounting Principles Board Opinion 25, "Accounting for
Stock issued to Employees" specifies that no compensation charge arises when the
price of the employees' stock options equal the market value of the underlying
stock at the grant date, as in the case of options granted to the Company's
employees.
Pro forma results are as follows for the three months ended March 31, 2004:
Actual net loss (180,268)
SFAS 123 Compensation Cost 76,694
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Pro forma net loss (256,962)
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Pro forma basic and diluted net loss per share (0.01)
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The following weighted
average assumptions were used:
Risk free interest rate 3%
Expected dividends 0
Volatility factor 101%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's optons.
9
Note 5 - Accounts Receivable
Accounts receivable consist of normal trade receivables. The Company assesses
the collectibility of its accounts receivable regularly. Based on the most
recent assessment, we recorded bad debt expense of $35,970 in the period ending
March 31, 2004. This was an old receivable carried forward from one of the
companies acquired last fiscal year and management believes that all remaining
receivables are fully collectable.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS or PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
IceWEB markets proprietary software products and integration services. The
software's first version began shipping in 2001. The Company also launched an
e-learning portal in 2002. Prior to this year the Company had significant
problems generating revenue and was forced to scale the Company back after
September 2001. In 2003, the business of IceWEB started on an upswing. We
acquired two companies that provide liquidity from contracts stemming from two
large customers. We do not believe the contracts are in jeopardy but the loss of
those contracts could impair our positive momentum. In the past we incurred
substantial operating losses. A substantial part of the losses was acquired from
prior acquisitions and the reverse merger in 2002. The Company currently is
operating at break even but will need additional outside funding to sustain the
current growth. The Company believes with additional financing, increased sales
and marketing and a release of the next version of software, it will be able to
generate positive cash flow. Over the course of the year, expenses were in line
with budget, and expect to be in line again in 2004.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the U.S. Securities
and Exchange Commission encourages all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our consolidated financial statements include a summary of the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. Management believes the following critical
accounting policies affect the significant judgments and estimates used in the
preparation of the financial statements.
Revenue Recognition - revenues are recognized at the time of shipment of the
respective products and/or services. Our Company includes shipping and handling
fees billed to customers as revenues. Costs of sales include outbound freight.
Use of Estimates - Management's discussion and analysis of financial condition
and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, management
evaluates these estimates, including those related to allowances for doubtful
accounts receivable and the carrying value of inventories and long-lived assets.
Management bases these estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis of making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
10
(a) Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability. The requirements of this Statement apply to issuers'
classification and measurement of freestanding financial instruments. This
Statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. For nonpublic entities, mandatorily
redeemable financial instruments are subject to the provisions of this Statement
for the first fiscal period beginning after December 15, 2003.
The following discussion should be read together with the information contained
in the financial statements and related notes included elsewhere in this report.
RESULTS OF OPERATIONS
Net revenues - for the three months ended March 31, 2004, we generated revenues
of $1,623,358 compared to $13,054 the comparative period in 2003. An increase of
12,335%. Sales for the three months ending March 31, 2004 were higher than the
previous quarter and higher than the same quarter for the previous fiscal year.
For the six months ended March 31, 2004, we generated revenues of $3,148,716
compared to $32,865 the comparative period in 2003. An increase of 9,481%. The
primary reason for this was an increase in contract sales as well as
successfully integrated acquisitions.
Marketing and Selling - our selling and marketing expense consists of personnel
costs, including commissions, public relations, advertising, marketing programs,
lead generation, travel and trade shows. Marketing and selling costs increased
from $3,964 for the three months ended March 31, 2003 to $59,349 for the three
months ended March 31, 2004, an increase of $55,385 or 1,397%. This increase was
the result of additional marketing personnel, trade show events, online web
marketing, advertising and print advertising.
General and administrative expense - our general and administrative expense
consists primarily of personnel costs, rent, legal, accounting, human resources,
telecommunications, office supplies and corporate governance and compliance.
General and administrative expense increased from $82,965 for the three months
ended March 31, 2003 to $466,684 for the three months ended March 31, 2004 an
increase of $ 383,719 or 462%. The primary reason for this increase was do to
acquisitions relating to increases in personnel costs and other fixed expenses.
Overall, our loss per share was ($.004) for the three months ended March 31,
2004.
As we continue to implement our plan of operation, we expect general and
administrative expenses to remain nearly flat and actually decrease as a
percentage of sales due to the process efficiencies we have already put in
place.
In order to provide sufficient working capital to fund our growing operation, we
will be required to raise additional capital to fund these anticipated costs.
There are no assurances that we will be able to obtain the additional capital in
which event our future operations would be materially and adversely affected.
11
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our operating and investing activities have used more cash than
they have generated. Because of the continued need for substantial amounts of
working capital to fund the growth of the business and to pay our operating
expenses, we expect to continue to experience negative operating and investing
cash flows for the foreseeable future. We expect to see a substantial increase
in software sales over the next few months, which would have a positive effect
on the operating cash flow, but due to the current uncertainty of the software
revenues it is likely that our existing working capital will not be sufficient
to fund the continued implementation of our plan of operation during the next 12
months and to meet our capital commitments and general operating expenses. We
are unable to predict at this time the exact amount of additional working
capital we will require, however, in order to provide any additional working
capital which we may require, we will in all likelihood be required to raise
additional capital through the sale of equity or debt securities. We currently
have no commitments to provide us with any additional working capital. If we do
not have sufficient working capital to implement our plan of operation described
above, it is likely that we will cease operations. The cash balance at March 31,
2004 was $239,544.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, they concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing and disclosing information needed to
satisfy the Company's disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
12
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and small business issuer purchases of equity
securities
During the second quarter of the Fiscal year, the Company made isolated sales to
accredited investors of shares of our common stock. The Company raised a total
of $180,000 pursuant to individually negotiated agreements with accredited
investors who were sophisticated, had access to relevant information about
IceWEB and acquired these shares for investment.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 31.1 Certification pursuant to Section 302
Exhibit 32.1 Certification pursuant to Section 906
b) Reports on Form 8-K
8K filed on 2-17-04 pursuant to Item 4.
8K filed on 2-18-04 pursuant to Items 7, and 9
8K filed on 2-20-04 pursuant to Items 4, 7, and 9
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ICEWEB Inc.
Dated: May 18, 2004 By: /s/ John R. Signorello
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John R. Signorello,
Chairman and CEO
14